SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
March 31, 1995 Number 0-17039
American Rice, Inc.
(Exact name of registrant as specified in its charter)
Texas 76-0231626
(State of Incorporation) (I.R.S. Employer
Identification No.)
16825 Northchase, Suite 1600
Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 873-8800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00 per share
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 12, 1995, 2,443,892 shares of the Registrant's Common Stock, par
value $1 per share, were outstanding, and the aggregate market value of the
outstanding Common Stock, $1 par value, of the Registrant held by non-
affiliates of the Registrant as of June 12, 1995, based on the average bid and
asked prices for these shares on the NASDAQ System, was $4,790,081.
Documents Incorporated by Reference
Portions of the 1995 Proxy Statement to Shareholders are incorporated by
reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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AMERICAN RICE, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
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Item 1: Business See page 1
Item 2: Properties See page 13
Item 3: Legal Proceedings See page 13
Item 4: Submission of Matters to a See page 14
Vote of Security Holders
Part II
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Item 5: Market for the Company's See page 14
Common Stock and Related
Stockholder Matters
Item 6: Selected Financial Data See page 15
Item 7: Management's Discussion See page 17
and Analysis of Financial
Condition and Results of
Operations
Item 8: Consolidated Financial See page F - 1
Statements
Item 9: Changes in and Disagreements See page 21
with Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See page 22
Officers of the Company
Item 11: Executive Compensation See Proxy Statement
Item 12: Security Ownership of Certain See Proxy Statement
Beneficial Owners and
Management
Item 13: Certain Relationships See Proxy Statement
and Related Transactions
Part IV
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Item 14: Exhibits, Financial Statement See page 25
Schedules and Reports on
Form 8-
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PART I
Item 1. Business
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Background
The business of American Rice, Inc. ("ARI" or the "Company") dates back to
1901 when the predecessor company to Comet Rice, Inc. ("Comet") was formed in
Beaumont, Texas. Comet rice, named after the appearance of Halley's Comet
during a product presentation, was the first rice to be sold in branded
packages and was widely advertised and marketed as a brand of high quality
rice. In 1952, the predecessor company to Comet merged with Wonder Rice Mills,
Inc. of Stuttgart, Arkansas and Adolphus Rice Mills, Inc. of Houston, Texas,
which added the Wonder(R) and Adolphus(R) brand names to the product line, as
well as the Stuttgart Facility. This rice milling business was purchased in
1970 by Early California Industries Inc. ("Early"), a California company
engaged in agribusiness. In 1972, Early formed Comet as a new subsidiary into
which Early transferred all of its rice business assets, including its
trademarks. In 1979, Comet acquired United Rice Growers and Millers which
owned a rice processing facility in Maxwell, California (the "Maxwell
Facility"). This facility remains the Company's primary milling facility in
the California rice producing region. Early subsequently changed its name to
ERLY Industries Inc. ("ERLY") in 1985.
In 1986, Comet and American Rice, Inc., a Texas agricultural cooperative
marketing association formed in 1969 comprised primarily of rice growers (the
"ARI Cooperative"), formed a joint venture known as Comet American Marketing
("CAM") for the purpose of conducting joint domestic marketing operations. In
connection with the formation of CAM, both companies contributed virtually all
of their domestic brands to CAM and Comet transferred certain processing and
packaging equipment, packaging supplies and production responsibilities to the
ARI Cooperative. ARI was incorporated in 1987 by the ARI Cooperative and in
1988, the ARI Cooperative contributed all of its assets to the Company in
exchange for 52% of ARI's voting capital stock, which the ARI Cooperative
distributed to its members. Comet obtained the remaining 48% of ARI's voting
capital stock in exchange for contributing to the Company cash and Comet's 50%
interest in CAM. On May 26, 1993, ERLY consolidated its ownership interests in
the Company and Comet, pursuant to which ERLY transferred all of the operating
assets and liabilities of Comet to ARI in exchange for shares of voting
preferred stock that gave ERLY an additional 33% of the voting power of ARI
(the "Acquisition"). As a result of the Acquisition, ERLY holds 81% of the
voting power of the Company, comprised of a 32% direct common stock equity
interest and an additional 49% voting preferred stock interest.
As a result of the Acquisition, the Company diversified the market for its
products, expanded its share of both the domestic and export rice markets,
increased its sources of supply of rough rice and reduced its operating costs.
The Acquisition reduced manufacturing and distribution costs and increased
gross margins by allowing ARI to process and package products closer to the
ultimate customer and thereby utilize total capacity more efficiently. The
Acquisition also enabled ARI to better utilize its milling facilities due to
increased availability of bank credit lines and working capital, which in turn
Page 1<PAGE>
allowed ARI to purchase additional raw product from a larger growing area and
to sell to additional export markets. Management believes the Acquisition has
significantly improved ARI's ability to manage short-term fluctuations in the
cost of rough rice by expanding and further diversifying its markets for
milled rice. Management also believes the Acquisition will continue to
favorably impact future operating results as additional synergies from the
Acquisition are fully realized.
Company Overview
The Company is the largest U.S.-based and one of the world's leading
processors and marketers of branded rice products, with leading brand
positions in many U.S. markets as well as Saudi Arabia, Haiti, Puerto Rico and
certain other rice consuming markets. The Company annually markets
approximately 20% of the total U.S. rice crop and is the only marketer of rice
in the world with significant sources of rough rice and milling facilities in
the two major rice producing regions of the United States as well as certain
strategic locations overseas. This allows ARI to moderate the impact of
regional trade imbalances caused by climate and geopolitical factors on
operating performance. The Company is able to maximize its margins by
purchasing rice grown domestically and abroad to take advantage of regional
cost and supply availabilities.
Approximately 60% of the Company's net sales consist of branded rice, which
typically commands a higher price and profit margin than commodity rice and is
less susceptible to decreases in sales volume due to increases in consumer
prices. With leading brand names that sustain the number one or two positions
in many of the major rice consuming markets domestically and abroad, ARI
typically is able to achieve high margins in these branded markets. ARI
markets white rice, instant rice, parboiled rice, brown rice and rice mixes
under proprietary, trademarked brand names such as Blue Ribbon(R), Comet(R),
Adolphus(R), AA(R), Cinta Azul(R), Wonder(R), Colusa Rose(R) and Chopstick(R).
ARI is a leading marketer of U.S. rice in many of the world's major rice
importing countries, including Saudi Arabia, Haiti and Turkey. In Saudi
Arabia, the third largest import rice market in the world, the Chopstick(R)
brand, known locally as Abu Bint(R), has been the number one brand of rice
sold in that country since 1973, and has consistently represented over two-
thirds of the U.S. grown rice sold in that country. ARI's leading brand names
and broad product lines have facilitated the Company's penetration of new
markets and introduction of new products in existing markets.
ARI recently entered into a joint venture ("ARI-Vinafood") with a company
owned by the Socialist Republic of Vietnam to process and market Vietnamese
grown rice. ARI's 55% ownership in ARI-Vinafood enables it to participate in
the world market for Asian origin rice, the largest market segment in the
world rice market. Management believes that this new product source will
enable it to increase its market share in certain key regions as well as
provide a competitive product under its existing brand names to major rice
consuming markets in Asia and South America.
Page 2<PAGE>
Industry Overview
Rice is the primary staple food consumed in most countries and is the cereal
grain with the highest level of human consumption in the world, comprising
approximately 40% of world cereal grain consumption. Primarily as a result of
population increases, world rice consumption has increased approximately 124%
during the last 30 years to approximately 350 million metric tons in 1994.
Domestic consumption of rice has more than doubled since 1984 and currently
exceeds 3.3 million metric tons annually. The increase in U.S. rice
consumption is primarily due to the substantial population growth of certain
ethnic groups and, to a lesser degree, increased awareness by the general
population of the impact of diet on health. Measured on a per capita basis,
average consumption of rice is estimated at 150 pounds per person on a
worldwide basis, with Asia having the highest per capita annual consumption at
approximately 225 pounds and the United States with one of the lowest at 28
pounds.
International Trade. While over 95% of the rice grown worldwide is consumed in
the country in which it is grown, international trade in rice has expanded
steadily over the last decade from approximately 11 million metric tons in
1984 to nearly 16 million metric tons in 1994, representing an increase of
over 45%, and it is anticipated that such trade will expand to nearly 17
million metric tons for the year ending 1995. The demand for rice over time
has increased proportionately with population increases, coupled with
expansion in per capita consumption, and has exceeded agricultural productive
capacity in some countries. In addition, due to the economic collapse of the
former Soviet bloc nations, certain foreign government agricultural support
programs have been reduced. This has reduced supply and increased
international trade demand.
The world's major rice producing countries include China, India, Indonesia,
Bangladesh, Thailand, Vietnam and the United States, with China and India
accounting for over 50% of world rice production. Thailand is the largest
exporter of rice in the world, exporting approximately 32% of total world rice
exports, followed by the United States and Vietnam, whose exports account for
18% and 17%, respectively, of the world rice trade.
Historically, the largest rice importing nations have included Brazil, Iran,
and Saudi Arabia with each nation importing in excess of 750,000 metric tons
annually. Recently, imports have begun to increase to the former Soviet bloc
nations due to reduced production levels in those countries. In addition, due
to the effects of adverse weather conditions in Japan in 1993, Japan was the
world's largest importer of rice, with imports estimated at 2.4 million metric
tons.
Rice produced in the United States is generally of a high quality and sells at
premium prices relative to Asian rice. Based on statistics compiled by the
United States Department of Agriculture ("U.S.D.A."), exports of rice produced
in the United States have sustained consistent growth over the last 20 years,
growing from an average of 1.8 million metric tons per year in the years from
1972 to 1974 to an average of 2.6 million metric tons per year in the years
Page 3<PAGE>
from 1993 to 1994. The U.S.D.A. forecasts that the United States will export
2.7 million metric tons of rice in 1995.
In the future, international trade is expected to be impacted favorably by the
effects of the General Agreement on Tariff and Trade ("GATT"). The latest
round of amendments to GATT were approved on December 15, 1993 by the majority
of developed nations in the world, including the United States, the European
Union, and Japan. Most signatory countries began implementation of their GATT
commitments on January 1, 1995, which required with some exceptions, the
elimination of all import bans, and the reduction of all import tariffs. In
the case of Japan and South Korea, which were not required to eliminate rice
import bans, highly beneficial quotas were established through bilateral
negotiations. Japan has committed to import 379,000 metric tons of rice in
1995, increasing each year to 758,000 metric tons by 2000. Commencing in the
summer of 1995, South Korea's quota is 51,000 metric tons which they have
agreed to double by 1999 and double again by 2004. In general, reductions on
tariffs will make imports more attractive to foreign buyers and consumers and
more competitive with domestic products. Under GATT, developed countries are
committed to reduce tariffs by an average of 36% over six years, with a
minimum of a 15% reduction on any individual item. Developing nations will
reduce tariffs 24% over ten years and must meet a minimum 10% per item
reduction. Management believes that the net effect of GATT will be to
stimulate additional rice production on additional acreage in the United
States and will increase the amount of rice traded globally.
Domestic Trade. U.S. consumption of rice has more than doubled since 1984 and
currently exceeds 3.3 million metric tons per year. U.S. per capita
consumption of rice has more than doubled since 1978 primarily due to
increases in the population of high rice-consuming Hispanic and Asian ethnic
groups, which have grown from 6% of the U.S. population in 1970 to 26% in 1990
and are projected by the U.S. Census Bureau to increase to 38% of the U.S.
population by 2020. For example, the Hispanic communities in the Southwest,
and the Asian communities in California, each of which have grown
significantly since 1985, consume over three times the average per capita
amount of rice consumed in the United States. To a lesser extent, the growth
in average per capita consumption of rice has also been caused by increased
awareness of the impact of diet on health.
During the past three years, approximately 50% to 60% of rice produced in the
United States has been consumed domestically. Approximately 70% of U.S.
consumption is for food use or direct consumption. Rice used in food
processing accounts for approximately 19% of total U.S. rice consumption while
the remainder is used in the production of beer.
Rice Production. Over two-thirds of total U.S. rice production is the long
grain variety, which is produced almost entirely within Arkansas, Louisiana,
Mississippi, Texas and Missouri and is marketed worldwide. Medium grain rice,
which is grown in several rice producing states but is the dominant variety
grown in California, accounts for effectively all of the remaining one-third
of all rice grown in the United States. California medium grain, generically
known as Calrose, is preferred within certain segments of the global market,
including Japan, Korea, Turkey, Jordan and Lebanon. The difference between
these rice varieties is primarily reflected in the size and shape of the
kernel as well as amylose or starch content.
Page 4<PAGE>
The rice growing cycle takes approximately 100 to 125 days from planting until
harvesting, depending on the variety of rice grown. Rice is typically planted
in flooded fields in the early spring and after it matures, water is drained
from the fields and the crop is harvested. The harvested grain is referred to
as "paddy" or "rough rice." The rough rice is transported to storage and
drying facilities after it is harvested, where the moisture content is slowly
lowered to prepare the rice for milling. After the rice is dried, it is
conveyed to rice mills where it is processed into finished rice products.
The process of milling begins with the cleaning of the rough rice. Once
cleaned, the hull of the rice kernel is removed. The resulting product is
known as brown rice because of the brown color of the bran layer still
attached to the kernel. The hulls are often burned for energy generation and
silicone production or ground and mixed with bran for use as livestock feed.
Although brown rice is sometimes sold directly as a food product, it is
usually further processed. The bran layer is removed in the milling process
and broken and imperfect grains are eliminated, typically using electro-
optical scanners. The resulting product is the white or fancy rice most often
seen on grocery store shelves.
Parboiled rice is rough rice that has been soaked, steamed under pressure,
dried and then hulled and milled. The process of parboiling involves soaking
the cleaned rough rice in water and then heating the kernels to specific
temperatures using steam. This process breaks down the starch in the rice and
allows splintered kernels to fuse together to form whole kernels. Once rice
has been parboiled, it changes color and maintains a golden brown hue as
contrasted to regular milled white rice. Parboiled rice retains more nutrients
than regular milled white rice and tends to be more fluffy after cooling.
The finished rice products are then ready for packaging and shipping.
Packaging can occur at the rice processing plant or at the destination site
after bulk shipment. Transportation costs associated with bulk shipments are
typically less costly than those of packaged rice.
Brands and Markets
The Company is one of the largest competitors in the global market for rice.
In 1994, ARI marketed over 3.8% of all rice traded worldwide and approximately
10% of all rice marketed and consumed within the United States. ARI competes
in all major rice importing regions in the world including the Caribbean,
Latin America, Middle East and Asia as well as in domestic regions, which ARI
defines as the United States, Canada and the Bahamas. ARI's domestic and
export branded rice has accounted for approximately 70% of its gross profits.
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In fiscal 1995, ARI marketed rice in 44 foreign countries with no foreign
country accounting for more than 14% of net sales. The Company plans to
continue to expand into new markets and increase its share in certain of its
existing markets. The following table summarizes the regional concentrations
of net sales of ARI during the past three years:
Year ended March 31,
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1993 1994 1995
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(in thousands)
United States and Canada $77,199 $102,624 $129,271
Export Sales:
Middle East 46,209 89,782 91,449
Caribbean, Mexico, and
South America 32,744 38,935 84,806
Asia 670 42,838 49,963
Europe 10,593 6,260 13,632
Africa 2,114 4,012 3,864
Other 88 13 65
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Total Export Sales 92,418 181,840 243,779
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Total Sales $169,617 $284,464 $373,050
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See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for discussion concerning export sales for ARI.
The Company's sales to foreign customers are priced in U.S. dollars and
payable, with the exception of a few long standing well established accounts
that are not material, by documentary letters of credit that are confirmed by
major banks before shipments are effected. Consequently, ARI's exposure to
foreign currency fluctuations is not material.
United States and Canada. ARI's domestic sales consist of branded rice
products sold to retail outlets, primarily grocery stores, branded bulk sales
to ethnic wholesale and retail outlets and sales to other industrial users and
major food processors. The United States and Canada together provided 35% and
29% of net sales and gross profits, respectively, in fiscal 1995. ARI has
targeted its domestic marketing programs to achieve regional brand prominence
with such efforts primarily being focused on the top 15 rice consumption
markets. These markets, located principally in New York, California, Texas and
Florida account for over 50% of the rice consumed in the United States. This
focused strategy allows ARI to maximize sales and achieve prominence as a
branded supplier while minimizing selling, general and administrative
expenses.
The Company is the second largest seller by tonnage of retail branded long
grain white rice products in the United States with a market share of
approximately 16%. Domestic long grain white rice is the largest retail market
category of rice, representing approximately 35% of all retail rice sales, and
Page 6<PAGE>
is the fastest major growing segment of the U.S. rice market, having grown 4%
in 1994.
ARI's long grain rice brands have attained the number one or number two market
share in many of the regions in which they compete including Comet(R) in North
Carolina, Blue Ribbon(R) in South Carolina, Adolphus(R) in Texas, Comet(R) in
California, Texas and the Southeast and AA(R) in California.
Certain ethnic groups represent some of the fastest growing segments of the
rice business in the United States. Management believes that ARI's AA(R) is
the leading brand of long grain rice among Asian-Americans and dominates sales
in the western region of the United States and certain other regions having
large Asian-American populations. Other ARI brands have strong consumer
acceptance with Hispanic-Americans in the Southwest. ARI's D'Aqui(TM) and
Cinta Azul(R) brands represent approximately 15% of the Puerto Rican retail
rice market. Puerto Rico consumes approximately 6% of the retail rice sold in
the United States and its territories and has a per capita consumption that is
more than five times the United States average.
In addition to its own branded retail products, ARI supplies long grain white
and parboiled rice, instant rice, rice mixes, brown rice and other rice
products to a full range of private label resellers including five of the top
fifteen supermarket chains in the United States and Canada as well as other
food retailers. ARI expanded its production capacity and marketing of rice
flour, bran and instant rice products to customers in the bakery and specialty
food industries in 1992. Management believes that the proportion of special
product sales to total sales will increase due to increased awareness by food
producers and consumers of the health benefits of rice.
Middle East. The Middle East accounted for 25% of both net sales and gross
profits in fiscal 1995. Saudi Arabia has been the largest market for U.S.
grown rice, annually importing an average of approximately 700,000 metric
tons, and is currently the largest branded parboiled rice market in the world.
ARI's Abu Bint(R) brand is considered to be one of the best recognized food
products in Saudi Arabia and dominates all U.S. grown rice imports and has
accounted for over 60% of all rice imported from the United States in each of
the last 16 years. Overall, Abu Bint(R) is the number one brand with a market
share of 16% of the total Saudi Arabian market, three times larger than that
of its closest competitor.
Historically, the rice ARI sold in Saudi Arabia was processed and packed in
the United States and shipped to Saudi Arabia. In October 1994, ARI entered
into an agreement with Rice Milling and Trading, Ltd., Inc. ("RMT"), an
operator of a receiving, processing, storage and bagging facility in Jeddah,
Saudi Arabia, to receive bulk rice from ARI and pack Abu Bint(R) on an
exclusive basis and under strict ARI quality supervision. By shipping rice in
bulk to RMT, ARI will reduce vessel loading and freight costs. ARI believes
that this service agreement with RMT will reduce costs and improve gross
profit and market competitiveness, and will also provide even better customer
service and product freshness. Market shipments under this agreement will
begin in June 1995.
Rice products exported to Saudi Arabia by ARI are marketed to various
wholesalers and retailers through a number of major distributors. No single
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customer accounts for more than 5% of ARI's total net sales and the loss of
any one of these customers would not have a material adverse effect on ARI.
Historically, ARI has had significant sales in Turkey and Iran. Over the last
24 months, ARI's rice products accounted for 65% of Turkey's rice imports.
Caribbean, Mexico and South America. This region accounted for 23% and 10% of
net sales and gross profit, respectively, in fiscal 1995. The Caribbean is one
of the highest per capita rice consumption markets in the world. ARI sells
branded products such as Comet(R), Blue Ribbon(R), and 4 Star(TM) throughout
this region, with substantial Company-controlled or owned assets in Jamaica,
Haiti and The Netherlands Antilles.
The Company is the largest processor and marketer of rice to Haiti, one of the
seven largest importers of U.S. grown rice, with annual imports in excess of
125,000 metric tons for each of the last five years.
Within Aruba, Bonaire and Curacao, ARI has a long-term exclusive supply,
processing and marketing agreement with the Antillean Rice Mill, a local
marketing company. ARI ships rice on a cost efficient bulk basis as compared
to other more costly methods of shipment. The Antillean Rice Mill markets
ARI's Blue Ribbon(R) and Comet(R) labels within this region and has sustained
a total market share in excess of 75% in each of the last 10 years.
In Jamaica, ARI's subsidiary, Comet Rice of Jamaica, Ltd., is the second
largest processor and one of the largest branded retail and food service
marketers in the country.
Asia. Asia accounted for 13% and 31% of net sales and gross profit,
respectively, in fiscal 1995. Japan accounted for virtually all of ARI's sales
to Asia in fiscal 1994 and fiscal 1995. For the twelve-month period ended July
1994, Japan imported 2.4 million metric tons of rice, including approximately
500,000 metric tons from the United States. ARI processed and milled
approximately 62% of the tonnage from the United States. These rice imports,
the first in 25 years by Japan, were necessary due to adverse weather
conditions that materially impaired Japan's 1993 rice crop. 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 10 harvests,
had depleted Japan's rice stock-pile requiring significant rice imports.
Although this was an unusual occurrence, as a participant in GATT, Japan is
contractually obligated to import 379,000 metric tons of rice for the twelve-
month period beginning April 1, 1995 increasing to 758,000 metric tons of rice
annually by the year 2000. Management believes that the Japanese prefer
California grown Calrose variety medium grain rice and that the United States
has an excellent opportunity to obtain more than half of these projected
Japanese imports. Because ARI has previously developed a reputation for high
quality rice and superior service through its prior trade experience with
Japanese importers, management believes it will have material involvement in
these anticipated Japanese imports.
On July 27, 1994, ARI formed ARI-Vinafood, a Vietnamese limited liability
company on a joint venture basis with a company owned by the government of the
Socialist Republic of Vietnam (the "Vietnam Partner") for the purpose of
producing white and parboiled rice and related products at rice processing
Page 8<PAGE>
facilities in the Can Tho province of Vietnam. ARI owns 55% of ARI-Vinafood
and will be paid a royalty of 3.5% on all export sales from Vietnam by ARI-
Vinafood, which has contracted for export quotas to be issued by the
Vietnamese government. The quotas will allow annual exports of up to 300,000
metric tons of white rice and 85,000 metric tons of parboiled rice. The term
of ARI-Vinafood is 20 years and may be renewed by ARI for an additional 20
years, but ARI's participation in ARI-Vinafood is subject to a buy-out by the
Vietnam Partner after the fifth year of operation. ARI-Vinafood began milling
and processing operations in December 1994.
ARI's participation in ARI-Vinafood will allow ARI to participate in the world
market for Asian origin rice. Asian rice varieties are preferred by many
customers in different countries due to a unique taste which is attributed to
different amylose or starch content. In addition, because of Asia's geographic
proximity to such high rice consumption markets as China and Indonesia, ARI's
participation in ARI-Vinafood will give it a freight cost advantage over any
Western or European grown rice in those markets.
Commodity Sourcing and Pricing
The Company's market and source diversity enhances its ability to moderate the
impact of regional trade imbalances caused by climate and geopolitical
factors. ARI is the only marketer of rice in the world with growing sources
and milling capacity in each of the major rice producing regions of the United
States as well as overseas. As a result, the Company utilizes a variety of
rice products grown in the United States and is able to take advantage of
regional cost and supply availabilities. Each of ARI's milling facilities are
strategically located to minimize shipping costs and maximize the convenience
to the customer enabling ARI to capitalize on marketing opportunities as they
develop around the world.
ARI buys rough rice from a variety of farm sources. A large portion of these
rough rice purchases are made under pre-harvest agreements. Pre-harvest
agreements generally provide for delivery of rough rice from specified acreage
at a price per hundredweight determined by the terms of the agreements.
Generally, the price per hundredweight is determined based on local market
conditions occurring between the time of harvest and on or after delivery to
the buyers. For crop year 1993, ARI had pre-harvest agreements to purchase
approximately 5.8 million hundredweight of rough rice in the Southern rice
states and approximately 3.6 million hundredweight from farmers in California,
which represented 43.7% and 36.0% of ARI purchases, respectively, for the crop
year in each such region. ARI also obtains domestic rough rice through
competitive bidding in all rice producing states, with California and Texas
providing approximately 43.1% and 13.1%, respectively, of ARI's total rough
rice purchased in crop year 1993. No single supplier of rough rice provides
more than 5% of ARI's rough rice purchases. In addition to purchasing domestic
rough rice, ARI obtains milled rice from other U.S. and foreign rice suppliers
on an as needed basis.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI from time to time buys and sells futures and options contracts as a
mechanism to manage a portion of its rough rice requirements. Gains or losses,
if any, are recognized in the period that the market value of the futures
Page 9<PAGE>
contract changes. Rice futures transactions represent a volume of less than 2%
of ARI's 1994 sales tonnage.
The Company sources rice from a variety of locations, including five of the
six significant U.S. rice growing states; Texas, Louisiana, Mississippi,
Arkansas, and California.
Southern Facilities. ARI operates two rice processing facilities in the
Southern rice growing region of the United States. ARI's rice processing
facility located in Freeport, Texas (the "Freeport Facility") is a 20-acre
integrated processing complex with an annual milling capacity of over 600,000
metric tons located directly on a deep water port in the Gulf of Mexico. The
facility is the only rice facility in the United States capable of handling
large ocean-going vessels directly at the facility. The facility has a
parboiled processing plant and separate milling facilities for both white and
parboiled rice. Unlike many rice processing facilities, the Freeport Facility
adds water polishing and electro-optical sorting to ensure that ARI's exacting
quality standards are consistently met. The facility also has a rice flour
mill that markets and meets the stringent quality standards of baby food
processors and Japanese food ingredient purchasers. ARI also processes instant
rice for retail and industrial markets.
During fiscal 1994 and fiscal 1995, ARI invested approximately $1.5 million to
upgrade the Freeport Facility. ARI installed state-of-the-art equipment which
increased the production capacity of the mill by approximately 1.2 million
hundredweight per year and also substantially reduced ARI's production cost
per hundredweight.
ARI also operates a rice processing facility in Stuttgart, Arkansas (the
"Stuttgart Facility") that has an annual rough rice milling capacity of over
200,000 metric tons. The Stuttgart Facility is located in the largest rice
producing region in the United States and provides flexibility in scheduling
rice shipments from the larger Freeport Facility by absorbing capacity
overflow. The facility also generates drying and storage sales and is a
delivery point for rice sold on the Chicago Board of Trade.
California Facilities. ARI operates two rice processing facilities in Maxwell
and Biggs, California and has one of the state's largest single rice drying
operations. The Maxwell Facility is the largest capacity single rice mill
operating in California. The Biggs, California facility (the "Biggs
Facility"), which was leased by Comet in 1991, is an older milling facility
that provides additional milling capacity to supplement ARI's domestic milling
requirements. The combined capacity of the Maxwell Facility and the Biggs
Facility exceeds the multi-mill capacities of ARI's largest California
competitors.
Other Facilities. ARI also operates packaging facilities in Kingston, Jamaica
and Port-au-Prince, Haiti that receive bulk rice from ARI's Southern
facilities and process and package the bulk rice into local retail branded
rice products. ARI's Haitian facility is located on a self-contained deep
water port 25 kilometers outside the capital city and principal market, Port-
au-Prince. ARI recently formed BargeCarib, Inc. to acquire an ocean-going
barge to service the Caribbean area facilities primarily from the Freeport
Facility. The barge acquisition is scheduled to be completed on June 30, 1995.
Page 10<PAGE>
These facilities provide ARI with competitive advantages in loading,
transportation and labor costs as well as in customer service and product
freshness.
Competition
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, ARI competes
with approximately 16 entities that together trade or market over 50% of world
trade in rice. These competitors are from the United States and other
exporting countries such as Thailand, Pakistan and Vietnam. The Company's U.S.
competitors in the domestic and export milled rice markets include Riviana
Foods Inc., Riceland Foods, Inc., Producers Rice Mills, Inc., Continental
Grain Company, Cargill Inc. and Farmers Rice Cooperative. There are other
competitors in certain specialized marketing areas, such as Mars, Inc. (Uncle
Ben's), Philip Morris Companies, Inc. (Minute) and the Quaker Oats Company
(Rice-a-Roni) who typically have greater financial and other resources than
the Company and may devote substantially greater resources to increase the
amount of direct competition with the Company. Management estimates that no
single competitor has more than 6.0% global market share while ARI's estimated
share of the global market is 3.8%.
Within the United States, competition exists both for procuring and processing
rough rice, and for marketing milled rice products. Competitors in the rice
milling business include both private commercial mills, such as ARI, and mills
operated by agricultural cooperatives. ARI's principal competitors in milling
are Riceland Foods, Inc., Farmers Rice Cooperative and Cargill Inc. with
estimated shares of operating domestic milling capacity of 19%, 8% and 7%,
respectively. ARI's share of estimated operating domestic milling capacity is
20%.
Domestic competitors of ARI in the marketing of retail branded milled rice on
a national basis principally consist of Riviana Foods Inc. and Riceland Foods,
Inc., and, in the food service markets, Farmers Rice Cooperative. According to
syndicated market data, no company currently controls more than 25% of the
domestic branded markets. There are a number of small regional competitors in
the branded segment of the rice industry and approximately 15 to 20 rice
millers who compete in the commodity rice markets.
Brand Names and Trademarks
Because consumer recognition of branded products adds significant value to
basic commodities such as rice, the Company's trademarks, copyrights and brand
names are important to its business. The trademarks, copyrights and brand
names used by ARI are registered in the countries in which they are used and
have varying renewal dates. ARI believes that such registrations are currently
adequate to protect the rights to use of the trademarks, copyrights and brand
names significant to the business of ARI.
Regulation
Although ARI is not involved in rice farming, certain government regulations
affecting U.S. rice farmers have an impact on ARI's cost of rough rice.
Approximately 98% of U.S. rice is grown under a U.S.D.A. price support and
Page 11<PAGE>
acreage control program under the Food, Agriculture, Conservation and Trade
Act of 1990 ("Farm Bill"), which provides price support and production
adjustments for rice producers.
The minimum target price for rice is currently set by the U.S.D.A. at $10.71
per hundredweight. When the world market price of rice declines below the
minimum target price, rice growers participating in the program are entitled
to receive deficiency payments from the U.S.D.A. To participate in the
program, producers must comply with any acreage reduction program announced by
the Secretary of Agriculture. The amount of acreage controlled or restricted
is reviewed annually by the U.S.D.A. and is determined by projecting ending
rice inventories as a percentage of historical domestic and export usage.
The United States Congress is currently considering legislation to extend,
amend or replace the Farm Bill, which is effective through the crop year
ending July 31, 1996. There can be no assurance that the currently favorable
provisions of such legislation will be extended into future periods or will
not be amended due to budgeting or other governmental constraints. Proposals
to significantly limit or eliminate altogether federal farm price support
programs have been introduced in the United States Congress and if such
legislation is enacted, there could be a significant impact on the supply and
price of U.S. grown rice. Management believes that, should such a change
occur, any adverse effect would be of limited duration because (i) domestic
prices would adjust to a point of economic equilibrium with imports, which
would justify adequate production by U.S. growers using alternate or fallow
acreage and employing additional economies of scale and (ii) any shortage of
U.S. grown rice due to termination of price supports could be offset by
imports from other countries using ARI's cost efficient bulk handling
equipment at the Freeport Facility located on a deep water port and ARI's
strategically located packaging facilities.
Employees
At March 31, 1995, the Company had 546 employees in domestic operations and
approximately 600 employees in foreign operations. The Company is not a party
to any collective bargaining agreements. There have been no significant labor
disputes in the past several years and the Company considers its employee
relations to be excellent.
Environmental Matters
ARI is subject to various federal, state and local environmental laws and
regulations governing, among other things, air quality, water quality and the
generation, use and disposal of materials related to plant operations and the
processing, storage and shipment of rice. ARI believes it is in substantial
compliance with all existing laws and regulations and has obtained or applied
for the necessary permits to conduct its business and is in substantial
compliance with all existing laws and regulations with respect to those of its
properties held for sale. To date, and in management's belief for the
foreseeable future, compliance with applicable environmental laws has not had
and will not have a material adverse effect on ARI's financial or competitive
positions.
Page 12<PAGE>
Item 2. Properties.
- ------- -----------
The following table summarizes the principal properties owned and/or occupied
by the Company and its subsidiaries:
<TABLE>
<CAPTION>
Owned or Leased
Type of Floor Space Expiration
Location Facility Square Footage Date of Lease
- ------------------------------------ --------------- -------------- ------------------
<S> <C> <C> <C>
Administrative Offices:
Houston, Texas Office 46,400 Leased 1997
Los Angeles, California Office 4,000 Leased 1996
Warehousing, Processing and Shipping:
Freeport, Texas Plant/Warehouse 272,400 Leased 2022
Stuttgart, Arkansas Plant/Warehouse 142,900 Owned
Maxwell, California (1) Plant/Warehouse 261,000 Owned and leased
2004
Biggs, California Plant/Warehouse 95,000 Leased 1996
Laffiteau, Haiti Plant/Warehouse 30,024 Leased 2001
Spanish Town, Jamaica Plant/Warehouse 29,000 Leased 1998
Can Tho, Vietnam (2) Plant/Warehouse 1,300,000 Leased 2014
</TABLE>
(1)Most of the storage facilities and approximately half of the land is
leased.
(2)Subject to an option to purchase by the Vietnam Partner commencing 1999.
All properties owned or leased by the Company are maintained in good repair,
and management believes them to be adequate for their respective purposes. All
machinery and equipment are considered to be in sound and efficient operating
condition.
Item 3. Legal Proceedings.
- ------- ------------------
The Company is involved in legal proceedings that arise in the ordinary course
of its business, all of which are routine in nature except for the matter
noted below. Management believes that the resolution of such legal
proceedings, including the matter noted below, will not have a material
adverse effect on the consolidated financial position or consolidated results
of operations of ARI.
The U.S.D.A. has conducted a series of investigations of several companies,
including Comet, concerning alleged abuses of federal regulations governing
U.S. government guarantees of payments on shipments of agricultural products
to Iraq. The current investigation, which began in February 1994 is continuing
as a joint investigation with the Department of Justice. In connection with
its sales of rice to Iraq prior to the August 1990 embargo, Comet is alleged
to have failed to adequately apprise the U.S.D.A. that Comet included foreign
bagging of rice as a contract cost in certain financing guaranteed by the U.S.
government. A regulation specifying that foreign bagging may not be included
Page 13<PAGE>
as a financed contract cost in such financing was not passed until June 1991,
a year after Comet's last shipment to Iraq. The Company is cooperating with
the investigation; there have been no civil enforcement actions and no
indictments or charges have been filed against ARI or any of its affiliates or
agents concerning such allegations. Management does not believe that any laws
were violated or that ARI or any of its affiliates or agents will be subject
to liability.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders
- ------- --------------------------------------------------------------
Matters.
--------
The shares of ARI Common Stock, $1.00 par value ("ARI Common Stock"), are
traded on the automated quotation system of the National Associaion of
Securities Dealers ("NASDAQ") "Small Capitalization Market" under the symbol
"RICE". The high and low trade prices per share of the ARI Common Stock for
each quarter during the period commencing April 1, 1993 through March 31,
1995, are set forth below. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
At a special meeting on September 1, 1994, ARI's shareholders approved a one-
for-five reverse stock split for all issues of common and preferred stock.
Trading on the new basis commenced on September 8, 1994. ARI Common Stock per
share prices in the following table prior to September 8, 1994 have been
adjusted to reflect the reverse stock split.
High Trade Low Trade
Prices Prices
---------- ---------
Fiscal Year 1994
- ----------------
Quarter Ended June 30, 1993 $ 3.75 $1.09
Quarter Ended September 30, 1993 3.13 1.72
Quarter Ended December 31, 1993 8.75 1.88
Quarter Ended March 31, 1994 7.50 2.50
Fiscal Year 1995
- ----------------
Quarter Ended June 30, 1994 5.31 1.88
Quarter Ended September 30, 1994 4.25 2.75
Quarter Ended December 31, 1994 3.75 1.00
Quarter Ended March 31, 1995 3.13 1.25
ARI has not paid any dividends with respect to the ARI Common Stock. No
dividends can be paid without the consent of ARI's lenders and current loan
agreements prohibit payment of dividends. There were 4,291 holders of record
of the ARI Common Stock on June 13, 1995.
Page 14<PAGE>
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" and is
now listed on the NASDAQ "Small Capitalization" market.
Item 6 Selected Financial Data.
- ------ -----------------------
The following table sets forth selected historical consolidated financial data
of the Company for the years ended March 31, 1991 to 1995, and for American
Rice, Inc. prior to the Acquisition ("Pre-Acquisition ARI") for the years
ended March 31, 1991 to 1993 and the period from April 1, 1993 to May 26,
1993. The selected historical consolidated financial data are derived from the
audited financial statements of the Company and of Pre-Acquisition ARI, except
for the period from April 1, 1993 to May 26, 1993, which are unaudited. The
unaudited financial statements include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the results of
operations for the period, all of which are of a normal, recurring nature. The
Acquisition on May 26, 1993 was accounted for as a purchase by Comet of stock
in Pre-Acquisition ARI in exchange for all of the operating assets and
liabilities of Comet, following which purchase Comet distributed its equity
interest in ARI to ERLY. As a result, the Company's historical consolidated
financial data prior to the Acquisition reflects the historical operations of
Comet rather than Pre-Acquisition ARI. The Company's audited financial
statements for the years ended March 31, 1991 to 1993 and the period from
April 1, 1993 to May 26, 1993, included in the audited financial statements
for the year ended March 31, 1994, represent the results of the Company,
including the Company's share of Pre-Acquisition ARI results, using the equity
method due to the Company's 48% interest in Pre-Acquisition ARI prior to the
Acquisition. For all periods after May 26, 1993, the Company's Consolidated
Financial Statements include the results of Pre-Acquisition ARI and Comet. The
information in the table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the notes thereto,
included elsewhere in this Form 10-K.
Page 15<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(in thousands, except per share and per
hundredweight data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $218,919 $214,090 $169,617 $284,464 $373,050
Gross profit 17,767 11,684 8,363 36,418 40,814
Selling, general and
administrative expenses 7,646 8,419 10,779 21,497 23,235
Earnings (loss) before
extraordinary items 716 (5,638) (11,265) 3,465 3,913
Primary earnings (loss) per
share before extraordinary
items (2) - - - (.45) (.83)
Other Financial Data:
Gross profit margin 8.1% 5.5% 4.9% 12.8% 10.9%
Depreciation and
amortization (3) $2,843 $2,638 $1,813 $3,822 $4,250
Capital expenditures 2,923 772 2,651 2,844 3,562
Hundredweight of rice sold 15,114 14,463 12,918 17,114 22,304
Net sales per hundredweight $14.48 $14.80 $13.13 $16.62 $16.73
Balance Sheet Data:
Cash $1,991 $1,057 $2,740 $1,721 $1,864
Current assets 76,661 76,335 32,681 86,448 89,736
Total assets 143,102 124,602 74,325 175,070 177,500
Total debt 88,709 81,160 47,953 95,084 89,237
Total stockholders' equity 25,596 19,304 12,699 40,299 44,212
</TABLE>
<TABLE>
<CAPTON>
Pre-Acquisition ARI (1)
-------------------------------------------------------
Year Ended March 31, Period From
--------------------------------- April 1, 1993 to
1991 1992 1993 May 26, 1993
--------- --------- --------- ----------------
(in thousands, except per hundredweight data)
<S> <C> <C> <C> <C>
Operating Data:
Net sales $198,462 $176,201 $176,619 $27,025
Gross profit 15,023 13,982 24,580 4,243
Selling, general and
administrative expenses 14,776 13,104 14,163 2,380
Earnings (loss) before
extraordinary items (5,777) (5,432) 3,250 888
Other Financial Data:
Gross profit margin 7.6% 7.9% 13.9% 15.7%
Depreciation and amortization (3) $3,365 $3,130 $3,070 $493
Capital expenditures 830 517 762 31
Hundredweight of rice sold 14,058 12,026 12,645 1,361
Net sales per hundredweight $14.12 $14.65 $13.97 $19.86
Balance Sheet Data:
Cash $3,864 $1,251 $1,926
Current assets 44,916 36,983 46,050
Total assets 105,957 95,515 102,178
Total debt 65,300 67,196 64,116
Total stockholders' equity 18,633 13,201 16,451
</TABLE>
Page 16<PAGE>
(1)On May 26, 1993, the Company consummated the Acquisition, which was
accounted for as a purchase of ARI by Comet. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to the
Company's Consolidated Financial Statements.
(2)Represents earnings (loss) per share before extraordinary items applicable
to common stock after preferred stock dividend requirements. Earnings per
share are not presented for the years ended March 31, 1991 to 1993 because the
data presented is that of Comet, which was a wholly-owned subsidiary of ERLY.
(3)Excludes amortization of deferred financing costs included in interest
expense.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ --------------------------------------------------------------
Results of Operations.
---------------------
The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Consolidated Financial Statements and the
notes thereto, included elsewhere in this Form 10-K.
Overview
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, which historically account for approximately 70% of the Company's
gross profit and 60% of the Company's net sales, is relatively constant and
margins are typically higher than those for commodity rice products. Demand
for commodity rice products, which accounts for approximately 30% of the
Company's gross profit and 40% of net sales 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. An example of this occurred in late 1993 when rough rice prices
approximately doubled as a result of shortages caused by poor weather
conditions in Japan and the entry of Japan into the world market as a net
importer of rice. Following this significant price increase, prices then fell
from January 1994 to July 1994 by approximately 50% to September 1993 levels
as supplies of rice in that country improved and world markets stabilized.
The Company generally benefited from the price variability experienced in the
1993 to 1994 period because the Company was able to increase sales prices in
some markets, the Company was able to sell rice inventories acquired at lower
prices at increased sales prices, and the Company participated in the Japanese
business through its California facilities. 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
Page 17<PAGE>
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.
Acquisition Accounting
Comet acquired a 48% voting interest in ARI on April 29, 1988 and an
additional 33% voting interest as a result of the Acquisition on May 26, 1993,
which was accounted for as a purchase by Comet of ARI. Because Comet was the
acquirer in the Acquisition for accounting purposes, the financial data
presented for periods prior to May 26, 1993 reflect only the operations of
Comet. Operating results after May 26, 1993, reflect 10 months of combined
operations in fiscal 1994 and 12 months of combined operations in fiscal 1995.
Results of Operations
Year Ended March 31, 1995 Compared with the Year Ended March 31, 1994
Net Sales. The Company's net sales increased $88.6 million, or 31.1%, from
$284.5 million in fiscal 1994 to $373.1 million in fiscal 1995. Export sales
increased by $61.9 million while domestic sales increased by $26.7 million.
Export sales improved primarily due to higher volume which increased by
approximately eight million equivalent rough rice hundredweight. Approximately
74% of this increase resulted from sales to the Caribbean, Mexico and South
America with the remaining improvements coming from the Asian and European
markets. Domestic sales benefited from higher average sales prices which
increased 14.5% primarily due to higher value-added retail sales from ARI's
existing customer base.
Gross Profit. Gross profit increased $4.4 million, or 12.1%, from $36.4
million in fiscal 1994 to $40.8 million in fiscal 1995, primarily due to
higher sales volume, partially offset by lower gross profit per hundredweight
sold. As a percentage of net sales, gross profit decreased from 12.8% in
fiscal 1994 to 10.9% in fiscal 1995 as a result of reduced prices when
Japanese demand abated while the average cost of rough rice milled for markets
in the United States, the Caribbean, Mexico and South America increased.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 8.1%, from $21.5 million in
fiscal 1994 to $23.2 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses declined from 7.6% in fiscal 1994
to 6.2% in fiscal 1995 due to greater net sales without corresponding
increases in fixed selling and administrative expenses.
Interest Expense. Despite lower average balances outstanding, interest expense
increased $2.5 million, or 24.9%, from fiscal 1994 to fiscal 1995 due to
higher average effective interest rates. Interest expense in both periods
includes amortization of capitalized debt issuance costs and other expenses
directly associated with the Company's debt
Page 18<PAGE>
Year Ended March 31, 1994 Compared with the Year Ended March 31, 1993
Net Sales. Net sales improved $114.9 million, or 67.7%, from $169.6 million in
fiscal 1993 to $284.5 million in fiscal 1994. Of this increase, $89.4 million
resulted from increased export sales and $25.5 million from increased domestic
sales. As a result of the Acquisition, 10 months of ARI sales were combined
with Comet in fiscal 1994 while fiscal 1993 included only Comet sales. Export
sales increased due to higher volume and higher average prices. Total export
sales volume in hundredweight in fiscal 1994 increased approximately 58.6% and
accounted for $54.1 million of the increase while increases in average prices
of 24% accounted for $35.3 million. Average price increases were caused by
increases in the proportion of branded products as a result of the Acquisition
and volume increases resulted from exports by CVI and exports to Japan and
Haiti. CVI's total net sales more than tripled in fiscal 1994 to $10.1 million
due to increases in customer demand for rice products with more exacting
specifications. Domestic sales increased primarily due to increases in rough
rice sales of $2.0 million and an increase in the average price of domestic
milled rice of 28.0% due to higher margin sales to an expanded customer base
resulting from the Acquisition.
Gross Profit. Gross profit improved $28.0 million, or 335.5%, from $8.4
million in fiscal 1993 to $36.4 million in fiscal 1994. As a percentage of net
sales, gross profit increased from 4.9% in fiscal 1993 to 12.8% in fiscal
1994. This increase in gross profit was primarily a result of additional sales
to customers acquired in the Acquisition, and additional domestic and export
sales. Exports to Japan from the Maxwell Facility contributed to significant
gross profit increases, and the CVI, Haiti and Puerto Rico subsidiaries also
reported significant improvements in gross profits. The increase in gross
profit as a percentage of net sales was primarily due to higher value-added
sales in the U.S. and Middle East markets resulting from an expanded customer
base due to the Acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.7 million, or 99.4%, from $10.8 million
in fiscal 1993 to $21.5 million in fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses increased from 6.4% in fiscal
1993 to 7.6% in fiscal 1994. This increase was primarily due to advertising
and selling expenses associated with greater sales of higher margin branded
products.
Interest Expense. Interest expense increased $4.7 million, or 88.9%, from
fiscal 1993 to fiscal 1994 due to higher average rates and balances. Interest
expense in fiscal 1994 includes amortization of capitalized debt issuance
costs and other expenses directly associated with the Company's debt.
Liquidity and Capital Resources
The Company requires liquidity and capital primarily for the purchase of rough
rice and to invest in property, plant and equipment necessary to support
operations. Historically, the Company has financed both working capital and
capital expenditure requirements through internally generated funds and by
funds provided by a line of credit. In fiscal 1995, the Company generated cash
Page 19<PAGE>
of approximately $9.5 million from its operating activities primarily as a
result of earnings and a decrease in inventories, partially offset by an
increase in accounts receivable. The Company had a net cash outflow of
approximately $3.5 million from its investing activities in fiscal 1995
principally for capital expenditures. The Company also had a net cash outflow
of approximately $5.9 million from its financing activities relating to
principal repayments under its credit facilities.
Capital expenditures in fiscal 1995 were approximately $3.6 million and are
expected to average approximately $2.5 million per year from fiscal 1996 to
fiscal 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.
The Company's Board of Directors has adopted a resolution authorizing
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.
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.
During the year ended March 31, 1995, ARI's maximum borrowing under its $47.5
million line of credit was $33.8 million, and the average balance outstanding
was approximately $23.1 million. At April 2, 1995, the borrowing base under
the line of credit was $41.9 million. ARI intends to refinance the existing
revolving line of credit in the next twelve months either by renewing the line
with the existing lender or seeking a new revolving line of credit from a new
lender.
In fiscal 1997, approximately $17.8 million of the term debt is due to be
repaid. To provide for repayment of this debt as well as to provide for a
reduction in borrowing costs of long-term debt, management is exploring
various options to refinance the term debt.
Page 20<PAGE>
ARI's Preferred B and C stock carries annual, cumulative, non-participating
dividends of approximately $5.2 million and $750 thousand, respectively. No
dividends have been declared or paid as of March 31, 1995. As of March 31,
1995, the Preferred B dividend accumulated, but not declared, is $9.5 million
and the Preferred C dividend accumulated, but not declared is $1.4 million.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The Financial Statements and Supplementary Data are included herein beginning
on Page F - 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
None
Page 21<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Executive Officers and Directors
The following table sets forth information with respect to each of the
executive officers and directors of ARI:
<TABLE>
<CAPTION>
Years of
Name Age Service(1) Functions Performed
- ----------------------- ---- ---------- ---------------------------------------------
<S> <C> <C> <C>
Executive Officers:
Gerald D. Murphy 67 31 Chairman of the Board of Directors
Douglas A. Murphy 39 13 President, Chief Executive Officer and Director
Richard N. McCombs 49 11 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
Lee Adams 54 28 Senior Vice President of International Marketing
Bill J. McFarland 58 20 Senior Vice President and President of Comet
American Marketing Division
John S. Poole 49 25 Senior Vice President and President of Comet
Rice Division
C. Bronson Schultz 53 21 Vice President of Finance and Data Processing
Joseph E. Westover 50 18 Vice President and Controller
Directors:
Gerald D. Murphy 67 31 Chairman of the Board of Directors
Douglas A. Murphy 39 13 President, Chief Executive Officer and Director
Richard N. McCombs 49 11 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
S.C. Bain, Jr. 46 7 Director
William H. Burgess 78 19 Director
John M. Howland 47 12 Director
George E. Prchal 52 13 Director
</TABLE>
(1)Years with ARI, including past or currently affiliated companies.
Gerald D. Murphy has served as Chairman of the Board of the Company since
October 1993 and as a director since 1988. He served as Chairman and Chief
Executive Officer of Comet from 1986 until the Acquisition in 1993 and has
served as President, Chief Executive Officer and Chairman of the Board of ERLY
since 1964. He also serves as a director of Pinkerton's, Inc., a security and
investigation services firm, and High Resolution Sciences, Inc., a
technological corporation. He previously served as a director of Wynn's
International, Inc. and Sizzler Restaurants International, Inc.
Page 22<PAGE>
Douglas A. Murphy has served as President of the Company since June 1993 and
as a director since 1990. He was President of Comet American Marketing, now a
division of ARI, from 1986 to 1990 and has served in various other capacities
with Comet since 1982. He has served as President and as a director of ERLY
since 1990. He is also a director advisor of Compass Bank Houston.
Richard N. McCombs has served as Executive Vice President of Finance and
Administration; Treasurer, Secretary and a director of the Company since 1993.
In addition, he has served as Managing Director of the ARI-Vinafood joint
venture since September 1994 and as Vice President and Chief Financial Officer
of ERLY since 1990.
Lee Adams has served as Senior Vice President of International Marketing of
ARI since June 1993. In addition, he served as Group Vice President of
International Marketing of Pre-Acquisition ARI from October 1987 to June 1993.
He served in various capacities with the ARI Cooperative from 1975 until its
dissolution in 1991 and in various capacities with Comet from 1963 until 1972.
Bill J. McFarland has served as Senior Vice President of ARI and President of
the Comet American Marketing division of ARI since 1993. Mr. McFarland has
served as a director of ERLY since 1986 and Vice President of ERLY since 1976.
He served as President of ERLY Food Group from 1990 to 1993 and as President
of Early California Foods Inc., a division of ERLY, and in various other
capacities with ERLY from 1972 to 1990.
John S. Poole has served as Senior Vice President and President of the Comet
Rice Division of ARI since June 1993 and served as President of Comet from
August 1990 until its liquidation after the Acquisition. He served in various
capacities with Comet from 1970 to 1990.
C. Bronson Schultz has served as Vice President of Finance and Data Processing
of ARI since January 1994. He served as Vice President and Chief Financial
Officer of ERLY Juice Inc. from 1988 through 1993, as Vice President of
Finance of Comet from 1974 to 1986 and as Vice-President of Finance of CAM
from 1986 to 1988.
Joseph E. Westover has served as Vice President and Controller of ARI since
January 1994. From 1983 through 1993, he served as Assistant Vice President of
Finance with ARI and the ARI Cooperative and from 1977 to 1983 in various
positions with the ARI Cooperative.
S.C. Bain, Jr. has served as a director of ARI since 1987. He has served as
President of Bain, Inc., a farming corporation, since 1985 and has been a
partner at Bain Farms since April 1988.
William H. Burgess has been a director of ARI since 1988 and a director of
ERLY since 1976. In addition, he has been a private business consultant and
the Chairman of CMS Digital, Inc., a privately held company since 1986. From
1978 to 1986 Mr. Burgess was Chairman of International Controls Corp., an
internationally diversified manufacturing company.
John M. Howland has served as a director of ARI since June 1993 and a
consultant to ARI since October 1993. He served as Chairman of the Board of
Directors from June 1993 until October 1993 when he resigned to become
Page 23<PAGE>
President and Chief Executive Officer of Rice Milling and Trading Ltd., Inc.,
a foreign corporation in the business of rice trading and processing. He
served as Chairman of the Board and the Chief Executive Officer and President
of Pre-Acquisition ARI from its inception in 1988 until June 1993 and served
in various capacities with the ARI Cooperative from 1983 until its dissolution
in 1991.
George E. Prchal has served as a director of ARI since June 1993 and a
consultant to ARI since October 1993 and is presently the Executive Vice
President of Rice Milling and Trading Ltd., Inc. He served as Executive Vice
President of ARI from August 1988 to October 1993 and in various capacities
with the ARI Cooperative from February 1986 until its dissolution in 1991.
From July 1982 to February 1986 he served as Vice President of Marketing and
Sales and then as President of Comet.
Item 11. Executive Compensation.
- -------- -----------------------
Pursuant to General Instruction G(3), information concerning executive
compensation is incorporated by reference from ARI's Proxy Statement to be
filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Pursuant to General Instruction G(3), information concerning security
ownership of certain beneficial owners and management is incorporated by
reference from ARI's Proxy Statement to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Pursuant to General Instruction G(3), information concerning certain
relationships and related transactions is incorporated by reference from ARI's
Proxy Statement to be filed pursuant to Regulation 14A
Page 24<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ------- -----------------------------------------------------------------
(a) 1. Consolidated Financial Statements Page
--------------------------------- ------
Independent Auditors' Report............................. F - 1
Consolidated Balance Sheets - March 31, 1995 and 1994 ... F - 2
Consolidated Statements of Operations - Years Ended
March 31, 1995, 1994 and 1993 ........................... F - 4
Consolidated Statements of Cash Flows - Years
Ended March 31, 1995, 1994 and 1993 ..................... F - 6
Consolidated Statements of Stockholders' Equity -
Years Ended March 31, 1995, 1994 and 1993 ............... F - 8
Notes to Consolidated Financial Statements .............. F - 9
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts......... S - 1
All other schedules are omitted because they are not applicable.
3. Exhibits
--------
3.1 - Articles of Incorporation of ARI, as amended (1)
3.2 - Bylaws of ARI, as amended (1)
4.1 - Forms of Stock Certificate of ARI representing the Common
Stock and the Preferred Stock (1)
4.2 - Articles of Incorporation of ARI, as amended (1)
4.3 - Bylaws of ARI, as amended (1)
4.6 - Loan Agreement dated December 1, 1985, between Brazos Harbor
Industrial Development Corporation and Predecessor ARI (1)
4.7 - Trust Indenture dated December 1,1985, between Brazos Harbor
Industrial Development Corporation and Texas Commerce Bank
N.A. ("TCB") governing the issuance of Variable Rate Demand
Marine Terminal Revenue Bonds (1)
10.1 - Ground lease dated June 6, 1985, between Brazos River Harbor
Navigation District and Predecessor ARI (1)
Page 25<PAGE>
10.2 - Lease Agreement dated March 12, 1987, between Friendswood
Development Company and Predecessor ARI (1)
10.3 - Agreement for Construction of Facilities at Freeport, Texas,
dated August 1, 1985, between Borton, Incorporated and
Predecessor ARI (1)
10.4 - Forms of Employment Agreement between Predecessor ARI and
certain senior officers (1)
10.15 - Asset Purchase Agreement dated March 23, 1993, as amended
between ARI, ERLY and Comet (1)
10.16 - Management Agreement dated May 25, 1993, between ERLY and
ARI (1)
10.17 - Tax Agreement dated May 25, 1993, among ARI, ERLY and
Comet (1)
10.18 - Credit Guarantee Agreement dated March 24, 1993, among ARI,
ERLY, the Subsidiary Guarantors and The Chase Manhattan
Bank National Association ("Chase") as Administrative
Agent(1)
10.19 - Warrant Agreement dated May 24, 1993, between Chase and
ARI (1)
10.20 - Warrant Agreement dated May 24, 1993, between TCB and
ARI (1)
10.21 - Accounts Financing Agreement dated May 24, 1993, between ARI
and Congress Financial Corporation (1)
10.22 - Lease dated October 1, 1974, as amended April 9, 1979, by
and between Colusa-Glenn Drier Company and
Comet (1)
11.1 - Computation of Earnings per Share (2)
27 - Financial Data Schedule (2)
----------------
(1) - Previously filed.
(2) - Filed herewith.
Page 26<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: Douglas A. Murphy
------------------------------
Douglas A. Murphy, President,
Chief Executive Officer and Director
June 26, 1995
------------------------------
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ----------------------- ------------------
Douglas A. Murphy President, Chief June 26, 1995
- --------------------- Executive Officer and
Douglas A. Murphy Director
(principal executive officer)
Gerald D. Murphy Chairman of the Board June 26, 1995
- ----------------------
Gerald D. Murphy
John M. Howland Director June 26, 1995
- ---------------------
John M. Howland
S. C. Bain, Jr Director June 26, 1995
- ---------------------
S. C. Bain, Jr.
William H. Burgess Director June 26, 1995
- ----------------------
William H. Burgess
George E. Prchal Director June 26, 1995
- ----------------------
George E. Prchal
Page 27<PAGE>
Signature Title Date
- --------------------- ----------------------- ------------------
Richard N. McCombs Executive Vice-President June 26, 1995
- ---------------------- Finance & Administration,
Richard N. McCombs Secretary & Treasurer and Director
(principal financial officer)
Joseph E. Westover Vice-President and Controller June 26, 1995
- ---------------------- (principal accounting officer)
Joseph E. Westover
Page 28<PAGE>
INDEPENDENT AUDITORS' REPORT
American Rice, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of American Rice,
Inc. and subsidiaries ("ARI") at March 31, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended March 31, 1995. Our audits also
included the consolidated financial statement schedule listed at Item 14.
These financial statements and financial statement schedule are the
responsibility of ARI's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ARI at March 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in
the period ended March 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 of Notes to Consolidated Financial Statements, in May
1993 ARI consummated a transaction to acquire substantially all the assets and
assume all the liabilities of Comet Rice, Inc. ("Comet"), a wholly-owned
subsidiary of ERLY Industries Inc. ("ERLY"). After the acquisition, ERLY holds
81 percent of the voting power of ARI's stock. The acquisition has been
accounted for as a reverse step acquisition of ARI by Comet.
DELOITTE & TOUCHE LLP
Houston, Texas
May 26, 1995
Page F-1<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note 1)
(Thousands of Dollars)
March 31 1995 1994
---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $1,864 $1,721
Accounts receivable, net 33,423 22,222
Inventories:
Finished goods 17,108 31,935
Raw materials 33,097 26,273
Prepaid expenses 793 606
Deferred income taxes 3,451 3,691
--------- ---------
Total current assets 89,736 86,448
Net assets of Houston properties held for sale 18,767 18,764
Other assets 15,710 17,635
Receivable from ERLY 11,901 10,499
Property, plant and equipment, net 41,386 41,724
--------- ---------
Total assets $177,500 $175,070
========= =========
Continued on next page
See notes to consolidated financial statement
Page F-2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Note 1)
(Thousands of Dollars, except per share amounts)
March 31 1995 1994
---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $33,937 $32,876
Accounts payable 23,535 23,734
Accrued expenses 10,837 7,558
Income taxes payable to ERLY 1,037 1,456
Current portion of long-term debt 6,727 6,060
--------- ---------
Total current liabilities 76,073 71,684
Long-term debt 48,573 56,148
Deferred income taxes 8,616 6,870
Minority interest 26 69
Commitments and contingencies (Note 7) - -
Stockholders' equity (Note 4):
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 3,889
Series B- 2,800,000 convertible shares issued
and outstanding, liquidation preference of
$14,000 2,800 14,000
Series C- 300,000 shares issued
and outstanding, liquidation preference of
$1,500 300 1,500
Common stock, $1.00 par value; 10,000,000
shares authorized; 2,443,892 shares
issued and outstanding 2,444 12,219
Additional paid-in capital 25,286 -
Retained earnings 13,352 9,439
Cumulative foreign currency translation
adjustments (748) (748)
--------- ---------
Total stockholders' equity 44,212 40,299
--------- ---------
Total liabilities and stockholders' equity $177,500 $175,070
========= =========
See notes to consolidated financial statement
Page F-3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 1)
(Thousands of Dollars, except per share amounts)
Years Ended March 31 1995 1994 1993
---------------------------------------------------------------------
Net sales $373,050 $284,464 $169,617
Cost of sales 332,236 248,046 161,254
--------- --------- ---------
Gross profit 40,814 36,418 8,363
Selling, general and
administrative expenses 23,235 21,497 10,779
--------- --------- ---------
Earnings (loss) from operations 17,579 14,921 (2,416)
Interest expense 12,344 9,884 5,232
Interest income (727) (818) (1,753)
Other (income) expense (153) 560 (260)
(Earnings) loss on equity investment - (426) 1,630
Write-down of plant facility - - 4,000
--------- --------- ---------
Earnings (loss) before income taxes
and extraordinary items 6,115 5,721 (11,265)
Provision for income taxes 2,202 2,256 -
--------- --------- ---------
Earnings (loss) before
extraordinary items 3,913 3,465 (11,265)
Extraordinary items
Gain on debt restructuring,
net of income taxes - 9,318 4,726
--------- --------- ---------
Net earnings (loss) 3,913 12,783 ($6,539)
=========
Preferred stock dividend requirements (5,930) (4,942)
--------- ---------
Net earnings (loss) applicable
to common stock ($2,017) $7,841
========= =========
Continued on following page
See notes to consolidated financial statement
Page F-4<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Note 1)
(Thousands of Dollars, except per share amounts)
Years Ended March 31 1995 1994
----------------------------------------------------------
Primary earnings (loss) per
applicable common and
common equivalent share (Note 2):
Loss before extraordinary item ($.83) ($.45)
Extraordinary item - 2.90
--------- ---------
Net earnings (loss) ($.83) $2.45
========= =========
Fully diluted earnings (loss)
per applicable common and
common equivalent share (Note 2):
Earnings (loss) before
extraordinary item ($.83) $.35
Extraordinary item - 1.15
--------- ---------
Net earnings (loss) ($.83) $1.50
========= =========
See notes to consolidated financial statements
Page F-5<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 1)
(Thousands of Dollars)
<CAPTION>
Years Ended March 31 1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 3,913 $12,783 ($6,539)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) in operating
activities:
Depreciation 3,894 3,621 1,991
Amortization of debt issue costs and trademarks 2,511 1,462 -
Loss on sales of property 48 1,211 -
Extraordinary items - gain
on debt restructuring, net of income taxes - (9,318) (4,726)
(Earnings) loss on equity investment - (426) 1,630
Write-down of plant facility - - 4,000
Deferred tax provision 1,986 651 -
Provision for loss on accounts receivable - 3,245 2,400
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (11,201) (2,665) 9,128
Inventories 8,003 (23,712) 19,354
Prepaid expenses (187) (706) 424
Income taxes payable to ERLY (419) 1,456 -
Other assets (679) (1,572) (1,162)
Accounts payable (199) 4,770 (11,890)
Accrued expenses 3,279 (2,642) 937
Receivable from Parent (1,402) (519) 4,234
--------- --------- ---------
Net cash provided by (used in)
operating activities 9,547 (12,361) 19,781
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (3,562) (2,844) (2,651)
Proceeds from sales of assets 48 2,923 2,581
Cash acquired in acquisition of
American Rice, Inc. - 12,608 -
--------- --------- ---------
Net cash provided by (used in)
investing activities (3,514) 12,687 (70)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 1,061 (7,596) (14,870)
Proceeds from issuance of long-term debt - 65,300 -
Repayment of long-term debt (6,908) (58,955) (2,586)
Increase (decrease) in subordinated debt - (106) 303
Other, net (43) 12 (875)
--------- --------- ---------
Net cash used in financing activities (5,890) (1,345) (18,028)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 143 (1,019) 1,683
CASH AND CASH EQUIVALENTS:
Beginning of the period 1,721 2,740 1,057
--------- --------- ---------
End of the period $1,864 $1,721 $2,740
========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-6<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
(Note 1)
(Thousands of Dollars)
Year
Ended
March 31,
1994
---------------------------------------------------------------------
Preferred Stock Series B was issued to ERLY $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 statement
Page F-7<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 1)
(Thousands of Dollars)
<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 April 1, 1992 - $10 $13,597 $6,351 ($654) $19,304
Net loss - - - (6,539) - (6,539)
Foreign currency
translation adjustments - - - - (66) (66)
--------- --------- --------- --------- --------- ---------
Balance March 31, 1993 - 10 13,597 (188) (720) 12,699
Net earnings - - - 12,783 - 12,783
Foreign currency
translation adjustments - - - - (28) (28)
Issue Series C
Preferred Stock 1,500 - - (1,500) - -
American Rice, Inc.
acquisition 17,889 12,209 (13,597) (1,656) - 14,845
--------- --------- --------- --------- --------- ---------
Balance March 31, 1994 19,389 12,219 - 9,439 (748) 40,299
Reverse stock split (Note 4) (15,511) (9,775) 25,286 - - -
Net earnings - - - 3,913 - 3,913
--------- --------- --------- --------- --------- ---------
Balance March 31, 1995 $3,878 $2,444 $25,286 $13,352 ($748) $44,212
========= ========= ========= ========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-8<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On May 26, 1993, American Rice, Inc. ("ARI") consummated a transaction to
acquire substantially all of the assets of Comet Rice, Inc. ("Comet"), other
than the ARI capital stock owned by Comet, and assume all of Comet's
liabilities (the "Acquisition") in exchange for 14 million shares (before the
reverse stock split - see Note 4) of a newly created Series B $1 par value
preferred stock. Comet was a wholly-owned subsidiary of ERLY Industries Inc.
("ERLY").
Comet's combined holdings of ARI Common Stock and Series A Preferred Stock,
prior to the Acquisition, represented approximately 48 percent of the voting
power of the outstanding ARI stock. As a result of the Acquisition, Comet held
81 percent of the combined voting power of ARI stock outstanding after the
Acquisition. In connection with the Acquisition, 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 Acquisition,
owned the larger portion of the voting rights in the surviving corporation,
the Acquisition was accounted for as a reverse step 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 done by an investment banker. The accounting
consists of two steps: Step one consists of a recognition by ARI of ERLY's
historical cost of its original 48 percent interest. When ERLY purchased 48
percent of ARI in 1988 for $20 million and Comet's 50% interest in Comet
American Marketing ("CAM"), the purchase price was greater than 48 percent of
ARI's stockholders' equity. ERLY attributed the excess to ARI's 39 acres of
land in Houston and thus the excess ($5.2 million) was added to the book value
of the Houston property with a corresponding increase in equity. Step two
recognizes the 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 and liabilities are valued
at fair market value to the extent acquired. The assets and liabilities of
Comet have not been revalued in ARI's financial statements.
Because Comet is the acquirer for accounting purposes, the consolidated
financial statements presented at March 31, 1993 and for the year ended March
31, 1993 are those of Comet, not ARI. In addition, the operating results for
the period April 1, 1993 through the date of the Acquisition, May 26, 1993,
are those of Comet, not ARI. Operating results thereafter reflect the combined
operations of Comet and ARI. For convenience purposes, unless otherwise
specifically indicated, the entity is hereafter referred to as ARI for all
periods presented.
2. 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-
Page F-9<PAGE>
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. Distribution channels in the international
market vary from country to country and include sales to government agencies
and commercial importers, as well as through wholesalers and international
brokers.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of ARI and its majority-owned subsidiaries and
joint ventures. All significant intercompany accounts, intercompany profits
and intercompany transactions are eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Statement of Cash Flows - For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and highly liquid debt instruments purchased
with a maturity of three months or less. Borrowings and repayments on
revolving notes, payments for income taxes, and payments for interest and
financing fees are as follows:
Year ended March 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
Revolving notes (in millions):
Borrowings $355.3 $289.9 $6.7
Repayments 354.2 297.5 21.6
Payments for interest
and financing fees (in millions) $ 9.2 $ 9.8 $ 5.2
Payments for federal and state
income taxes (in thousands) $ 635 $ 344 $ 56
Inventories - Inventories are accounted for by the first-in, first-out cost
method (FIFO), or market, if lower.
ARI, from time to time, buys and sells futures and options contracts on rice
as an operational tool to manage its inventory position. Gains and losses on
contracts that meet defined criteria are recognized upon completion of the
transaction, while gains and losses from all other contracts are recognized in
the period in which the market value of the contracts change.
Property, Plant, and Equipment - Property, plant, and equipment are stated at
cost. Depreciation is provided by the straight-line method based on the
estimated useful lives of the various classes of property, which range from 10
to 45 years for buildings and improvements and 3 to 25 years for machinery and
equipment.
Page F-10<PAGE>
Expenditures for maintenance and repairs are charged to expense as incurred.
Properties Held for Sale - Properties held for sale consist primarily of 39
acres of land in Houston, Texas. Management believes that the net realizable
value of properties held for sale exceed their carrying value.
Trademarks - Trademarks are being amortized on a straight-line basis over 40
years. ARI utilizes estimated future undiscounted cash flows of related
product sales to evaluate any possible impairments.
Debt Issuance Costs - Debt issuance costs are stated at cost and amortized
over the life of the related debt using the effective interest method.
Amortization of debt issuance costs is included in interest expense in the
consolidated statements of operations.
Federal Income Taxes - Subsequent to the Acquisition, ARI's current taxable
income and loss is included in the consolidated federal income tax return
filed by ERLY. Under the terms of the tax sharing agreement between ARI and
ERLY, ARI will pay to or receive from ERLY the amount of income taxes
currently payable or refundable computed as if ARI filed its annual tax return
on a separate company basis. The tax sharing agreement provides that ERLY will
receive the benefit of any pre-Acquisition tax net operating loss
carryforwards generated by Comet.
ARI's provision for income taxes is computed as if the company files its
annual tax return on a separate company basis. Deferred taxes are established
for the temporary differences between the financial reporting basis and the
tax basis of ARI's assets and liabilities at enacted rates.
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 and common equivalent shares outstanding during the periods
presented. Common stock equivalents and contingent common stock issues are not
included 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 is not presented for the year ended March 31, 1993 because
Comet was a wholly-owned subsidiary of ERLY.
Earnings applicable to common stock reflect dividends in the amount of $5.9
million and $4.9 million for the year ended March 31, 1995 and for the period
from May 27, 1993 to March 31, 1994, respectively, on the Series B Preferred
Stock and the Series C Preferred Stock. These dividends are cumulative and
have not been declared by ARI. The annual cumulative dividend on the Series B
Preferred Stock is $1.85 per share, or $5.18 million and the annual cumulative
dividend on the Series C Preferred Stock is $2.50 per share or $750,000.
Various lending agreements prohibit the payment of any dividends
Page F-11<PAGE>
The weighted average number of shares (in thousands) included in the earnings
per share calculation are summarized as follows:
Year Ended March 31,
----------------------------------
1995 1994
---------------- ----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Common Stock 2,444 2,444 2,444 2,444
Preferred Stock - Series A - - 778 778
Preferred Stock - Series B - - - 4,741
------- ------- ------- -------
2,444 2,444 3,222 7,963
======= ======= ======= =======
Fair Value of Financial Instruments - ARI's financial instruments consist
primarily of cash, trade accounts and notes receivable, accounts payable, and
debt instruments. The book values of cash, trade receivables and accounts
payable are representative of their respective fair values due to the short-
term maturity of these instruments. The book value of ARI's debt instruments
is considered to approximate the fair value as the interest rates of such
instruments are based on the prime rate. It is not practicable to estimate the
fair value of the note receivable from ERLY (Note 13) because of its related
party nature.
Reverse Stock Split - On September 1, 1994, ARI's shareholders approved a one-
for-five reverse stock split for all issues of preferred and common stock. All
per share information in the financial statements has been adjusted for this
reverse stock split.
Reclassifications - Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the consolidated
financial statement presentation at March 31, 1995 and for the year then
ended.
3. NOTES PAYABLE AND LONG-TERM DEBT
ARI has a $47.5 million revolving credit line with Congress Financial
Corporation ("Congress") which was renewed on May 24, 1995 through May 23,
1996. This revolver carries an interest rate of prime (9% at March 31, 1995)
plus two percent. This facility requires that all ARI cash receipts be paid to
Congress as payment on the loan, requires that collateral and borrowing base
reports be prepared frequently by ARI to support requests for borrowings, and
is collateralized by receivables, inventory, a $2 million key man life
insurance policy on Gerald D. Murphy, and junior liens on ARI assets pledged
to the term lenders. At March 31, 1995 and 1994, approximately $31 million and
$33 million, respectively, were outstanding under the Congress revolving line
of credit.
Page F-12<PAGE>
During 1995, approximately $2.9 million in short-term notes were obtained from
various foreign lenders to finance inventory. These notes will mature on or
before June 30, 1995, bear interest at rates ranging from 8.75% to 25.2% per
year and are non-recourse to ARI.
Long-term debt consisted of the following:
March 31, March 31,
1995 1994
--------- ---------
(in thousands)
Chase Manhattan Bank $ 23,755 $ 26,567
Internationale Nederlanden Bank N.V. 23,755 26,567
Texas Commerce Bank 6,842 7,966
Other notes 948 1,108
--------- ---------
Total Debt 55,300 62,208
Less current maturities 6,727 6,060
--------- ---------
Total Long-term debt $ 48,573 $ 56,148
========= =========
ARI's long-term debt maturities are as follows:
Year ended March 31, Amount
------------------- ---------
(in thousands)
1996 $ 6,727
1997 17,845
1998 30,260
1999 160
2000 160
Thereafter 148
Interest rates on the long-term debt range from prime plus 3 percent to prime
plus 5 percent through May 31, 1995, increasing to a range of prime plus 6
percent to prime plus 8 percent by June 1997. At March 31, 1995, the weighted
average interest rate on the term debt was 12.3%. These loans are
collateralized by substantially all of ARI's fixed assets and trademarks, and
have junior liens on collateral of the revolving credit line. In addition, 2.6
million shares of Series B Preferred Stock have been pledged by ERLY as
collateral. Terms of the loans preclude dividend payments, restrict
investments and capital expenditures and require the maintenance of certain
financial covenants. At March 31, 1995, ARI was not in compliance with certain
of these provisions; however, the term lenders have waived such non-
compliance.
ARI's term and revolving debt agreements require ERLY to guarantee the debt of
ARI even though ARI's management believes that ERLY will not be a source of
additional financing to ARI. These agreements contain certain cross-default
provisions with ERLY debt agreements which 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 covenants.
Page F-13<PAGE>
4. STOCKHOLDERS' EQUITY
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.
Holders of the common stock are entitled to one vote per share on all matters
to be voted on by shareholders and are entitled, subject to any preferential
rights of holders of preferred stock, to receive dividends, if any, as may be
declared from time to time by the Board of Directors of ARI. Upon any
liquidation or dissolution of ARI, the holders of the common stock are
entitled, subject to any preferential rights of holders of preferred stock, to
receive a pro rata share of all the assets remaining available for
distribution to shareholders after payment of all liabilities.
The Board of Directors of ARI, without further action by the shareholders, is
authorized to issue shares of preferred stock in one or more series, and with
respect to each series, to determine the rate of dividends, terms of
redemption, amount payable upon liquidation, sinking fund provisions, terms of
conversion and voting rights. Rights with respect to dividends and liquidation
may be more favorable than those of the holders of the common stock.
At March 31, 1995, ARI had three series of preferred stock: Series A, Series B
and Series C. Series A Preferred Stock and Series B Preferred Stock are owned
by ERLY and Series C Preferred Stock is owned by a group of former ARI
lenders.
The Series A Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of this
series of preferred stock $25.70 per share (aggregate of $19.989 million)
before any amounts may be paid to the holders of the common stock. The holders
of this series of preferred stock are entitled to one vote per share on all
matters upon which the holders of common stock have the right to vote and are
generally entitled to vote as a class on any matters adversely affecting their
rights as holders of this series of preferred stock. Each share of this series
of preferred stock is convertible into one share of common stock upon the
election of the holder of this preferred stock.
The Series B Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of this
series of preferred stock $5.00 per share (aggregate of $14.0 million) before
any amounts may be paid to the holders of the common stock. Each share of this
series of preferred stock provides for annual cumulative, non-participating
dividends of $1.85. Cumulative dividends in arrears on Series B Preferred
Stock were $9.497 million at March 31, 1995 (Note 2). The holders of this
series of preferred stock are entitled to two votes per share on all matters
upon which the holders of common stock have the right to vote and are
generally entitled to vote as a class on any matters adversely affecting their
rights as holders of this series of preferred stock. Each share of this series
of preferred stock is convertible into two shares of common stock upon the
election of the holder of this preferred stock. ERLY has pledged the preferred
stock to current and former term lenders (see Notes 3 and 6).
Page F-14<PAGE>
The Series C Preferred Stock was issued to certain former lenders of ARI in
partial satisfaction of ARI's indebtedness to them. The Series C Preferred
Stock has no rights of redemption or sinking fund provisions, but upon any
liquidation of ARI, ARI must pay the holders of the Series C Preferred Stock
$5.00 per share (aggregate of $1.5 million) before any amounts may be paid to
the holders of the common stock. The Series C Preferred Stock is callable by
ARI at any time at a price of $26.35 per share less aggregate dividend
payments per share. The Series C Preferred Stock provides for annual
cumulative, non-participating dividends of $2.50 per share, is non-convertible
and non-voting. Cumulative dividends in arrears on Series C Preferred Stock
were $1.375 million at March 31, 1995 (Note 2).
The Series B Preferred Stock and Series C Preferred Stock rank pari passu with
respect to liquidation preference rights and dividend declarations (up to $.27
per share of Series B Preferred Stock). ARI's articles of incorporation also
provide that, so long as any shares of Series B Preferred Stock or Series C
Preferred Stock are outstanding, ARI will not authorize or create any class or
series of stock, or increase the authorized amount of preferred stock, ranking
(either as to payment of dividends or distribution of assets) prior to such
preferred stock.
ARI's current debt agreements prohibit the payment of any dividends and do not
provide any basis on which the lenders will approve a dividend payment.
ARI issued warrants to the term lenders to purchase up to 155,000 shares of
ARI Common Stock at $5.00 per share. The warrants expire May 26, 2001.
5. TAXES ON INCOME
As a result of the net operating losses incurred during the year ended March
31, 1993, no provision for income taxes was allocated to Comet by ERLY for
this period. The provision for taxes on income consist of:
Year ended March 31,
-----------------------
1995 1994
--------- ---------
(in thousands)
U. S. taxes currently payable $ 94 $ 1,456
Deferred U. S. taxes 1,986 651
State income taxes 122 149
--------- ---------
$2,202 $2,256
========= =========
Page F-15<PAGE>
As discussed in Note 1, Comet was a wholly-owned subsidiary of ERLY for the
year ended March 31, 1993. The primary differences at March 31, 1993 between
the financial statement and tax bases of assets and liabilities were related
to fixed assets, property held for sale, and the allowance for doubtful
accounts. Net deferred taxes arising from these temporary differences were
offset by existing net operating loss carryforwards of Comet on a
stand-alone basis. Temporary differences which give rise to deferred tax
assets and liabilities are as follows:
March 31,
---------------------------------------
1995 Deferred Tax 1994 Deferred Tax
------------------ ------------------
Asset Liability Asset Liability
-------- -------- -------- --------
(in thousands)
Property, plant, and equipment $ $10,113 $ $10,057
Allowance for doubtful accounts
and other reserves 1,085 - 2,318 -
Change in tax accounting principles 1,779 - 2,588 -
Alternative minimum tax credit 1,683 - 1,456 -
Net operating loss carryovers 221 - 508 -
Other 180 - 180 172
-------- -------- -------- --------
$ 4,948 $10,113 $ 7,050 $10,229
======== ======== ======== ========
In fiscal 1994, the tax expense attributable to the extraordinary item (gain
on debt restructuring) was reduced by approximately $2.8 million to reflect
the tax benefit of utilization of operating loss carryforwards.
A comparison of income tax expense at the federal statutory rate to ARI's
provision in lieu of taxes is as follows:
Year Ended March 31,
--------------------
1995 1994
--------- ---------
(in thousands)
Earnings from continuing operations
before income taxes and extraordinary items $6,115 $ 5,721
========= =========
Statutory taxes $2,079 $ 2,002
Amortization of trademarks 135 90
Non-deductible entertainment and other (134) 15
State income taxes 122 149
--------- ---------
Provision for taxes on income $2,202 $ 2,256
========= =========
Effective tax rate 36.0% 39.4%
========= =========
Page F-16<PAGE>
Under federal tax laws, tax operating losses occur when deductions are greater
than taxable income. These losses may be carried back to offset taxable income
in earlier years before being carried forward to offset taxable income in
future years. At March 31, 1995, operating loss carryforwards for federal tax
return purposes totaled approximately $600,000. These loss carryforwards are
not available for carryback to prior years for a refund. If they do not offset
future years' taxable income, these losses will expire in 2007.
6. EXTRAORDINARY ITEMS
Operating results for the year ended March 31, 1994 include a gain on debt
restructuring arising from ARI's May 1993 refinancing of the combined
indebtedness of ARI and Comet. ARI's former lenders agreed to a debt discount
in the approximate amount of $10.3 million ($9.3 million, net of tax). As
additional consideration for the satisfaction of the existing indebtedness of
ARI, 200,000 shares of 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 is reflected in the ARI financial statements as a reduction in the
receivable from ERLY.
Due to continuing operating losses resulting from low margins, ARI suspended
payments on a $16 million non-recourse obligation secured by its rice plant in
Greenville, Mississippi. In July 1992, the facility was sold through a
foreclosure sale and in conjunction therewith, debt in the amount of $16
million and the related property, plant and equipment was eliminated. Prior to
the disposition, the plant was written down by $4 million to its estimated
fair market value. This writedown is included in the results of operations
before income taxes and extraordinary items for the year ended March 31, 1993.
The difference between the estimated fair market value of the facility and the
amount of debt extinguished resulted in a gain of $4.726 million (net of
estimated shut-down and relocation expenses) on the extinguishment of debt
which was recorded as extraordinary income for the year ended March 31, 1993.
7. COMMITMENTS AND CONTINGENCIES
ARI has a commitment for an operating lease relating to the land for its
milling facility in Freeport, Texas. The initial term of the lease expires in
2022 and may be renewed at ARI's option in five year increments through 2057.
In addition, ARI and its subsidiaries are obligated under operating leases for
other plant facilities, office space in Houston, Texas, and various machinery,
equipment and automobiles. Aggregate minimum rental commitments under
operating leases with noncancellable terms of more than one year are as
follows:
Year Ending March 31, Amount
--------------------- -------------
(in thousands)
1996 $ 2,425
1997 2,034
1998 1,162
1999 857
2000 679
Thereafter 16,500
Page F-17<PAGE>
ARI incurred total rental expense of approximately $4.0 million, $2.4 million
and $1.3 million for the years ended March 31, 1995, 1994 and 1993,
respectively.
ARI is involved in litigation in the ordinary course of business. It is the
opinion of management that resolution of such litigation will not have a
material adverse effect on the consolidated financial position or consolidated
results of operations of ARI.
8. BENEFIT PLANS
ARI had a defined contribution plan which covered substantially all employees.
On January 1, 1994, the ARI plan was merged into the ERLY defined contribution
plan, which is essentially similar in its operations. The ERLY plan provides
for a mandatory 1% matching contribution to the plan on a monthly basis and an
annual contribution solely at the discretion of the Board of Directors. ARI
contributions to the plan for the years ended March 31, 1995, 1994 and 1993
were $1.021 million, $167,000, and $125,000, respectively.
9. EXPORT SALES
Net sales include export sales as follows:
Year ended March 31,
-------------------------------------
1995 1994 1993
--------- --------- ---------
(in thousands)
Middle East $91,449 $89,782 $46,209
Caribbean, Mexico, and
South America 84,806 38,935 32,744
Asia 49,963 42,838 670
Europe 13,632 6,260 10,593
Africa 3,864 4,012 2,114
Other 65 13 88
--------- --------- ---------
Total $243,779 $181,840 $92,418
========= ========= =========
Percent of total revenues 65% 64% 54%
========= ========= =========
Page F-18<PAGE>
10. OTHER ASSETS
Other assets consisted of the following:
March 31,
-----------------------
1995 1994
--------- ---------
(in thousands)
Trademarks $12,562 $12,971
Investments 368 163
Debt issuance costs 1,383 3,234
Notes receivable 662 773
Other 735 494
--------- ---------
Total $15,710 $17,635
========= =========
Accumulated amortization of trademarks was $1.799 million and $1.390 million
at March 31, 1995 and 1994, respectively.
11. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
March 31,
-----------------------
1995 1994
--------- ---------
(in thousands)
Land $ 275 $ 187
Buildings and improvements 23,222 22,653
Machinery and equipment 35,782 33,172
--------- ---------
Total 59,279 56,012
Less: accumulated depreciation (17,893) (14,288)
--------- ---------
Property, plant, and equipment, net $41,386 $41,724
========= =========
Page F-19<PAGE>
12. ACCOUNTS RECEIVABLE
Accounts receivable and allowance for doubtful accounts consisted of the
following:
March 31,
----------------------
1995 1994
--------- ---------
(in thousands)
Accounts receivable - trade $35,134 $24,020
Less allowance for doubtful accounts (1,711) (1,798)
--------- ---------
Net $33,423 $22,222
========= =========
Accounts receivable - non current $ 471 $ 4,387
Less allowance for doubtful accounts (471) (4,387)
--------- ---------
Net $ - $ -
========= =========
13. TRANSACTIONS WITH RELATED PARTIES
ARI has entered into a number of transactions in the ordinary course of
business with ERLY and its affiliates, including pre-Acquisition ARI which was
48 percent owned by Comet.
As a result of the Acquisition, ARI entered into a management agreement
between ERLY and ARI whereby ERLY acts as ARI's agent for the purpose of
providing certain marketing, operating and management services to ARI. In
exchange for such services ARI pays ERLY a monthly management fee of
$77 thousand, which is adjusted annually based on the most recent published
Consumer Price Index. The agreement is for a period of two years with two-year
automatic renewals unless one party notifies the other that it wishes to
terminate the agreement. Prior to the Acquisition, Comet had a similar
management agreement with ERLY. During the year ended March 31, 1994 and 1993,
Comet incurred and paid $1.1 million and $2.1 million, respectively, in
management fees under its agreement with ERLY.
ARI has a note receivable from ERLY bearing an interest rate of 6 percent. The
note is payable out of dividends received by ERLY on the Series B Preferred
Stock. The balance of the note was $11.9 million and $10.5 million at March
31, 1995 and 1994, respectively. At March 31, 1993, there were several notes
which totaled $12.1 million. During 1993, the notes bore interest at rates
between prime plus 1.5 percent and 22 percent.
Comet also purchased milled and rough rice from Pre-Acquisition ARI, and sold
milled and rough rice to Pre-Acquisition ARI. Such transactions with ARI were
conducted at prices that approximated market rates or were based on production
cost formulas. During the two months ended May 26, 1993, Comet purchases
amounted to $222,000 from ARI and sales to ARI amounted to $3,000. Total sales
to ARI and purchases from ARI amounted to $23.8 million and $13.3 million,
respectively, during the year ended March 31, 1993. Comet had a net receivable
from ARI of $4.2 million at March 31, 1993.
Page F-20<PAGE>
As a result of the Acquisition, ARI assumed an agreement between Pre-
Acquisition ARI and ERLY Juice Inc. ("Juice"), a wholly-owned subsidiary of
ERLY, whereby Juice acted as ARI's agent for the purpose of providing certain
marketing, sales, credit and general management services to ARI's CAM Division
operations. Pursuant to the agreement, ARI paid Juice a monthly fee for its
services and provided office space. The agreement was terminated in November
1993, as Juice operations were ceased and nearly all remaining Juice employees
became employees of ARI. ARI incurred and paid agency fees under the agreement
of $890,000 during the year ended March 31, 1994.
14. CONDENSED STATEMENT OF OPERATIONS FOR AMERICAN RICE, INC. (ACQUIRED
ENTITY) FOR THE YEAR ENDED MARCH 31, 1993
As discussed in Note 1, prior to the Acquisition in May 1993 Comet's combined
holdings of Common Stock and Series A Preferred Stock represented
approximately 48 percent of the voting power of the outstanding ARI stock.
Comet accounted for the investment in ARI using the equity method of
accounting.
ARI's condensed statement of operations for the year ended March 31, 1993
follows (in thousands):
Net sales $176,619
Cost of sales 147,245
---------
Gross profit 29,374
Selling, general, and
administrative expenses 18,957
Interest expense 7,167
---------
Earnings before taxes 3,250
Income tax expense -
---------
Net earnings $3,250
=========
Page F-21<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULE II
AMERICAN RICE, INC.
VALUATION AND QUALIFYING ACCOUNTS
As of March 31
(In thousands)
Additions
------------------------
Balance at Charged to Charged Balance
Beginning Costs and to other Other at End
Description of Year Expenses Accounts Changes of Year
- ------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1995 $1,798 $ - $ - $ (87)(a) $1,711
1994 2,940 1,245 (2,387)(b) - 1,798
1993 540 2,400 - - 2,940
Allowance for doubtful
noncurrent receivables:
1995 $4,387 $ - $ - $(3,916)(a) 471
1994 - 2,000 2,387(b) - 4,387
1993 - - - - -
- ----------
<FN>
(a) Reductions related to accounts receivable written off.
(b) Amounts reclassified between allowance for doubtful accounts and allowance for doubtful
noncurrent receivables.
</TABLE>
Page S-1<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Year Ended March 31 1995 1994
---------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE *
Earnings before extraordinary item $3,913 $3,465
Extraordinary item - 9,318
--------- ---------
Net earnings 3,913 12,783
Less dividends on preferred stock:
Series B (5,180) (4,317)
Series C (750) (625)
--------- ---------
Earnings (loss) applicable to
common stock ($2,017) $7,841
========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444
Preferred Series A - 778
--------- ---------
2,444 3,222
========= =========
Primary earnings (loss) per share:
Loss before extraordinary item ($.83) ($ .45)
Extraordinary item - 2.90
--------- ---------
Earnings (loss) per share applicable
to common stock ($.83) $2.45
========= =========
* See Note 4 of Notes to Consolidated Financial Statements. 1994
has been restated for the effects of a 1 for 5 reverse stock split
which occurred in fiscal 1995.
Continued on next page
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Year Ended March 31 1995 1994
---------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE *
Earnings before extraordinary item $3,913 $3,465
Extraordinary item - 9,318
--------- ---------
Net earnings 3,913 12,783
Less dividends on preferred stock:
Series B - -
Series C (750) (625)
--------- ---------
Earnings applicable to
common stock $3,163 $12,158
========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444
Preferred Series A 778 778
Preferred Series B 5,600 4,741
--------- ---------
8,822 7,963
========= =========
Fully diluted earnings per share:
Earnings before extraordinary item $.36** $ .35
Extraordinary item - 1.15
--------- ---------
Earnings per share applicable
to common stock $.36** $1.50
========= =========
* See Note 4 of Notes to Consolidated Financial Statements. 1994
has been restated for the effects of a 1 for 5 reverse stock split
which occurred in fiscal 1995.
** 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 statement of operations are the
same as primary earnings per share.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> YEAR
<CASH> 1,864
<SECURITIES> 0
<RECEIVABLES> 35,134
<ALLOWANCES> 1,711
<INVENTORY> 50,205
<CURRENT-ASSETS> 89,736
<PP&E> 59,279
<DEPRECIATION> 17,893
<TOTAL-ASSETS> 177,500
<CURRENT-LIABILITIES> 76,073
<BONDS> 0
0
3,878
<COMMON> 2,444
<OTHER-SE> 37,890
<TOTAL-LIABILITY-AND-EQUITY> 177,500
<SALES> 373,050
<TOTAL-REVENUES> 373,050
<CGS> 332,236
<TOTAL-COSTS> 332,236
<OTHER-EXPENSES> 22,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,344
<INCOME-PRETAX> 6,115
<INCOME-TAX> 2,202
<INCOME-CONTINUING> 3,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,913
<EPS-PRIMARY> (.83)
<EPS-DILUTED> (.83)
</TABLE>
