SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended June 30, 1995
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 1600
Houston, Texas 77060
Address of Principal Executive Offices) (Zip Code)
(713) 873-8800
Registrant's Telephone Number,
Including Area Code
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 [ ]
The number of shares outstanding of the registrant's common stock, $1
par value, as of August 1, 1995 is 2,443,892 shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months
Ended June 30,
1995 1994
----------------------
Net sales $86,392 $105,706
Cost of sales 76,855 94,383
----------------------
Gross profit 9,537 11,323
Selling, general and
administrative expenses 5,771 5,272
----------------------
Operating income 3,766 6,051
Interest expense 3,398 2,898
Interest income (175) (171)
Minority interest (135) 61
Other income and expense 91 73
----------------------
Earnings before income taxes 587 3,190
Provision for income taxes 211 1,180
----------------------
Net earnings $376 $2,010
======================
Preferred stock dividend
requirements 1,483 1,483
----------------------
Net earnings (loss) applicable
to common stock ($1,107) $527
======================
Earnings (loss) per applicable
common and common equivalent
share (Note 3):
Primary ($.45) $.16
======================
Fully diluted ($.45) $.16
======================
See Notes to Consolidated Financial Statements
Page 1<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
June 30, March 31,
1995 1995
----------------------
ASSETS (Unaudited)
Current assets:
Cash $2,742 $1,864
Accounts receivable, net 22,167 33,423
Inventories
Finished goods 21,108 17,108
Raw materials 24,920 33,097
Prepaid expenses 1,061 793
Deferred income taxes 3,451 3,451
----------------------
Total current assets 75,449 89,736
Net assets of Houston properties held for sale 18,767 18,767
Other assets 15,447 15,710
Receivable from ERLY 12,157 11,901
Property, plant and equipment, net 41,885 41,386
----------------------
Total assets $163,705 $177,500
======================
Continued on next page
See Notes to Consolidated Financial Statements
Page 2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Thousands of Dollars, except per share amounts)
June 30, March 31,
1995 1995
----------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $30,500 $33,937
Accounts payable and accrued expenses 25,264 34,372
Income taxes payable to ERLY 937 1,037
Current portion of long-term debt 6,727 6,727
----------------------
Total current liabilities 63,428 76,073
Long-term debt 47,073 48,573
Deferred income taxes 8,616 8,616
Minority interest - 26
Stockholders' equity (Note 3):
Preferred stock, $1.00 par value; 4,000,000
shares authorized;
Series A- 777,777 convertible shares issued
and outstanding, liquidation preference
of $19,989 778 778
Series B- 2,800,000 convertible shares issued
and outstanding, liquidation preference
of $14,000 2,800 2,800
Series C- 300,000 shares issued
and outstanding, liquidation preference
of $1,500 300 300
Common stock, $1.00 par value; 10,000,000
shares authorized; 2,443,892 shares
issued and outstanding 2,444 2,444
Paid-in capital 25,286 25,286
Retained earnings 13,728 13,352
Cumulative foreign currency translation
adjustments (748) (748)
----------------------
Total stockholders' equity 44,588 44,212
----------------------
Total liabilities and stockholders' equity $163,705 $177,500
======================
See Notes to Consolidated Financial Statements
Page 3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months
Ended June 30,
1995 1994
----------------------
OPERATING ACTIVITIES:
Net earnings $376 $2,010
Adjustments to reconcile net earnings to net cash
provided by (used in) in operating activities:
Depreciation and amortization 1,398 1,424
Loss on sales of property - 6
Deferred income taxes, net - 983
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable 11,256 1,310
Inventories 4,177 21,517
Prepaid expenses (268) (213)
Other assets (212) 2
Receivable from ERLY (256) (158)
Accounts payable and accrued expenses (9,108) (11,784)
Income taxes payable to ERLY (100) (156)
----------------------
Net cash provided by
operating activities 7,263 14,941
INVESTING ACTIVITIES:
Property, plant and equipment additions (1,422) (1,625)
Proceeds from sales of assets - 1
----------------------
Net cash used in
investing activities (1,422) (1,624)
FINANCING ACTIVITIES:
Decrease in notes payable (3,437) (11,362)
Repayment of long-term debt (1,500) (1,400)
Other, net (26) 60
----------------------
Net cash used in
financing activities (4,963) (12,702)
----------------------
NET INCREASE IN CASH 878 615
CASH:
Beginning of the period 1,864 1,721
----------------------
End of the period $2,742 $2,336
======================
See Notes to Consolidated Financial Statements
Page 4<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended June 30, 1995
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Foreign Total
Additional Currency Stock -
Preferred Common Paid-in Retained Translation Holders'
Stock Stock Capital Earnings Adjustments Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1995 $3,878 $2,444 $25,286 $13,352 ($748) $44,212
Net earnings - - - 376 - 376
--------- --------- --------- --------- --------- ---------
Balance June 30, 1995 $3,878 $2,444 $25,286 $13,728 ($748) $44,588
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 5<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The consolidated financial statements presented herein at June 30, 1995
and for the three month periods ended June 30, 1995 and 1994 are
unaudited; however, all adjustments which are, in the opinion of
management necessary for a fair presentation 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
periods are not necessarily indicative of results for the full year.
The consolidated balance sheet at March 31, 1995 is derived from the
March 31, 1995 audited consolidated financial statements but does not
include all disclosures required by generally accepted accounting
principles. Although management believes the disclosures are adequate,
certain information and disclosures normally included in the notes to
the financial statements has been condensed or omitted as permitted by
the rules and regulations of the Securities and Exchange Commission.
These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in American
Rice, Inc.'s ("ARI") Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
2. Notes Payable and Long-Term Debt
ARI executed an amendment to its $47.5 million revolving credit loan,
effective June 30, 1995. The loan bears interest at the prime rate of
interest plus 0.5% and will mature on May 24, 1996. Funds available for
borrowing under this loan at any time may not exceed 85% of eligible
accounts receivable (or 90% of accounts receivable backed by acceptable
letters of credit from customers) and 70% of eligible inventory.
Previously, the interest rate of the loan was prime plus 2.0% and funds
available were limited to 85% of eligible accounts receivable and 60% of
eligible inventory. The outstanding balance on this loan at June 30,
1995 was $26.6 million. At July 2, 1995, the borrowing base under the
line of credit was $32.1 million. During the three months ended June 30,
1995, ARI's maximum borrowing under its $47.5 million line of credit was
$32.4 million.
In fiscal 1997, approximately $17.8 million of ARI's term debt is due to
be repaid, of which $13.3 million is due September 27, 1996. ARI is
currently pursuing various options to refinance this term debt.
ARI is required by its lenders to maintain a minimum net book value,
working capital, and certain financial ratios. ARI was not in
compliance with all such financial ratio requirements as of June 30,
1995. ARI has requested and received waivers from its lenders for ratios
that were not in compliance
Page 6<PAGE>
3. Statement of Cash Flows
Borrowings under revolving notes in the three months ended June 30, 1995
and 1994 totaled $94.4 and $89.1 million, respectively, and repayments
during the same periods totaled $97.8 and $100.5 million, respectively.
ARI made cash payments for interest and financing fees of approximately
$3.2 million and $2.3 million during the three months ended June 30,
1995 and 1994, respectively. ARI paid $311 thousand and $300 thousand
for federal and state income taxes during the three months ended June
30, 1995 and 1994, respectively.
4. Reverse Stock Split
At a special meeting on September 1, 1994, ARI's shareholders approved a
one-for-five reverse stock split for all issues of preferred and common
stock. Trading on the new basis was effective on September 8, 1994. All
per share information in the financial statements has been adjusted for
this reverse stock split.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results Of Operations
The Company purchases and processes rough rice into branded and
commodity rice for sale in both international and domestic markets.
Demand for branded rice products is relatively constant and margins are
typically higher than those for commodity rice products. Demand for
commodity rice products is relatively constant globally, but demand for
U.S. grown commodity rice is dependent upon supply and its cost relative
to other sources of supply. Supply and costs for both branded and
commodity products depend on many factors including governmental
actions, crop yields and weather, and such factors can persist through
one or more fiscal years.
In general, management believes that it is insulated from many of the
effects of rough rice price fluctuations for the following reasons: (i)
the Company's net sales are proportionately weighted toward the
relatively higher margin branded products, (ii) approximately one-half
of the Company's rough rice purchases, excluding rough rice milled under
contract for others, are made as spot market purchases and matched
against commodity orders at prices providing a favorable margin to
costs, (iii) the Company's high rice inventory turnover rate of
approximately five times per year reduces the Company's exposure to
seasonal price fluctuations, and (iv) the Company's diversity of rice
sources and rice customers increases the ability of the Company to take
advantage of supply and demand imbalances
Page 7<PAGE>
Three Months Ended June 30, 1995 Compared to
Three Months Ended June 30, 1994
Net Sales. Net sales declined $19.3 million, or 18.3%, from $105.7 in
fiscal 1995 to $86.4 in fiscal 1996. Of this decline, $18.0 million
resulted from decreased export sales and $1.3 million from decreased
sales in the U.S. and Canada.
Export sales declined due to lower volume partially offset by higher
average prices. Total export sales volume declined approximately
2.5 million equivalent rough rice hundredweights or 33%, accounting for
a $24.0 million sales decline. Average export prices increased
approximately $2.00 per hundredweight or 12%, accounting for $6.0
million in sales increases. Export volume was lower primarily due to the
lack of sales to Japan compared to the first quarter of the prior year.
It is expected that Japan will not be purchasing rice this year until
October, when it is anticipated to begin purchasing rice pursuant to its
commitment under the General Agreement of Tariffs and Trade ("GATT")
treaty (see discussion of Japan business in following paragraph). This
sales decline was partially offset by higher sales to the Middle East.
Domestic sales were lower as a result of lower average prices partially
offset by higher volume.
ARI's sales to Asia totaled $42.8 million and $50.0 million in the
fiscal years ended March 31, 1994 and 1995, respectively. Japan
accounted for virtually all of ARI's sales to this region. For the
twelve month period ended August 1994, Japan imported 2.4 million metric
tons of rice, including approximately 500,000 metric tons from the U.S.
ARI processed and milled approximately 62% of the tonnage from the U.S.
These rice imports, the first in 25 years by Japan, were necessary due
to adverse weather conditions that materially reduced Japan's 1993 rice
crop. Management believes that the poor rice crop, combined with the
fact that Japan's declining rice production had fallen short of annual
Japanese rice consumption for seven of the last ten harvests, had
depleted Japan's rice stock-pile requiring significant rice imports.
Although this was an unusual occurrence, as a participant of GATT, Japan
is contractually obligated to import 379,000 metric tons (8.4 million
hundredweights) of rice for the twelve month period beginning April 1,
1995 increasing to 758,000 metric tons (17.7 million hundredweights)
annually by the year 2000. Management believes that the Japanese prefer
California grown Calrose variety medium grain rice, that the U.S. has an
excellent opportunity to obtain more than half of these projected
Japanese imports, and that ARI will have a material involvement in this
business based on its participation in fiscal 1994 and 1995.
Gross Profit. Gross profit was 11% of sales for both the fiscal 1995 and
1996 quarters. Gross profit declined $1.8 million, or 15.8%, from $11.3
million in the fiscal 1995 first quarter to $9.5 million in fiscal 1996,
due primarily to lower sales to Japan from ARI's Maxwell, California
facility partially offset by increases in gross profit from Western
Hemisphere and Middle East sales.
Page 8<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $499 thousand, or 9.5% from $5.3
million in the fiscal 1995 quarter to $5.8 million in fiscal 1996. As a
percentage of net sales, selling, general and administrative expenses
increased from 5.0% in the 1995 quarter to 6.7% in fiscal 1996 due
primarily to a higher proportion of branded sales in the 1996 quarter.
Interest Expense. Interest Expense increased $500 thousand from
$2.9 million in the fiscal 1995 period to $3.4 million in fiscal 1996
due to higher average interest rates partially offset by lower average
balances outstanding. Interest expense in both periods includes
amortization of capitalized debt issuance costs.
Liquidity and Capital Resources
ARI requires liquidity and capital primarily for the purchase of rough
rice and to invest in property, plant and equipment necessary to support
operations. Historically, ARI has financed both working capital and
capital expenditure requirements through internally generated funds and
by funds provided by a line of credit.
ARI executed an amendment to its $47.5 million revolving credit loan,
effective June 30, 1995. The loan bears interest at the prime rate of
interest plus 0.5% and will mature on May 24, 1996. Funds available for
borrowing under this loan at any time may not exceed 85% of eligible
accounts receivable (or 90% of accounts receivable backed by acceptable
letters of credit from customers) and 70% of eligible inventory.
Previously, the interest rate of the loan was prime plus 2.0% and funds
available were limited to 85% of eligible accounts receivable and 60% of
eligible inventory. The outstanding balance on this loan at June 30,
1995 was $26.6 million. At July 2, 1995, the borrowing base under the
line of credit was $32.1 million. During the three months ended June 30,
1995, ARI's maximum borrowing under its $47.5 million line of credit was
$32.4 million.
In fiscal 1997, approximately $17.8 million of ARI's term debt is due to
be repaid of which $13.3 million is due September 27, 1996. ARI is
currently pursuing various options to refinance this term debt.
ARI is required by its lenders to maintain a minimum net book value,
working capital, and certain financial ratios. ARI was not in
compliance with all such financial ratio requirements as of June 30,
1995. ARI has requested and received waivers from its lenders for ratios
that were not in compliance.
ARI's Board of Directors previously adopted a resolution authorizing its
management to sell 39 acres of land in Houston, Texas. The proceeds of
any such sale are required by the terms of ARI's debt agreements to be
used to reduce debt. Management believes that the net realizable value
of this property exceeds its current carrying value of $18.3 million.
Cash increased by $878 thousand during the three months ended June 30,
1995 primarily as a result of reductions to accounts receivable and
inventories partially offset by reductions to accounts payable and
Page 9<PAGE>
accrued expenses and notes payable, capital expenditures and term debt
repayment. Cash increased by $615 thousand during the three months ended
June 30, 1994, primarily as a result of positive operating results and
inventory reductions partially offset by repayment of debt and capital
expenditures.
Capital expenditures were $1.4 million and $1.6 million for the three
months ended June 30, 1995 and 1994, respectively and are expected to
average approximately $2.5 million annually through fiscal year 2000 to
maintain the existing level of operations. Management believes this
level of annual capital expenditures is reasonable given the extended
life of machinery and equipment used for the processing and milling of
rice.
The Company intends to satisfy its future capital expenditure and
working capital requirements primarily with cash flow from operations
and from funds available under its existing revolving line of credit.
Management believes that cash flow from operations and the line of
credit will provide sufficient liquidity to enable it to meet its
currently foreseeable working capital and capital expenditure
requirements.
ARI's 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. Consequently, the ARI debt
contains cross default provisions with the debt of ERLY.
ARI's Preferred B and C stock carries annual cumulative, non-
participating dividends of $5.2 million and $750 thousand respectively.
No dividends have been declared or paid as of June 30, 1995. As of June
30, 1995, the Preferred B dividends accumulated but not declared are
$10.8 million and the Preferred C dividends accumulated but not declared
are $1.6 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - none
Item 2. Changes in Securities
At a special meeting on September 1, 1994, ARI's shareholders approved a
one-for-five reverse stock split for all issues of preferred and common
stock. Trading on the new basis was effective on September 8, 1994.
Page 10<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule
(b) During the quarter ended June 30, 1995, Registrant did not file any
Form 8-K Reports.
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.
American Rice, Inc.
-------------------
Registrant
Joseph E. Westover
---------------------------
Vice-President / Controller
Page 11<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars Except Per Share Data)
Three Months
Ended June 30,
1995 1994
----------------------
PRIMARY EARNINGS (LOSS) PER SHARE *
Net earnings $376 $2,010
Less dividends on preferred stock:
Series B (1,295) (1,295)
Series C (188) (188)
----------------------
(1,483) (1,483)
----------------------
Earnings (loss) applicable to
common stock ($1,107) $527
======================
Average common and common
equivalent shares outstanding:
Common 2,444 2,444
Preferred Series A - 778
----------------------
2,444 3,222
======================
Earnings (loss) per share
applicable to common stock ($.45) $.16
======================
* See Note 4 to Consolidated Financial Statements
Continued on next page
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars Except Per Share Data)
Three Months
Ended June 30,
1995 ** 1994 **
----------------------
FULLY DILUTED EARNINGS PER SHARE *
Net earnings $376 $2,010
Less dividends on preferred stock:
Series C (188) (188)
----------------------
Earnings applicable to
common stock $188 $1,822
======================
Average common and common
equivalent shares outstanding:
Common 2,444 2,444
Preferred Series A 778 778
Preferred Series B 5,600 5,600
----------------------
8,822 8,822
======================
Earnings per share
applicable to common stock $.02 $.21
======================
* See Note 4 to Consolidated Financial Statements
** This calculation is presented in accordance with Regulation
S-K item 601(b)(11) although it is contrary to paragraphs 14, 30,
and 40 of APB Opinion No. 15 because it produces an antidilutive
result. The Opinion provides that a computation on a fully
diluted basis which results in an improvement in earnings
per share when compared to primary earnings per share
(antidilution) not be taken into account. Therefore fully diluted
earnings per share reported on the income statement are the same
as primary earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<PERIOD-TYPE> 3-MOS
<CASH> 2,742
<SECURITIES> 0
<RECEIVABLES> 23,375
<ALLOWANCES> 1,208
<INVENTORY> 46,028
<CURRENT-ASSETS> 75,449
<PP&E> 60,694
<DEPRECIATION> 18,809
<TOTAL-ASSETS> 163,705
<CURRENT-LIABILITIES> 63,428
<BONDS> 0
0
3,878
<COMMON> 2,444
<OTHER-SE> 38,266
<TOTAL-LIABILITY-AND-EQUITY> 44,588
<SALES> 86,392
<TOTAL-REVENUES> 86,392
<CGS> 76,855
<TOTAL-COSTS> 76,855
<OTHER-EXPENSES> 5,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,398
<INCOME-PRETAX> 587
<INCOME-TAX> 211
<INCOME-CONTINUING> 376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
