SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended December 31, 1993
Commission File Number 0-17039
American Rice, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Texas 76-0231626
------------------------------- -----------------------------------
(State or other Jurisdiction of (I.R.S Employer Identification No.)
Incorporation or Organization)
16825 Northchase, Suite 1500
Houston, Texas 77060
--------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(713) 873-8800
-----------------------------
Registrant's Telephone Number
Including Area Code
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Quarterly Report on Form 10-Q
for the three months ended December 31, 1993, as set forth on the pages
attached hereto:
Item 1. Financial Statements
Item 6. Exhibits and Reports on form 8-K
American Rice, Inc.
-------------------
Registrant
Date: June 17, 1994 Richard N. McCombs
------------------
Executive Vice-President
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
(Thousands of Dollars)
(Unaudited)
December 31 March 31,
1993 1993
--------- ---------
ASSETS
Current assets:
Cash $971 $2,740
Accounts receivable 33,030 17,692
Inventories
Raw materials 36,801 3,545
Finished goods 25,170 7,885
Prepaid expenses 841 819
Deferred income taxes 3,393 0
--------- ---------
Total current assets 100,206 32,681
Investment in American Rice, Inc. 0 13,104
Net assets of Houston property held for sale 18,768 0
Other assets 18,128 6,047
Receivable from related party 10,611 12,059
Property, plant and equipment, net 42,754 10,434
--------- ---------
Total assets $190,467 $74,325
========= =========
Continued on next page
See Notes to Consolidated Financial Statements
Page 1<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Note A)
(Thousands of Dollars)
(Unaudited)
December 31 March 31,
1993 1993
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $34,444 $25,121
Accounts payable and accrued expenses 45,883 12,883
Income taxes payable 270 0
Current portion of long-term and
subordinated debt 5,960 160
--------- ---------
Total current liabilities 86,557 38,164
Long-term debt 57,648 21,578
Subordinated debt 1,094 1,094
Deferred income taxes 6,620 0
Minority interest 51 790
Stockholders' equity:
Preferred stock, $1.00 par value; 20,000,000
shares authorized;
Series A- 3,888,889 convertible shares issued
and outstanding, liquidation preference
of $5.14 per share 3,889 0
Series B- 14,000,000 convertible shares issued
and outstanding 14,000 0
Series C- 1,500,000 shares issued
and outstanding 1,500 0
Common stock, $1.00 par value; 50,000,000
shares authorized; 12,219,461 shares
issued and outstanding 12,219 0
Common stock, $1 par value, 10,000 shares
authorized 0 10
Additional paid-in capital 3,677 13,597
Retained earnings (deficit) 3,941 (188)
Cumulative foreign currency translation
adjustments (729) (720)
--------- ---------
Total stockholders' equity 38,497 12,699
--------- ---------
Total liabilities and stockholders' equity $190,467 $74,325
======== =======
See Notes to Consolidated Financial Statements
Page 2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note A)
(Thousands of Dollars)
(Unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
1993 1992 1993 1992
--------- --------- --------- ---------
Net sales $89,061 $30,925 $196,190 $133,327
Cost of sales 80,228 29,556 174,313 126,193
--------- --------- --------- ---------
Gross profit 8,833 1,369 21,877 7,134
Selling, general and
administrative expenses 5,041 2,280 12,801 5,850
Interest expense 2,694 1,239 6,826 4,010
Interest income (160) (395) (629) (1,340)
Minority interest 18 (6) 25 11
Other (income) expense 43 (296) 523 (676)
(Gain) loss from investment
in American Rice, Inc. 0 (1,349) (426) (1,840)
Write-down of plant
facility (Note E) 0 0 0 4,000
--------- --------- --------- ---------
Earnings before taxes
and extraordinary items 1,197 (104) 2,757 (2,881)
Income tax expense 418 0 1,113 1
--------- --------- --------- ---------
Earnings (loss) before
extraordinary items 779 (104) 1,644 (2,882)
Extraordinary items
Gain on debt restructuring,
net of taxes (Notes A & 0 0 9,318 4,726
--------- --------- --------- ---------
Net earnings (loss) $779 ($104) $10,962 $1,844
========= ========= ========= =========
Earnings (loss) applicable
to common stock ($703) $7,502
========= =========
Continued on next page
See Notes to Consolidated Financial Statements
Page 3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Note A)
(Thousands of Dollars)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, 1993 December 31, 1993
--------- ---------
Primary earnings (loss) per
applicable common and
common equivalent share
(Note C):
Earnings before
extraordinary items ($0.06) ($0.11)
Extraordinary items 0.00 0.58
--------- ---------
Net earnings (loss) ($0.06) $0.47
========= =========
Fully diluted earnings (loss)
per applicable common and
common equivalent share
(Note C):
Earnings before
extraordinary items ($0.06) $0.03
Extraordinary items 0.00 0.24
--------- ---------
Net earnings (loss) ($0.06) $0.27
========= =========
See Notes to Consolidated Financial Statements
Page 4<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended December 31, 1993
(Note A)
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Cumulative
Foreign Total
Additional Retained Currency Stock -
Preferred Common Paid-in Earnings Translation Holders'
Stock Stock Capital (Deficit) Adjustments Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1993 $0 $10 $13,597 ($188) ($720) $12,699
Net earnings 0 0 0 10,962 0 10,962
Foreign currency
translation adjustments 0 0 0 0 (9) (9)
Issue preferred stock
Series B 14,000 0 (14,000) 0 0 0
Issue preferred stock
Series C 1,500 0 (1,500) 0 0 0
American Rice, Inc.
acquisition 3,889 12,209 5,580 (6,833) 0 14,845
--------- --------- --------- --------- --------- ---------
Balance December 31, 1993 $19,389 $12,219 $3,677 $3,941 ($729) $38,497
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 5<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note A)
(Thousands of Dollars)
(Unaudited)
Nine Months
Ended December 31,
1993 1992
--------- ---------
OPERATING ACTIVITIES:
Net earnings $10,962 $1,844
Adjustments to reconcile net income to net cash
provided by (used in) in operating activities:
Depreciation and amortization 3,626 1,321
(Gain) loss on sale of property 357 0
(Gain) on debt restructuring (9,318) 0
Income from equity investment
in American Rice, Inc. (426) (1,840)
Extraordinary income on disposal of rice
facility 0 (4,726)
Write-down of rice facility 0 4,000
(Increase) decrease in accounts receivable (9,456) 12,390
(Increase) decrease in inventories (27,475) 16,133
(Increase) decrease in prepaid expenses 263 (990)
(Increase) decrease in other assets (3,700) (452)
Increase (decrease) in accounts payable
and accrued expenses 15,921 (9,287)
Increase (decrease) in deferred taxes 774 0
--------- ---------
Net cash provided by (used in)
operating activities (18,472) 18,393
INVESTING ACTIVITIES:
Property, plant and equipment additions (537) (184)
Proceeds from sales of assets 2,915 0
Cash acquired in acquisition of
American Rice, Inc. 12,608 0
--------- ---------
Net cash provided by (used in)
investing activities 14,986 (184)
FINANCING ACTIVITIES:
Increase (decrease) in notes payable 19,837 (14,870)
Proceeds from execution of notes 14,000 0
Repayment of notes (39,865) 0
Proceeds from issuance of long-term debt 65,300 0
Repayment of long-term debt (57,555) (1,646)
Repayment of subordinated debt 0 0
Net collection of long-term receivables 0 0
--------- ---------
Net cash provided by (used in)
financing activities 1,717 (16,516)
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,769) 1,693
CASH:
Beginning of the period 2,740 1,057
--------- ---------
End of the period $971 $2,750
========= =========
See Notes to Consolidated Financial Statements
Page 6<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Note A)
(Thousands of Dollars)
(Unaudited)
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
In connection with the reverse acquisition of ARI by Comet
(including push down accounting), net assets and equity
were increased by $3,077
=========
Preferred Stock Series B was issued to ERLY Industries Inc. $14,000
=========
As part of financing activities, Preferred Stock Series C
was issued to ARI's former lenders $1,500
=========
As part of financing activities, ERLY issued notes payable
to ARI's former lenders and the benefit received was offset
against receivables owed to ARI by ERLY $3,000
=========
See Notes to Consolidated Financial Statements
Page 7<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation:
The financial statements presented herein are unaudited and therefore are
subject to year-end adjustments; however, all adjustments which are, in the
opinion of management necessary for a fair statement of the financial
position, results of operations and cash flows for the periods covered have
been made and are of a normal, recurring nature. The results of the interim
period are not necessarily indicative of results for the full year.
For additional information relative to operations and financial position,
reference is made to ARI's Annual Report on Form 10-K and Form 10-K/A for the
fiscal year ended March 31, 1993.
On May 26, 1993, American Rice, Inc. ("ARI") consummated a transaction to
acquire substantially all of the assets of Comet Rice, Inc. ("Comet") and
assume all of Comet's liabilities ("Transaction"). Comet was a wholly-owned
subsidiary of ERLY Industries Inc. ("ERLY"). The Transaction is accounted for
as a reverse acquisition of ARI by ERLY through its subsidiary, Comet.
Because Comet is the acquirer for accounting purposes, the financial
statements presented for prior periods are those of Comet, not ARI. In
addition, the operating results for the period April 1, 1993 through the date
of the Transaction, May 26, 1993, reflect those of Comet, not ARI. Operating
results thereafter reflect the combined operations of Comet and ARI.
A. Acquisition and Refinancing
On May 26, 1993, ARI consummated a transaction to acquire substantially all of
the assets of Comet and assume all of Comet's liabilities. Comet was a
wholly-owned subsidiary of ERLY, a company listed on Nasdaq.
In exchange for the assets acquired from Comet, ARI issued to Comet 14,000,000
shares of a newly created Series B $1 par value preferred stock. Each share
of Series B Preferred Stock provides for annual cumulative, non-participating
dividends of $.37, is convertible into two shares of ARI common stock, is
entitled to two votes, and has a liquidation preference of $1.00 per share.
The Series B Preferred Stock issued to Comet carries an aggregate dividend of
approximately $5.2 million per year. Applicable loan agreements contain
various restrictions on the ability of ARI to pay such dividends and ARI is
currently precluded from paying the dividends. The assets acquired by ARI did
not include any of the ARI stock previously held by Comet. Comet's combined
holdings of ARI common stock and ARI Series A preferred stock, prior to the
transaction, represented approximately 48 percent of the voting power of the
outstanding ARI stock. As a result of the Transaction, Comet held 81 percent
of the combined voting power of ARI stock outstanding after the Transaction.
In connection with the Transaction, ERLY has succeeded to the ARI stock held
Page 8<PAGE>
by Comet by the liquidation of Comet.
Since ERLY, the sole shareholder of Comet at the time of the Transaction,
owned the larger portion of the voting rights in the surviving corporation,
the Transaction is accounted for as a reverse acquisition of ARI by ERLY
through its subsidiary, Comet, reflecting the change of control which
occurred. The fair value of ARI was estimated to be approximately $35 million
based upon a valuation study by an investment banker. The accounting consists
of two steps: Step one consists of a recognition by ARI of ERLY's historical
cost of it's original 48% interest. When ERLY purchased 48% of ARI in 1988
for $20 million, the purchase price was greater than 48% of ARI stockholders'
equity. ERLY attributed the excess to ARI's 39 acres of land in Houston and
thus the excess ($5.2 million) would be "pushed down" or added to the book
value of the Houston property with a corresponding increase in equity. Step
two recognizes the step acquisition by ERLY of an additional equity interest
in ARI of approximately 33 percent,
in exchange for substantially all of the assets of Comet and all of Comet's
liabilities. ARI's assets are valued at fair market value to the extent
acquired. The assets of Comet have not been revalued.
Because Comet is the acquirer for accounting purposes, financial statements
for prior years are those of Comet, not ARI. In addition, the operating
results for the period April 1, 1993 through the date of the Transaction, May
26, 1993 reflect those of Comet, not ARI. Operating results thereafter
reflect the combined operations of Comet and ARI.
The consummation of the Transaction included receipt of a fairness opinion
from an investment banker concluding that the Transaction was fair to the non-
Comet shareholders of ARI. A mutual release of all claims, prior to the
Transaction, was also signed between ARI, ERLY, Comet and ARI's former
lenders.
ARI also refinanced the combined indebtedness of ARI and Comet
("Refinancing"). For most of the fiscal years ending March 31, 1993 and 1992,
ARI was engaged in negotiations with its lenders to effect a restructuring of
its indebtedness. ARI received $47.5 million in credit lines from a new
revolving credit lender, Congress Financial Corporation ("Congress"), and
loans from new term lenders for $65.3 million. The new term lenders are Chase
Manhattan Bank (National Association) ("Chase"), Internationale Nederlanden
Bank, N.V. ("INB"), and Texas Commerce Bank National Association ("TCB"). As
partial consideration for the new financing, ARI issued warrants to these
lenders to purchase up to 776,000 shares of ARI's common stock at $1.00 per
share. As additional consideration, 13 million shares of ARI Series B $1 par
value preferred stock were pledged by ERLY for the benefit of the new term
lenders. ARI issued to the former lenders a combined total of 1,500,000
shares of a newly created Series C Preferred Stock, each of which carries
annual cumulative, non-participating dividends of $.50 per share, is non-
Page 9<PAGE>
convertible and non-voting, has a liquidation preference of $1.00 per share,
and is callable by ARI at any time at a price of $5.27 per share less
aggregate dividend payments per share. Applicable loan documentation with the
new lenders contains various restrictions on the ability of ARI to pay these
dividends and ARI is currently precluded from paying the dividends. ARI's
former lenders agreed to a debt discount in the approximate amount of $10.5
million. As additional consideration for the satisfaction of the existing
indebtedness of ARI, one million shares of ARI Series B Preferred Stock were
pledged by ERLY and ERLY issued $3 million of notes for the benefit of the
former lenders. This $3 million was offset by ARI against its receivable from
ERLY. Included in "Other assets" at December 31, 1993 is $3.9 million of costs
associated with the Refinancing.
ERLY incurred substantial consolidated losses in each of the years ended March
31, 1993 and 1992 and had a consolidated working capital deficit and a
consolidated deficiency in assets at March 31, 1993. In addition, ERLY is in
default on certain of its debt covenants. These conditions raise substantial
doubt about ERLY's ability to continue as a going concern. However, as a
result of the Transaction and subsequent operations, ERLY stockholders' equity
as of September 30, 1993 was $1.7 million. In addition, ERLY recently
announced the sale of the assets of its ERLY Juice and Worldmark subsidiaries.
This sale reduced debt and improved working capital at ERLY.
ARI's new term and revolving debt agreements require ERLY to guarantee the
debt of ARI even though ARI management believes that ERLY will not be a source
of additional financing to ARI. These agreements provide the lenders with the
option of accelerating repayment of the ARI debt and terminating the
agreements under certain conditions related to ERLY's ability to meet its
obligations as they come due, and to remain in compliance with its debt
agreements.
Debt of ERLY includes 12.5 percent Subordinated Sinking Fund Debentures with
an outstanding principal balance of $8.9 million, which matured on December 1,
1993. A proposal was made by ERLY to the debenture holders to extend the
maturity date through 2002 providing for amortization of the remaining amount
through an annual sinking fund provision. ERLY announced in March 1994, that
93 percent of the debenture holders have agreed to the exchange. At this time,
there is no assurance that ERLY will be able to satisfactorily exchange the
remaining debentures. ARI management does not believe that the new lenders
will accelerate repayment of outstanding loans or terminate the agreements
based on ERLY's financial condition or ERLY's ability to comply with debt
covenants. However, if the new lenders were to take such actions, ARI
management believes that ARI would be able to repay and/or replace such debt
and borrowing capacity as these obligations become due without impacting ARI's
ability to continue as a going concern.
Prior to the Transaction, ARI's common stock was listed on Nasdaq as a
National Market ("NM") company. As a result of the issuance of the Series B
preferred stock in the Transaction, with its voting power of two votes per
share, ARI terminated its status as a NM company, and was listed on Nasdaq as
a "Small Capitalization Company." On September 15, 1993, NASDAQ delisted
Page 10<PAGE>
ARI's common stock for failure to file timely the Form 10-Q report for the
quarter ended June 30, 1993. Subsequently, ARI was approved to be listed for
trading on the "OTC Bulletin Board".
B. Pro Forma Results
Operating results reflected in the accompanying financial statements do not
include ARI's operating activities prior to May 26, 1993, the date of the
Transaction. See Note A to the financial statements. The following summarized
pro forma information assumes the Transaction occurred on April 1, 1993 and
April 1, 1992, respectively (thousands of dollars, except per share):
Three Months Nine Months
Ended December 31, Ended December 31,
1993 1992 1993 1992
-------- -------- -------- --------
Net Sales $ 89,061 $ 74,098 $222,993 $238,129
Earnings Before
Extraordinary Items $ 779 $ 1,208 $ 2,248 $ 3,826
Earnings (loss) Per Share Before
Extraordinary Items:
Primary $ (.06) (.02) $ (.18) $ (.05)
Fully Diluted $ (.06)* (.02)* $ (.18)*$ (.05)*
*Anti-dilutive
C. Summary of Significant Accounting Policies
OPERATIONS - ARI is involved in all phases of rice processing, packaging and
marketing. Products include regular milled rice, parboiled rice, instant rice,
rice flour, and rice by-products. These products are sold in international
and domestic markets through many distribution channels under a variety of
brands. The distribution channels in international markets vary from country
to country. ARI markets its rice products internationally by direct sales to
government agencies and commercial importers, and through wholesalers and
international brokers.
INVENTORIES - Inventories of raw materials and finished goods are accounted
for by the first-in, first-out cost method, or market, if lower. Inventories
of supplies and parts are accounted for by the first-in, first-out cost
method, or market, if lower.
STATEMENTS OF CASH FLOWS - Borrowings on notes in the nine month period ended
December 31, 1993 totaled $182 million. Repayments on notes during the same
period totaled $177 million. ARI made cash payments for interest and
financing fees of approximately $5.2 million during the nine months ended
December 31, 1993. ARI has paid $344 thousand for federal and state income
taxes during the nine months ended December 31, 1993.
Page 11<PAGE>
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation is provided by the straight-line and declining-balance
methods based on the estimated useful lives of the various classes of
property, which range from 10 to 45 years for buildings and improvements, 5 to
25 years for machinery and equipment, 5 to 12 years for transportation
equipment, and 3 to 12 years for furniture and fixtures.
Expenditures for maintenance and repairs are charged to expense as incurred.
HOUSTON PROPERTY - During the year ended March 31, 1991, ARI's Board of
Directors adopted a resolution authorizing it's management to sell the Houston
Property. Management believes that the net realizable value of this property
exceeds its carrying value.
TRADEMARKS - Trademarks are being amortized on a straight-line basis over
forty years.
FEDERAL INCOME TAXES - ARI expects to file a consolidated tax return with
ERLY. ERLY allocates current and deferred tax expenses to ARI by applying
SFAS No. 109 to ARI as if ARI were a separate taxpayer. Under SFAS No. 109,
income taxes are recognized for (a) the amount of taxes payable or refundable
for the current year, and (b) deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. The effects of income taxes are measured
based on enacted tax law and rates. In years prior to 1993, deferred taxes
were accounted for in accordance with Accounting Principles Board Opinion No.
11.
In August 1993, the President signed into law a bill that includes, among
other provisions, a one percent increase in the statutory Federal income tax
rate for corporations, retroactive to January 1, 1993. ARI was not required
to record any additional income tax expense as a result of this income tax
rate change.
EARNINGS PER SHARE - The computation of earnings per common share is based on
the earnings available to holders of common shares and the weighted average
number of common shares outstanding during the periods presented. Current
financial accounting standards prohibit the inclusion of common stock
equivalents and contingent common stock issues in the computation of earnings
per share when their inclusion would increase earnings per share or decrease
the loss per share ("antidilution"). Earnings per share are not presented for
the three and nine month periods ended December 31, 1992 because Comet was a
100% owned subsidiary of ERLY. Details of the earnings per share calculations
are provided in Exhibit 11.1
Earnings applicable to common stock reflect dividends, in the amount of $1,482
thousand for the three months ended December 31, 1993 and $3,460 thousand for
the period from May 27, 1993 to December 31, 1993, on the ARI Series B
Preferred Stock and Series C Preferred Stock. These dividends are cumulative
and have not been declared by ARI. The annual cumulative dividend on the ARI
Page 12<PAGE>
Series B Preferred Stock is $.37 per share, or $5.18 million and the annual
cumulative dividend on the ARI Series C Preferred Stock is $.50 per share or
$750 thousand. The loan agreement with Congress prohibits the payment of any
dividends.
On October 29, 1993, ARI's Board of Directors approved, subject to
shareholders approval, a 5 to 1 reverse stock split for all issues of
preferred stock and common stock. Since ERLY owns 81% of the voting stock and
has indicated that it will vote for the proposal, it is expected to be
approved. Upon consummation of the reverse stock split, primary and fully
diluted earnings per common share will be retroactively restated as follows:
Three Months Nine Months
Ended December 31, Ended December 31,
1993 1993
------------- --------------
Primary:
Earnings before
extraordinary item $ (.29) $ (.56)
Extraordinary item - 2.89
------- -------
Net Earnings (loss) $ (.29) $ 2.33
Fully diluted:
Earnings before
extraordinary item $ (.29) $ .16
Extraordinary item - 1.21
-------- -------
Net Earnings (loss) $ (.29) $ 1.37
D. Notes Payable, Long-Term Debt, and Subordinated Debt
Long-term and subordinated debt at December 31, 1993 consisted of the
following (thousands of dollars):
Chase, INB and TCB $ 62,500
Other notes 2,202
---------
64,702
Less current maturities 5,960
---------
$ 58,742
As part of the Refinancing, ARI received $47.5 million in credit lines from a
new revolving credit lender, Congress, and loans from new term lenders, Chase,
INB and TCB, for $65.3 million. The $47.5 million credit line with Congress
expires on May 23, 1995, carries an interest rate of prime plus 2 percent,
requires all ARI cash receipts to be paid to Congress as payment on the loan,
requires collateral reports to be prepared frequently by ARI to support
requests for borrowing, and is collateralized by receivables, inventory, cash,
Page 13<PAGE>
$2 million key man life insurance on Gerald D. Murphy, and junior liens on ARI
assets pledged to the new term lenders.
The $65.3 million term loans mature on December 31, 1997 with $4.2 million due
by March 31, 1994, $5.9 million due in the year ended March 31, 1995, $6
million due in the year ended March 31, 1996, $19.1 million due in the year
ended March 31, 1997 and $30.1 million due in the year ended March 31, 1998.
Interest rates range from prime plus 3 percent to prime plus 5 percent through
May 31, 1995, increasing from a range of prime plus 6 percent to prime plus 8
percent by 1997. Terms of the loans restrict dividend payments, investments,
capital expenditures and require maintenance of certain working capital
levels, leverage and net worth. At December 31, 1993, ARI was not in
compliance with certain of the required financial ratios included in the
original debt covenants due to an unexpected 58 percent increase in raw
product inventory costs of rice during the preceding quarter. Working capital
leverage (current liabilities divided by working capital) exceeded the
requirement in the financial covenants. Subsequent to the end of the quarter,
the term lenders agreed to a waiver of the default and to adjust the working
capital leverage covenant. A comparison of the current financial covenants
and the Company's actual financial ratios is presented below (dollars in
thousands):
Financial Covenant Actual as of 12/31/93
--------------------- ---------------------
Net Book Value Greater than $25,546 $38,497
Working Capital (Adjusted) Greater than 7,986 $13,284
Financial Leverage Less Than 4.8 to 1 3.95 to 1
Working Capital Leverage Less Than 8.0 to 1 6.52 to 1
Coverage Ratio Greater Than 1.0 to 1 1.21 to 1
These loans are collateralized by substantially all of ARI's fixed assets and
trademarks, and have junior liens on collateral for the credit lines.
ERLY is a guarantor for all of the ARI debt, and the loan agreements contain
certain restrictive covenants applicable to ERLY. This guaranty of ERLY was a
condition of the new financing. Consequently, the ARI debt contains cross
default provisions with the debt of ERLY.
ERLY incurred substantial consolidated losses in each of the years ended March
31, 1993 and 1992 and had a consolidated working capital deficit and a
consolidated deficiency in assets at March 31, 1993. In addition, ERLY is in
default on certain of its debt covenants. These conditions raise substantial
doubt about ERLY's ability to continue as a going concern. However, as a
result of the Transaction and subsequent operations, ERLY stockholders' equity
as of September 30, 1993 was $1.7 million. In addition, ERLY recently
announced the sale of the assets of its ERLY Juice and Worldmark subsidiaries.
This sale reduced debt and improved working capital at ERLY.
ARI has capitalized approximately $3.9 million in connection with obtaining
the new credit lines and term loans. The capitalized costs include attorney
fees, bank fees, advisor fees, appraisal costs, and other professional fees.
Page 14<PAGE>
E. Extraordinary Item - Nine Months Ending December 31, 1992
Operating results for the nine months ended December 31, 1992 include the sale
through foreclosure of Comet's Greenville, Mississippi rice mill in July,
1992. Due to continuing operating losses resulting from low margins and
uncertainty about future U.S. rice exports, Comet ceased payments in January
1992 on a $16 million non-recourse obligation secured by its rice plant in
Greenville, Mississippi. In July 1992, the facility was sold through
foreclosure sale and in conjunction therewith, the Company eliminated debt of
$16 million and the related property, plant and equipment. The disposition of
the facility was accounted for in accordance with: (1) Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings, " and (2) Emerging Issues Task Force Issue No. 91-2,
"Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse
Mortgage."
These guidelines require a two-step approach in accounting for the
disposition. Prior to the disposition, the plant was written down by
$4,000,000 to its estimated fair market value. This writedown is included in
results of operations prior to taxes on income and extraordinary items in the
consolidated statements of operations for the nine months ended December 31,
1992. Secondly, the difference between the estimated fair market value of the
facility and the amount of debt extinguished (net of estimated shut-down and
relocation expenses) resulted in a gain of $4,726,000 on the extinguishment of
debt which was recorded as extraordinary income for the nine months in the
prior fiscal year.
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
On May 26, 1993, ARI consummated a transaction to acquire substantially all of
the assets of Comet and assume all of Comet's liabilities. Comet was a wholly-
owned subsidiary of ERLY. The Transaction is accounted for as a reverse
acquisition of ARI by ERLY through its subsidiary, Comet.
Because Comet is the acquirer for accounting purposes, financial statements
for prior years are those of Comet, not ARI. In addition, the operating
results for the period April 1, 1993 through the date of the Transaction, May
26, 1993 reflect those of Comet, not ARI. Operating results thereafter
reflect the combined operations of Comet and ARI.
Results Of Operations
Three Months Ended December 31, 1993 Compared to Three Months Ended December
31, 1992
Sales for 1993 of $89.1 million increased $58.1 million from the prior year
due to $30.6 million in export sales increases and $27.5 million in domestic
sales increases. Estimated ARI sales included in 1993 as a result of the
Transaction amounted to $43.2 million including $21.3 million export and $21.9
Page 15<PAGE>
million domestic.
Export sales increased due to higher volume and higher average prices. Total
export sales volume increased approximately 2.4 million equivalent rough rice
cwt., a 56 percent increase, due to 1.6 million cwt. in increases as a result
of the Transaction and higher export volume from the Stuttgart, Arkansas
facility. Total average milled rice prices increased 24 percent due to a
higher proportion of branded sales as a result of the Transaction and higher
prices on unbranded commodity sales.
In addition to sales added by the Transaction, domestic sales increased due to
higher average prices. Average domestic milled rice sales prices increased 55
percent due to the higher value-added retail sales from the ARI customer base.
Market prices of rough rice approximately doubled in the three month period
ending December 31, 1993. In response to this increase in raw material costs,
ARI increased prices in some markets during the quarter. In other markets,
however, forward sales commitments delayed price increases until late in the
quarter.
Gross profit was 10 percent of sales for 1993 and 4 percent of sales for 1992,
increasing $7.5 million from the prior period. ARI sales included in 1993 as
a result of the Transaction contributed approximately $4.6 million. Gross
profit on other domestic sales increased $1.3 million, while gross profit on
other export sales increased $1.6 million.
The overall effect of the increase in rough rice prices on ARI's gross profit
is thought to be small although it is difficult to calculate. The potential
negative impact of the higher rough rice prices on ARI's gross profits was
mitigated by substantial inventories acquired at lower price levels and the
ability to quickly increase prices in some markets offsetting the negative
impact from forward sales commitments at lower price levels in other markets.
Selling, general and administrative expense of $5.0 million increased $2.8
million due primarily to advertising and selling expenses associated with the
higher value-added sales from the ARI customer base.
Interest expense of $2.7 million increased $1.5 million due to higher average
rates and balances. Interest expenses in both periods include legal and other
expenses associated with the debt.
Investment income in American Rice, Inc. ceased when the Transaction occurred.
Nine Months Ended December 31, 1993 Compared to Nine Months Ended December 31,
1992
Sales for 1993 of $196.2 million increased $62.9 million or 47 percent from
the prior year due to $41.1 million in export sales increases and $21.8
million in domestic sales increases. Estimated ARI sales included in 1993 as
a result of the Transaction amounted to $89.6 million including $46.6 million
export and $43 million domestic.
Page 16<PAGE>
Export sales increased due to higher volume and higher average prices. Total
export sales volume increased approximately 4 million equivalent rough rice
cwt., a 62 percent increase, due primarily to 3.7 million cwt. in increases as
a result of the Transaction. Total average milled rice export prices
increased 4 percent due to a higher proportion of branded sales as a result of
the Transaction partially offset by price declines of 13 percent on unbranded
commodity sales.
Domestic sales added by ARI in 1993 included $2 million in rough rice sales
versus none in the prior year. The increase in domestic sales from the
Transaction is partially offset by lower sales from the Greenville,
Mississippi facility disposed of in July 1992. Average domestic milled rice
sales prices increased 24 percent due primarily to the higher value-added
retail sales from the ARI customer base.
Gross profit was 11 percent of sales for 1993 and 5 percent of sales for 1992.
Gross profit increased $14.8 million, more than doubling the 1992 level. ARI
sales contributed approximately $14.9 million. Gross profit on other domestic
sales increased $1.0 million, while gross profit on other export sales
declined $1.1 million.
Selling, general and administrative expense of $12.8 million increased $7
million due primarily to advertising and selling expenses associated with the
higher value added sales from the ARI customer base.
Interest expense of $6.8 million increased $ 2.8 million due to higher average
rates and balances. Interest expenses in both periods include legal and other
expenses associated with the debt.
Interest income declined primarily due to lower average balances on ERLY
notes.
Investment income in American Rice, Inc. ceased when the Transaction occurred.
Operating results for the nine months ended December 31, 1992 include the sale
through foreclosure of Comet's Greenville, Mississippi rice mill in July,
1992. Due to continuing operating losses resulting from low margins and
uncertainty about future U.S. rice exports, Comet ceased payments in January
1992 on a $16 million non-recourse obligation secured by its rice plant in
Greenville, Mississippi. In July 1992, the facility was sold through
foreclosure sale and in conjunction therewith, the Company eliminated debt of
$16 million and the related property, plant and equipment. The disposition of
the facility was accounted for in accordance with: (1) Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings, " and (2) Emerging Issues Task Force Issue No. 91-2,
"Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse
Mortgage."
These guidelines require a two-step approach in accounting for the
disposition. Prior to the disposition, the plant was written down by
Page 17<PAGE>
$4,000,000 to its estimated fair market value. This writedown is included in
results of operations prior to taxes on income and extraordinary items in the
consolidated statements of operations for the nine months ended December 31,
1992. Secondly, the difference between the estimated fair market value of the
facility and the amount of debt extinguished (net of estimated shut-down and
relocation expenses) resulted in a gain of $4,726,000 on the extinguishment of
debt which was recorded as extraordinary income for the nine months in the
prior fiscal year.
The $9.3 million extraordinary item in the nine months ended December 31, 1993
is the after-tax gain on the debt discount from ARI's former lenders. See note
A to the financial statements.
Liquidity and Capital Resources
At December 31, 1993, working capital was approximately $14 million and the
current ratio was 1.16 to 1. At March 31, 1993, current liabilities exceeded
current assets by approximately $5.5 million.
Cash decreased by $1.7 million during the nine months ended December 31, 1993,
as a result of cash used by operating activities, capital expenditures and
debt reductions associated with the Refinancing offset by cash received as a
result of the Transaction and positive earning results for the period. Cash
increased by approximately $1.7 million during the nine months ended December
31, 1992.
The ratio of long-term and subordinated debt to total capitalization was 57
percent at December 31, 1993 versus 63 percent at March 31, 1993. The
increase is a result of the Refinancing referred to in Note A.
Capital expenditures were $537 thousand and $184 thousand for the nine months
ended December 31, 1993 and 1992, respectively. Future capital expenditures
are expected to be funded with internally generated funds.
In connection with the Refinancing, an agreed upon payoff of all of the loans
to ARI's existing lenders was included. The amounts due the credit line banks
and Rabobank's $13.3 million loan were paid in full. The other term lenders
received approximately $21 million in cash, 1,500,000 shares of a newly
designated Series C preferred stock $1.00 par value, $3 million in notes
payable by ERLY, (which note amounts were offset against ARI's receivable from
ERLY), a pledge by ERLY of one million shares of ARI Series B preferred stock,
and $1.3 million National Bank for Cooperatives stock. In addition, these
other term lenders agreed to a debt discount of approximately $10.5 million,
which is net of the $3 million note from ERLY.
ARI's new term and revolving debt agreements require ERLY to guarantee the
debt of ARI even though ARI management believes that ERLY will not be a source
of additional financing to ARI. These loan agreements contain certain
restrictive covenants applicable to ERLY. This guaranty by ERLY was a
condition of the new financing. Consequently, the ARI new debt contains cross
default provisions with the debt of ERLY.
Page 18<PAGE>
These agreements also provide the lenders with the option of accelerating
repayment of the ARI debt and terminating the agreements under certain
conditions related to ERLY's ability to meet its obligations as they come due,
and to remain in compliance with its debt agreements.
Debt of ERLY includes 12.5 percent Subordinated Sinking Fund Debentures with
an outstanding principal balance of $8.9 million, which matured on December 1,
1993. A proposal was made by ERLY to the debenture holders to extend the
maturity date through 2002 providing for amortization of the remaining amount
through an annual sinking fund provision. ERLY announced in March 1994, that
93 percent of the debenture holders have agreed to exchange. At this time,
there is no assurance that ERLY will be able to satisfactorily exchange the
remaining debentures. ARI management does not believe that the new lenders
will accelerate repayment of outstanding loans or terminate the agreements
based on ERLY's financial condition or ERLY's ability to comply with debt
covenants. However, if the new lenders were to take such actions, ARI
management believes that ARI would be able to repay and/or replace such debt
and borrowing capacity as these obligations become due without impacting ARI's
ability to continue as a going concern.
ARI has capitalized approximately $3.9 million in connection with the loan
restructure. The capitalized costs include attorney fees, bank fees, advisor
fees, appraisal costs, and other professional fees. See Note A to the
Financial Statements.
During the year ended March 31, 1991, ARI's Board of Directors adopted a
resolution authorizing it's management to sell the Houston Property.
Management believes that the net realizable value of this property exceeds its
carrying value.
During the fiscal year ended March 31, 1993, ARI took the property off the
market until after the Transaction occurred in order to allow ARI to market
the property in a more deliberate fashion.
Management has had conversations with developers interested in the property.
No decision has yet been made about how to remarket the property.
Management's intention is an orderly, outright sale to a third party rather
than to develop the property. However, ARI might consider some form of joint
venture with a developer in order to maximize the property's value. ARI has
the ability and intent to hold the property over a normal marketing period.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The lawsuit instigated by certain of ARI's lenders against ARI, Comet, and
ERLY Juice Inc., as reported in previous filings, was terminated in connection
with the Transaction. See Part I, Note A to Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
Page 19<PAGE>
(a) Exhibits
4.1 Articles of Incorporation of ARI, as amended (incorporated by reference
to Exhibit No. 3.1 to ARI's Form 8-K filed June 22, 1993).
4.2 Bylaws of ARI, as amended (incorporated by reference to Exhibit No. 4.3
to ARI's Annual Report on Form 10-K for the fiscal year ended March 31, 1990).
4.3 Forms of Stock Certificate of ARI representing the Common Stock and the
Preferred Stock (incorporated by reference to Exhibit No. 4.1 to ARI's
Registration Statement on Form S-1, Registration No. 33-25197).
4.4 Loan Agreement dated December 1, 1985, between Brazos Harbor Industrial
Development Corporation and Predecessor ARI (incorporated by reference to
Exhibit No. 4.4 to ARI's Registration Statement on Form S-1, Registration No.
33-18105).
4.5 Trust Indenture dated December 1, 1985, between Brazos Harbor Industrial
Development Corporation and Texas Commerce Bank N.A. governing the issuance of
Variable Rate Demand Marine Terminal Revenue Bonds (incorporated by reference
to Exhibit No. 4.5 to ARI's Registration Statement on Form S-1, Registration
No. 33-18105).
4.6 Ground Lease dated June 6, 1985, between Brazos River Harbor Navigation
District and Predecessor ARI (incorporated by reference to Exhibit No. 10.1 to
ARI's Registration Statement on Form S-1, Registration No. 33-18105).
4.7 Asset Purchase Agreement dated March 23, 1993, as amended between ARI,
ERLY and Comet (incorporated by reference to Exhibit 2.1 to ARI's Form 8-K
filed June 22, 1993).
4.8 Management Agreement dated May 25, 1993, between ERLY and ARI
(incorporated by reference to Exhibit No. 4.1 to ARI's Form 8-K filed June 22,
1993).
4.9 Tax Agreement dated May 25, 1993, among ARI, ERLY and Comet (incorporated
by reference to Exhibit No. 4.2 to ARI's Form 8-K filed June 22, 1993).
4.10 Credit and Guarantee Agreement dated March 24, 1993, among ARI, ERLY,
the Subsidiary Guarantors (as defined therein) and The Chase Manhattan Bank
(National Association) ("Chase") as Administrative Agent (incorporated by
reference to Exhibit No. 4.3 to ARI's Form 8-K filed June 22, 1993).
4.11 Warrant Agreement dated May 24, 1993, between Chase and ARI
(incorporated by reference to Exhibit No. 4.4 to ARI's Form 8-K filed June 22,
1993).
4.12 Warrant Agreement dated May 24, 1993, between TCB and ARI (incorporated
by reference to Exhibit No. 4.5 to ARI's Form 8-K filed June 22, 1993).
Page 20<PAGE>
4.13 Accounts Financing Agreement dated May 24, 1993, between ARI and
Congress Financial Corporation (incorporated by reference to Exhibit No. 4.6
to ARI's Form 8-K filed June 22, 1993).
4.14 Lease dated October 1, 1974, as amended April 9, 1979, by and between
Colusa-Glenn Drier Company and Comet (incorporated by reference to Exhibit No.
4.7 to ARI's Form 8-K filed June 22, 1993).
11.1 Computation of Earnings Per Share.
(b) During the quarter ended December 31, 1993, Registrant did not file any
Form 8-K Reports.
- - - --------------------
* Filed herewith
Page 21<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Three Months Nine Months
Ended December Ended December
31, 1993 31, 1993
-------- ---------
PRIMARY EARNINGS PER SHARE
Earnings before extarordinary i $779 $1,644
Extraordinary item 0 9,318
-------- ---------
Net earnings 779 10,962
Less dividends on preferred stock:
Series B (1,294) (3,022)
Series C (188) (438)
-------- ---------
Earnings (loss) per share applicable to
common stock ($703) $7,502
======== ========
Average common and comon equivalent
shares outstanding:
Common 12,219 12,219
Preferred Series A 0 * 3,889
-------- ---------
12,219 16,108
======== ========
Primary earnings per share:
Earnings (loss) before
extraordinary item ($0.06) ($0.11)
Extraordinary item 0.00 0.58
-------- ---------
Earnings (loss) per share applicable
to common stock ($0.06) $0.47
======== ========
* Anti-dilutive
Continued on next page
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Three Months Nine Months
Ended December Ended December
31, 1993 31, 1993
-------- ---------
FULLY DILUTED EARNINGS PER SHARE
Earnings before extraordinary i $779 $1,644
Extraordinary item 0 9,318
--------- ---------
Net earnings 779 10,962
Less dividends on preferred stock:
Series B (1,294) 0
Series C (188) (438)
--------- ---------
Earnings (loss) applicable to
common stock ($703) $10,524
========= =========
Average common and comon equivalent
shares outstanding:
Common 12,219 12,219
Preferred Series A 0 * 3,889
Preferred Series B 0 * 22,298
--------- ---------
12,219 38,407
========= =========
Fully diluted earnings per share:
Earnings (loss) before
extraordinary item ($0.06) $0.03
Extraordinary item 0.00 0.24
--------- ---------
Earnings (loss) per share applicable
to common stock ($0.06) $0.27
========= =========
* Anti-dilutive
