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 September 30, 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 September 30, 1993, as set forth on the pages
attached hereto:
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 6. Exhibits and Reports on form 8-K
American Rice, Inc.
-------------------
Registrant
Date: July 19, 1994 Richard N. McCombs
------------------
Executive Vice-President
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
(Note A)
(Thousands of Dollars)
(Unaudited)
September 30 March 31,
1993 1993
--------- ---------
ASSETS
Current assets:
Cash $2,661 $2,740
Accounts receivable 27,392 17,692
Inventories
Raw materials 21,055 3,546
Finished goods 12,076 7,884
Prepaid expenses 888 819
Deferred income taxes 1,693 0
--------- ---------
Total current assets 65,765 32,681
Investment in American Rice, Inc. 0 13,104
Net assets of Houston property held for sale 18,768 433
Other assets 18,606 5,614
Receivable from related party 10,468 12,059
Property, plant and equipment, net 43,424 10,434
--------- ---------
Total assets $157,031 $74,325
========= =========
Continued on next page
See Notes to Consolidated Financial Statements
Page 1<PAGE>
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Note A)
(Thousands of Dollars)
(Unaudited)
September 30 March 31,
1993 1993
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $22,404 $25,121
Accounts payable and accrued expenses 25,646 12,883
Income taxes payable 400 0
Current portion of long-term and
subordinated debt 5,860 160
--------- ---------
Total current liabilities 54,310 38,164
Long-term debt 59,308 21,578
Subordinated debt 1,094 1,094
Deferred income taxes 4,562 0
Minority interest 33 790
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 0 13,597
Retained earnings (deficit) 6,839 (188)
Cumulative foreign currency translation
adjustments (723) (720)
--------- ---------
Total stockholders' equity 37,724 12,699
--------- ---------
Total liabilities and stockholders' equity $157,031 $74,325
======== =======
See Notes to Consolidated Financial Statements
Page 2<PAGE>
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note A)
(Thousands of Dollars)
(Unaudited)
Three Months Six Months
Ended September 30, Ended September 30,
1993 1992 1993 1992
--------- -------- --------- ---------
Net sales $70,346 $42,271 $107,129 $102,402
Cost of sales 60,981 39,809 94,085 96,637
--------- -------- --------- ---------
Gross profit 9,365 2,462 13,044 5,765
Selling, general and
administrative expenses 5,695 2,204 7,760 3,570
Interest expense 2,308 1,427 4,132 2,771
Interest income (202) (341) (469) (945)
Minority interest 8 (27) 7 17
Other (income) expense 32 (536) 480 (380)
(Gain) loss from investment
in American Rice, Inc. 0 (480) (426) (491)
Write-down of plant
facility (Note E) 0 4,000 0 4,000
--------- -------- --------- ---------
Earnings before taxes
and extraordinary items 1,524 (3,785) 1,560 (2,777)
Income tax expense 547 1 695 1
--------- -------- --------- ---------
Earnings (loss) before
extraordinary items 977 (3,786) 865 (2,778)
Extraordinary items
Gain on debt restructuring,
net of taxes (A & E) 0 4,726 9,318 4,726
--------- -------- --------- ---------
Net earnings $977 $940 $10,183 $1,948
========= ======== ========= =========
Earnings applicable
to common stock ($505) $8,207
========= =========
Continued on next page
See Notes to Consolidated Financial Statements
Page 3<PAGE>
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Note A)
(Thousands of Dollars)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
--------- ---------
Primary earnings (loss) per
applicable common and
common equivalent share
(Note C):
Earnings (loss) before
extraordinary item ($0.04) ($0.07)
Extraordinary item 0.00 0.58
--------- ---------
Net earnings ($0.04) $0.51
========= =========
Fully diluted earnings (loss)
per applicable common and
common equivalent share:
(Note C):
Earnings before
extraordinary item ($0.04) $0.02
Extraordinary item 0.00 0.26
--------- ---------
Net earnings ($0.04)* $0.28
========= =========
* Anti-dilutive
See Notes to Consolidated Financial Statements
Page 4<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended September 30, 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 10,183 0 10,183
Foreign currency
translation adjustments 0 0 0 0 (3) (3)
Issue preferred stock
Series C 1,500 0 0 (1,500) 0 0
American Rice, Inc.
acquisition 17,889 12,209 (13,597) (1,656) 0 14,845
--------- -------- --------- --------- --------- ---------
Balance September 30, 1993 $19,389 $12,219 $0 $6,839 ($723) $37,724
========= ======== ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 5<PAGE>
AMERICAN RICE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note A)
(Thousands of Dollars)
(Unaudited)
Six Months
Ended September 30,
1993 1992
--------- ---------
OPERATING ACTIVITIES:
Net earnings $10,183 $1,948
Adjustments to reconcile net income to net cash
provided by (used in) in operating activities:
Depreciation and amortization 2,171 1,049
(Gain) loss on sale of property 366 0
(Gain) on debt restructuring (9,318) 0
Income from equity investment
in American Rice, Inc. (426) (491)
Extraordinary income on disposal of rice
facility 0 (4,726)
Write-down of rice facility 0 4,000
(Increase) decrease in accounts receivable (3,674) 9,049
(Increase) decrease in inventories 1,365 13,079
(Increase) decrease in prepaid expenses 216 (1,209)
(Increase) decrease in other assets (3,689) (352)
Increase (decrease) in accounts payable
and accrued expenses (4,316) (9,040)
Other, net 546 18
--------- ---------
Net cash provided by (used in)
operating activities (6,576) 13,325
INVESTING ACTIVITIES:
Property, plant and equipment additions (249) (647)
Proceeds from sales of assets 2,901 0
Cash acquired in acquisition of
American Rice, Inc. 12,608 0
--------- ---------
Net cash provided by (used in)
investing activities 15,260 (647)
FINANCING ACTIVITIES:
Increase (decrease) in notes payable (18,068) (9,115)
Proceeds from issuance of long-term debt 65,300 0
Repayment of long-term debt (55,995) (1,002)
Repayment of subordinated debt 0 0
Net collection of long-term receivables 0 (88)
--------- ---------
Net cash provided by (used in)
financing activities (8,763) (10,205)
--------- ---------
NET INCREASE (DECREASE) IN CASH (79) 2,473
CASH:
Beginning of the period 2,740 1,057
--------- ---------
End of the period $2,661 $3,530
========= =========
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
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 documentation contains
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
Page 8<PAGE>
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
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 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-convertible and non-voting, has a liquidation
Page 9<PAGE>
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.
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.
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 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. 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 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".
Page 10<PAGE>
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 Six Months
Ended September 30, Ended September 30,
1993 1992 1993 1992
-------- -------- -------- --------
Net Sales $ 70,346 $ 65,981 $133,932 $164,031
Earnings Before
Extraordinary Items $ 1,523 $ 1,618 $ 2,254 $ 2,618
Earnings (loss) Per Share Before
Extraordinary Items:
Primary $ - $ 01 $ (.06) $ (.03)
Fully Diluted $ -* $ .01* $ (.06)* $ (.03)*
*Anti-dilutive
C. Summary of Significant Accounting Policies
OPERATIONS - ARI is involved in all phases of rice processing (including the
processing of parboiled rice, regular milled rice, instant rice and rice by-
products), packaging and marketing. These rice products are sold in the
international and domestic markets directly by ARI through many distribution
channels under a variety of brands. The distribution channels in the
international market vary from country to country. ARI markets its rice
products internationally by selling them 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 six month period ending
September 30, 1993 totaled $96.5 million. There were no borrowings on notes in
the six month period ending September 30, 1992. Repayments on notes during the
same periods totaled $114.6 million and $9.1 million, respectively. ARI made
cash payments for interest and financing fees of approximately $3.5 million
and $2.8 million during the six months ended September 30, 1993 and 1992,
respectively.
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 ARI's management to sell the
Houston Property.
Management believes that the net realizable value of the Houston 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.
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 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 six
month periods ended September 30, 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 September 30, 1993 and $1,976 thousand for
the period from May 27, 1993 to September 30, 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
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
Page 12<PAGE>
dividends.
D. Notes Payable, Long-Term Debt, and Subordinated Debt
Long-term and subordinated debt consisted of the following (thousands of
dollars):
September 30, March 31,
1993 1993
-------- ---------
Chase, INB and TCB $63,900 $20,470
Other notes 2,362 2,362
-------- ---------
66,262 22,832
Less current maturities 5,860 160
-------- ---------
$60,402 $22,672
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,
$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.
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
Page 13<PAGE>
default on certain of its debt covenants. These conditions raise substantial
doubt about ERLY's ability to continue as a going concern.
ARI has capitalized approximately $4.3 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.
E. Extraordinary Item - Periods Ending September 30, 1992
Operating results for the periods ended September 30, 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 six months ended September 30,
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 periods in the
prior fiscal year.
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results Of Operations
Three Months Ended September 30, 1993 Compared to Three Months Ended September
30, 1992
Sales for 1993 of $70.3 million increased $28.1 million from the prior year
due to $21.2 million in export sales increases and $6.9 million in domestic
sales increases. Estimated ARI sales included in 1993 as a result of the
Transaction amounted to approximately $35.3 million including $19.5 million
export and $15.8 million domestic.
Export sales increased due to higher volume and higher average prices. Total
Page 14<PAGE>
export sales volume increased approximately 2.2 million equivalent rough rice
cwt. due to 1.6 million cwt. in increases as a result of the Transaction and
higher export volume to the Caribbean. Total average milled rice prices
increased 4%.
In addition to sales added by the Transaction, domestic sales increased due to
higher average prices. Average domestic milled rice sales prices increased
due to the higher value-added retail sales from the ARI customer base.
Gross profit was 13 percent of sales for 1993 and 6 percent of sales for 1992,
increasing $6.9 million from the prior period. ARI sales included in 1993 as
a result of the Transaction contributed approximately $6.2 million. Gross
profit on other domestic sales increased $575 thousand. Gross profit on other
export sales was about the same as the prior year.
Selling, general and administrative expense of $5.7 million increased $3.5
million due primarily to advertising and selling expenses associated with the
higher value-added sales from the ARI customer base.
Interest expense of $2.3 million increased $881 thousand 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.
Page 15<PAGE>
Six Months Ended September 30, 1993 Compared to Six Months Ended September 30,
1992
Sales for 1993 of $107.1 million increased $4.7 million or 5 percent from the
prior year. Estimated ARI sales included in 1993 as a result of the
Transaction amounted to $49 million including $24 million export and $25
million domestic.
Gross profit was 12 percent of sales for 1993 and 6 percent of sales for 1992.
Gross profit increased $7.3 million, more than doubling the 1992 level. ARI
sales contributed approximately $7.7 million. Gross profit on other domestic
sales increased $900 thousand, while gross profit on other export sales
declined $1.3 million.
Selling, general and administrative expense of $7.8 million increased $4.2
million due primarily to advertising and selling expenses associated with the
higher value added sales from the ARI customer base.
Interest expense of $4.1 million increased $1.4 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 periods ended September 30, 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 six months ended September 30,
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
Page 16<PAGE>
debt which was recorded as extraordinary income for the periods in the
prior fiscal year.
The $9.3 million extraordinary item in the six months ended September 30, 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 September 30, 1993, working capital was approximately $11.5 million and the
current ratio was 1.2 to 1.
ARI's cash of $2.7 million at September 30, 1993 was about the same as March
31, 1993. Cash increased by approximately $2.5 million during the six months
ended September 30, 1992, as a result of positive operating results and
decreases in inventory and receivables levels partially offset by decreases in
accounts and notes payable.
The ratio of long-term and subordinated debt to total capital structure was 62
percent at September 30, 1993 versus 64 percent at March 31, 1993. The
increase is a result of the Refinancing referred to in Note A.
Capital expenditures were $249 thousand, and $647 thousand for the six months
ended September 30, 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.
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. ARI management does not
believe that the new lenders will accelerate repayment of outstanding loans or
Page 17<PAGE>
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 $4.3 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, the Board of Directors of ARI authorized
management to market the Houston property in order to improve liquidity. The
proceeds from such sale, when and if it occurs, would be required to reduce
debt in accordance with the term loan agreements. 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
(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).
Page 18<PAGE>
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).
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.
Page 19<PAGE>
(b) Reports on Form 8-K filed during the quarter ended June 30, 1993:
Filing on June 9, 1993 reported the consummation of the Transaction on May 26,
1993. Filing on June 22, 1993 included exhibits filed in connection with the
form 8-K filed on June 9, 1993.
- - --------------------
* Filed herewith
Page 20<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Three Months Six Months
Ended September Ended September
30, 1993 30, 1993
-------- ---------
PRIMARY EARNINGS PER SHARE
Earnings before extra. items $977 $865
Extraordinary item 0 9,318
-------- ---------
Net earnings 977 10,183
Less dividends on preferred stock:
Series B (1,294) (1,726)
Series C (188) (250)
-------- ---------
Earnings per share applicable to
common stock ($505) $8,207
======== ========
Average common and common 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 ($0.04) ($0.07)
Extraordinary item 0.00 0.58
-------- ---------
Earnings (loss) per share
applicable to common stock ($0.04) $0.51
======== ========
* Anti-dilutive
Continued on next page
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Three Months Six Months
Ended September Ended September
30, 1993 30, 1993
-------- ---------
FULLY DILUTED EARNINGS PER SHARE
Earnings before extra. items $977 $865
Extraordinary item 0 9,318
--------- ---------
Net earnings 977 10,183
Less dividends on preferred stock:
Series B (1,294) 0
Series C (188) (250)
--------- ---------
Earnings applicable to
common stock ($505) $9,933
========= =========
Average common and common equivalent
shares outstanding:
Common 12,219 12,219
Preferred Series A 0* 3,889
Preferred Series B 0 * 19,432
--------- ---------
12,219 35,540
========= =========
Fully diluted earnings per share:
Earnings before
extraordinary item ($0.04) $0.02
Extraordinary item 0.00 0.26
--------- ---------
Earnings per share applicable
to common stock ($0.04)* $0.28
========= =========
* Anti-dilutive
