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, 1997 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.)
411 North Sam Houston Parkway East
Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (281) 272-8800
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 25, 1997, 2,443,669 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 25, 1997, based on the average bid and
asked prices for these shares on the NASDAQ System, was $4,685,321.
Documents Incorporated by Reference
Portions of the 1996 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 10
Item 3: Legal Proceedings See page 11
Item 4: Submission of Matters to a See page 11
Vote of Security Holders
Part II
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Item 5: Market for the Company's See page 12
Common Stock and Related
Stockholder Matters
Item 6: Selected Financial Data See page 13
Item 7: Management's Discussion See page 15
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 19
with Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See page 20
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
Schedules and Reports on
Form 8-K
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PART I
Item 1. Business
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The Company
American Rice, Inc. ("ARI or the "Company") is a processor and marketer of
food products, the principal of which are rice and olives. 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 availability. ARI is among the largest of four
U.S. olive processors with the largest U.S. market share of branded sales of
both black and green olives. Significant synergy's have been attained through
successful integration of the olive product lines with ARI's existing
marketing, logistical, and support functions allowing effective marketing and
efficient, lower cost operations for both rice and olives.
Background
The business of ARI dates back to 1901 when the predecessor company to Comet
Rice, Inc. ("Comet") was formed in Beaumont, Texas. In 1952, the predecessor
company to Comet merged with Wonder Rice Mills, Inc. of Stuttgart, Arkansas
and Adolphus Rice Mills, Inc. of Houston, Texas. This rice milling business
was purchased in 1970 by Early California Industries Inc. ("Early"), a
California company. In 1972, Early formed Comet as a new subsidiary into which
Early transferred all of its rice business assets. In 1979, Comet acquired
United Rice Growers and Millers. 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 and 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 "Comet Acquisition"). As a
result of the Comet Acquisition, ERLY holds 81% of the voting power of the
Company.
In July 1996, the Company added olives to its product lines by acquiring the
domestic and foreign olive business of Campbell Soup Company (the "Olive
Page 1<PAGE>
Acquisition"). Assets acquired include olive inventories and processing
facilities in Visalia, California and Seville, Spain.
Rice Products
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 125%
during the last 30 years to approximately 350 million metric tons. U.S.
consumption of rice has approximately doubled since 1984 and currently exceeds
three million metric tons per year. The increase in U.S. rice consumption is
primarily due to the substantial population growth of certain ethnic groups
and 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 to
approximately 18 million metric tons. 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 30% of total world rice
exports, followed by the United States, India, and Vietnam, whose exports
account for 16%, 14%, and 11%, respectively, of the world rice trade. 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 approximately three million metric tons per year
in 1995 to 1996.
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. In recent years, imports from Bangladesh, China, and Indonesia have
increased to this level. In 1995, international trade was impacted favorably
by the effects of the General Agreement on Tariff and Trade ("GATT").
Signatory countries, including the United States, the European Union, Japan,
and South Korea 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, which was not
required to eliminate rice import bans, highly beneficial quotas were
established through bilateral negotiations. Japan imported approximately
450,000 metric tons of rice in the 1996 crop year, and its imports are
scheduled to increase each year to 758,000 metric tons by the year 2000. In
general, reductions on tariffs will make imports more attractive to foreign
buyers and consumers and more competitive with domestic products. Under GATT,
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developed countries are committed to reduce tariffs by an average of 36% over
six years, while developing nations will reduce tariffs 24% over ten years.
Management believes increases in U.S. medium grain rice production in recent
years is primarily attributable to GATT and that over the longer term the
agreement will stimulate additional production increases and world rice trade.
Domestic Trade. U.S. consumption of rice has approximately doubled since 1984
and currently exceeds three million metric tons per year. U.S. per capita
consumption of rice has increased 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.
Rice Production. Approximately 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 reflected in the size and shape of
the kernel as well as amylose or starch content.
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 cooking.
The finished rice products are then ready for packaging and shipping.
Packaging can occur at the rice processing plant or at the destination site
Page 3<PAGE>
after bulk shipment. Transportation costs associated with bulk shipments are
typically less costly than those of packaged rice.
Rice Brands and Markets
The Company is one of the largest competitors in the global market for rice.
ARI competes in all major rice importing regions in the world. 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 ARI's rice sales during the past three years:
Year ended March 31,
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1997 1996 1995
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(in thousands)
United States $146,880 $131,776 $123,530
Export Sales:
Middle East $165,666 $117,359 $91,449
Caribbean, Mexico, and
South America 64,991 64,654 84,806
Asia 31,583 49,453 49,963
Other 35,076 26,845 23,302
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Total Export Sales 297,316 258,311 249,520
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Total Sales $444,196 $390,087 $373,050
========= ========= =========
United States. ARI's domestic rice 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. 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. 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 15%. 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.
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 in the United States and
Canada as well as other food resellers.
Middle East. Saudi Arabia has been the largest market for U.S. grown rice,
annually importing an average of approximately 750,000 metric tons from all
sources, and is currently the largest branded parboiled rice market in the
Page 4<PAGE>
world. ARI's Abu Bint(R) brand is considered to be one of the best recognized
food products in Saudi Arabia, leading all U.S. grown rice imports with
approximately 60% of the market for this rice. Overall, Abu Bint(R) is the
number one brand with a market share of approximately 13% of the total Saudi
Arabian market. Rice products exported to Saudi Arabia by ARI are marketed to
various wholesalers and retailers through a number of major distributors.
Historically, the rice ARI sold in Saudi Arabia was shipped from the United
States in packaged form. In 1994, ARI began shipping rice in bulk form to the
Middle East region and packing it under strict quality supervision in order to
reduce vessel loading and freight costs while providing enhanced market
competitiveness, improved customer service, and product freshness. Until
January 1997, products were packed at a facility in Jeddah, Saudi Arabia (see
Item 3 - Legal Proceedings). Since January 1997 other Middle East facilities
with similar advantages have been utilized.
ARI also sells significant quantities of both branded and unbranded rice to a
number of other Middle East countries including Turkey, Iran, Jordan, and
Syria.
Caribbean, Mexico and South America. 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), D'Aqui(TM), and Cinta Azul(R) in this region,
with substantial Company-controlled or owned assets in Haiti and Jamaica and
the Netherlands Antilles.
ARI is the largest processor and marketer of rice to Haiti. 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.
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.
Asia. As a participant in GATT, Japan imported approximately 450,000 metric
tons of rice in the 1996 crop year, and its imports are scheduled to increase
each year to 758,000 metric tons by 2000. In the first two years of the GATT
agreement, the United States exported approximately half of Japan's GATT
commitment, and ARI milled in excess of 40% of the U.S. exports. Management
believes the Company will continue to have material involvement in this
business.
In 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 for the purpose of producing rice and related products at
rice processing facilities in Vietnam. ARI owns 55% of ARI-Vinafood. The
Company's participation in the joint venture is subject to a buy-out by the
Vietnam Partner after the fifth year of operation. ARI's participation in ARI-
Vinafood has allowed the Company to participate in the world market for Asian
origin rice.
Rice 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 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 availability. 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
Page 5<PAGE>
develop around the world.
ARI buys rough rice from a variety of farm sources. A 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.
ARI also obtains domestic rough rice through competitive bidding in all rice
producing states. In addition to purchasing domestic rough rice, ARI obtains
milled rice from other U.S. and foreign rice suppliers as needed.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI buys and sells futures and options contracts as a mechanism to
manage a portion of its rough rice requirements.
The Company procures 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's principal Southern rice processing facility is
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. The facility has a parboiled processing plant and
separate milling facilities for both white and parboiled rice. 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.
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 facility which was first leased by Comet in
1991 and recently extended, 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 Port-au-Prince,
Haiti, and Kingston, Jamaica 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 operates an ocean-going vessel to service the Caribbean area
facilities. These facilities provide ARI with competitive advantages in
loading, transportation and labor costs as well as in customer service and
product freshness.
Olive Products
Industry Overview
While rice is a primary staple food in the world, olives are typically used as
a food ingredient, supplement or garnish. Therefore, while rice has estimated
average per capita consumption of 150 pounds per year, olives is much lower
with estimated average world per capita consumption of .4 pounds per year. Per
Page 6<PAGE>
capita consumption of olives in the U.S. is estimated to be 1.5 pounds per
year.
International Trade. The principal production regions for table olives are the
Mediterranean and the valleys of California. Consumption is concentrated in
the Mediterranean region and the U.S. In the five years ending with crop year
1996-1997, estimated world production and consumption of table olives has
averaged approximately one million tons, while world trade between countries
averaged approximately 230 thousand tons. Due to favorable weather conditions,
the 1996-1997 world crop is expected to exceed the average of the last four
years by over 200 thousand tons, with a consumption increase and replenishment
of unusually low beginning inventories absorbing the production increase.
Among the leaders in world trade in recent years, Morocco is the largest
exporter, while the United States is the largest importer. The following table
summarizes estimated average production, consumption, and world trade of table
olives for the 1996-1997 crop year:
Production Consumption Exports Imports
---------- ----------- ------- -------
(thousands of tons)
European
Community * 347 330 82 66
Turkey 216 160 30 -
United States 149 170 10 76
Morocco 120 35 85 -
Syria 90 80 8 -
Others 219 279 42 95
---------- ----------- ------- -------
1,141 1,054 257 237
* Spain and Italy produced 210 and 80 MT, respectively.
Exports and imports do not include trade among European
Community countries.
Source: Olivae magazine, December 1996
Domestic Trade. California processors dominate the production and marketing of
black olives sold domestically, accounting for about 80-85% of the market. The
remaining 15-20% are imported from Spain, Morocco, and Mexico. The California
ripe olive processing industry is consolidating. The industry entered the
1990s with six processors, down from 27 during the early 1960s. Today only
four domestic processors remain. The industry's increased mechanization,
higher fixed environmental costs, and higher capital requirements in both
production and marketing have raised breakeven volumes leaving smaller olive
companies uncompetitive. In addition, growth in food service demand for sliced
olives and price pressure from Spain and Morocco have shrunk industry margins.
Among domestic processors, ARI is the second largest in production capacity
handling approximately 30% of California's annual production.
The green olive business, in contrast to the domestic black olive business, is
fragmented with dozens of Spanish processors and marketers and U.S. importers.
Natural industry consolidation has been delayed by Spanish laws making plant
closures and mergers prohibitively expensive. These laws, however, are
currently under review with the objective of increasing the global
competitiveness of Spanish businesses. Changes which will favor industry
consolidation are expected which will improve the economics of efficient
operations such as that of ARI.
ARI is one of a few international olive processors and marketers. The company
operates modern, low cost production facilities in Visalia, California for
ripe olives and in Seville, Spain for green olives. The Company has also
allied itself with other processors of various olive styles in key producing
Page 7<PAGE>
regions to assure its customers a complete product line and reliable supply.
Olive Production. Olives have been produced and consumed in the Mediterranean
region since history has been recorded. It is believed olive cultivation was
spread throughout the Mediterranean by the Greeks and Romans and was brought
to the Western Hemisphere by Spanish explorers. Olives are said to have been
among the crops grown in the Jesuit mission settlements in California.
Although there are numerous varieties of olives cultivated in the world, the
principal varieties are the Manzanillo and Sevillano.
Olives are harvested in the fall of the year and are either processed
immediately or stored in a brine solution for processing later in the year.
Regardless of variety, olives can be processed into two principal types, green
olives (also known as Spanish olives) and black olives (also know as ripe
olives), the determining factor being differences in the production process.
Green olives are produced by fermentation under controlled temperatures in a
brine solution for a period ranging from two to seven months. Black olives are
produced by a caustic aeration process lasting about seven days. After bulk
processing, olives are made into a variety of familiar products including
pitted, unpitted, stuffed, sliced, or chopped olives or olive oil.
The olive tree is an erratic, alternate bearing fruit because the stress to
the olive tree caused by a large crop tends to depress new growth and
production in the following year. The 1996-1997 crop was the second largest
olive crop in history both in the U.S. and the world. Early indications
suggest the 1997-1998 U.S. crop will be only 50% as large as the prior year,
and thus carryover inventory will be important to service olive customers.
ARI's relatively large inventory position is expected to be ideal to meet
anticipated demand in the next year.
Olives Brands and Markets
ARI annual sales of olive products in fiscal 1998 are expected to exceed $100
million. In the nine months from the Olive Acquisition to March 31, 1997 sales
of $71.3 million included $64.2 million in the U.S. and $7.1 million in other
world markets, primarily Europe.
United States. ARI enjoys the largest market share of branded sales of both
black and green olives in U.S. markets. In dollar sales of black olives, the
company has 35.8% of the market compared to 23.4% for the nearest competitor.
The dominance of ARI's share of branded green olive sales is more pronounced,
with 25.2% compared to the nearest competitor with a 13.8% share. ARI's
principal U.S. olive brand is Early California(R), although the Company also
markets U.S. olives under the Franciscan(R) and Senor(R) brands. Through a fee
arrangement with Campbell Soup Company, ARI uses Campbell's Vlasic(R) brand in
the Eastern United States. Sales under the Vlasic(R) brand are being phased
out in favor of the Early California(R) brand. The Company is also a major
private label supplier.
Other World Markets. ARI markets green olives produced in its Spanish
facilities primarily to European and Caribbean countries in proprietary brands
such as Tapas(R) and Loreto(R). Several of ARI's rice markets, particularly
the middle eastern countries, are also major olive consuming countries. Others
are key olive producing countries. ARI is uniquely positioned to leverage its
skills and relationships in international procurement, logistics, and
marketing over this new line of products.
Page 8<PAGE>
Competition
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, ARI competes
with approximately 15 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).
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.
The California ripe olive processing industry is consolidating. The industry
entered the 1990s with six processors, down from 27 during the early 1960s.
Today only four domestic processors remain. ARI's competitors include Bell
Carter Foods, Inc., Oberti Olive Company, and Musco Olive Company. Bell Carter
and Musco are privately held businesses. Oberti Olive is a subsidiary of Tri-
Valley Growers, an agricultural cooperative. The industry's increased
mechanization, higher environmental costs, and higher capital requirements in
both production and marketing have raised breakeven volumes leaving smaller
olive companies uncompetitive. In addition, growth in food service demand for
sliced olives and price pressure from Morocco and Spain have shrunk industry
margins. Among domestic processors, ARI is the second largest in production
capacity handling approximately 30% of California's annual production.
Brand Names and Trademarks
The Company's trademarks, copyrights and brand names are protected by numerous
registrations in the U.S. and foreign jurisdictions. The Company believes that
these trademarks, copyrights and brand names have significant value and are
adequately protected.
Regulation
Although ARI is not involved in rice farming, certain government regulations
affecting U.S. rice farmers have a significant impact on the cost and
availability of ARI's principal raw material, rough rice. Substantially all
U.S. rice is grown under the influence of U.S. government programs.
In April 1996, the Federal Agriculture Improvement and Reform Act ("1996 Farm
Bill") was enacted to replace its 1990 predecessor, the Food, Agriculture,
Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill
Page 9<PAGE>
provides marketing loans and agricultural market transition payments (as
defined) to qualifying farmers for seven years beginning with the 1996 crop.
The agricultural market transition payments range on a declining scale from
$2.75 per cwt for the 1996 crop to $2.03 per cwt in 2002 and replace similar
payments of the 1990 Farm Bill. Unlike the predecessor bill payments, the
agricultural market transition payments are fixed without reference to price
levels. Other key provisions of the new law include the elimination of acreage
reduction incentives and increased flexibility of farmers to change among
different commodities as market conditions warrant.
Management believes the 1996 Farm bill was primarily responsible for a
reduction of approximately eight percent of rice tonnage harvested in the U.S.
in 1996 and a general increase in price levels of rice. While price levels
have remained somewhat higher, preliminary acreage surveys indicate production
will increase in 1997.
ARI is subject to various federal, state and local environmental laws and
regulations governing, among other things, air and water quality, the
generation, use and disposal of materials related to plant operations and the
processing, storage and shipment of it's products. The Company 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. 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.
Employees
At March 31, 1997, the Company had approximately 800 employees in domestic
operations and 700 employees in foreign operations. The Company has collective
bargaining agreements with its employees in Spain, Jamaica, and Vietnam. There
have been no significant labor disputes in the past several years and the
Company considers its employee relations to be excellent.
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 49,900 Leased 2003
Los Angeles, California Office 4,000 Leased 2001
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
2034
Biggs, California Plant/Warehouse 95,000 Leased 2001
Laffiteau, Haiti Plant/Warehouse 30,024 Leased 2001
Spanish Town, Jamaica Plant/Warehouse 29,000 Leased 1998
Can Tho, Vietnam (2) Plant/Warehouse 250,000 Leased 2014
Visalia, California Plant/Warehouse 333,000 Owned
Seville, Spain Plant/Warehouse 166,000 Owned
________________________
</TABLE>
Page 10<PAGE>
(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 matters
noted below. While the results of such litigation cannot be predicted with
certainty, the Company believes that the resolution of such legal proceedings,
including the matters noted below, will not have a material adverse effect on
the consolidated financial position or consolidated results of operations of
ARI; however, as with any litigation, the ultimate outcome is unknown.
Accordingly, no provision for any liability that might result has been made in
the Consolidated Financial Statements.
In April 1995, a lawsuit was filed in the district court of Harris County,
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs
against G.D. Murphy and D.A. Murphy, Chairman and President, respectively, of
ARI and ERLY. ARI and ERLY were named as codefendants in the lawsuit by an
amendment to the original petition in September 1995. This is a dispute
between the general partner of a proposed real estate development and G.D.
Murphy and D.A. Murphy. Damages sought are in the range of $10 million, plus
attorneys' fees and punitive damages. ARI and ERLY were named as defendants in
the lawsuit because of their actions to obtain restraining orders to prevent
threatened foreclosures on ERLY common stock pledged as collateral by G.D.
Murphy and to stop interference by the plaintiff in the lawsuit with ARI's
mortgage note financing, as well as certain other alleged activities,
including knowing participation in breaches of fiduciary duties, civil
conspiracy with the Murphys, and conversion. In order to minimize legal
expenses, ARI, ERLY, and the Murphys are using common legal counsel in this
matter and have agreed to share legal expenses.
The Company has also been named as a codefendant with Messrs. John M. Howland
and George E. Prchal in a lawsuit filed in February 1997 in U.S. district
court in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle
of Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI for
processing the Company's rice through RMTI's facility in Jeddah, Saudi Arabia.
Messrs. Howland and Prchal were officers of RMTI through January 1997 and have
also been directors of ARI since October 1993 and prior to October 1993 were
officers of ARI (See Item 10 herein). In January 1997, RMTI ceased shipping
ARI's rice through its Jeddah facility and terminated the employment of
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI failed
to perform under the terms of the agreement and Messrs. Howland and Prchal
breached their fiduciary duties to RMTI. On April 21, 1997, ARI obtained a
restraining order from the U.S. District Court for the Southern District of
Texas ordering RMTI to desist and refrain from purchasing rice of U.S. or
Vietnam origin from any supplier other than ARI and from introducing and/or
marketing rice of U.S. and Vietnam origin in Saudi Arabia targeted against
ARI's U.S. origin and Vietnam origin rice.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None
Page 11<PAGE>
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 Association 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, 1995 through March 31,
1997, 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.
High Trade Low Trade
Prices Prices
---------- ---------
Fiscal Year 1996
- ----------------
Quarter Ended June 30, 1995 $ 3.25 $ 2.75
Quarter Ended September 30, 1995 3.25 2.00
Quarter Ended December 31, 1995 2.25 1.25
Quarter Ended March 31, 1996 2.38 1.38
Fiscal Year 1997
- ----------------
Quarter Ended June 30, 1996 $ 3.25 $ 1.50
Quarter Ended September 30, 1996 2.13 1.25
Quarter Ended December 31, 1996 2.25 1.00
Quarter Ended March 31, 1997 2.75 1.38
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 4,179 holders of record
of the ARI Common Stock on June 25, 1997.
Page 12<PAGE>
Item 6 Selected Financial Data.
- ------ -----------------------
The following table sets forth selected historical consolidated financial data
of the Company for the years ended March 31, 1993 through 1997, and for
American Rice, Inc. prior to the Comet Acquisition ("Pre-Acquisition ARI") for
the year ended March 31, 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
Comet 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 Comet Acquisition reflects the historical
operations of Comet rather than Pre-Acquisition ARI. The Company's audited
financial statements for the year ended March 31, 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
Comet 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.
<TABLE>
<CAPTION>
Page 13<PAGE>
Year Ended March 31,
---------------------------------------------------------
1997(5) 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(in thousands, except per share and per unit data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales:
Rice $444,196 $390,087 $373,050 $284,464 $169,617
Olives 71,322 3,688 - - -
-------- -------- -------- -------- --------
Total $515,518 $393,775 $373,050 $284,464 $169,617
Gross profit 61,275 38,050 40,814 36,418 8,363
Selling, general and
administrative expenses 35,857 24,775 23,235 21,497 10,779
Earnings (loss) before
extraordinary items 3,775 (5,894) 3,913 3,465 (11,265)
Primary earnings (loss) per
share before extraordinary
items (2) (.88) (4.84) (.83) (.45) -
Other Financial Data:
Gross profit margin 11.9% 9.7% 10.9% 12.8% 4.9%
Depreciation and
amortization (3) $5,856 $4,488 $4,252 $3,822 $1,813
Capital expenditures (4) 5,116 3,690 3,562 2,844 2,651
Hundredweight of rice sold 21,683 20,460 22,304 17,114 12,918
Net sales per hundredweight $20.49 $19.07 $16.73 $16.62 $13.13
Cases of olives sold 3,727 234 - - -
Net Sales per case $19.14 $15.76 - - -
Balance Sheet Data:
Cash $3,235 $2,803 $1,864 $1,721 $2,740
Current assets 194,787 124,717 89,736 86,448 32,681
Total assets 298,128 212,161 177,500 175,070 74,325
Total debt 174,198 115,541 89,237 95,084 47,953
Total stockholders' equity 41,447 38,352 44,212 40,299 12,699
</TABLE>
<TABLE>
<CAPTION>
Pre-Acquisition ARI (1)
-----------------------------
Year Ended
Period from March 31,
April 1, 1993 to ---------
May 26, 1993 1993
------------------ ---------
(in thousands, except per
hundredweight data)
<S> <C> <C>
Operating Data:
Net sales of rice $27,025 $176,619
Gross profit 4,243 24,580
Selling, general and
administrative expenses 2,380 14,163
Earnings (loss) before
extraordinary items 888 3,250
Other Financial Data:
Gross profit margin 15.7% 13.9%
Depreciation and amortization (3) $493 $3,070
Capital expenditures 31 762
Hundredweight of rice sold 1,361 12,645
Net sales per hundredweight $19.86 $13.97
Balance Sheet Data:
Cash $1,926
Current assets 46,050
Total assets 102,178
Total debt 64,116
Total stockholders' equity 16,451
</TABLE>
Page 14<PAGE>
(1) On May 26, 1993, the Company consummated the Comet Acquisition, which was
accounted for as a purchase of ARI by Comet. See "Business Background".
(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 year ended March 31, 1993 because the data
presented is that of Comet, which was a wholly-owned subsidiary of ERLY.
(3) Excludes amortization of deferred financing costs and discount accretion
included in interest expense.
(4) Excludes property acquired through capital leases of $1,054 thousand in
fiscal 1996.
(5) Includes olives product line acquired on July 5, 1996. See Note 2 of Notes
to Consolidated Financial Statements.
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 is relatively constant and margins are typically higher than those
for commodity rice products. Demand for commodity rice products is relatively
constant globally, but demand for U.S. grown commodity rice is dependent upon
supply and cost relative to other sources of supply. Supply and costs for both
branded and commodity products depend on many factors including governmental
actions, crop yields and weather, and such factors can persist through one or
more fiscal years.
In general, management believes that it is insulated from many of the effects
of rough rice price fluctuations for the following reasons: (i) the Company's
net sales are proportionately weighted toward the relatively higher margin
branded products, (ii) approximately one-half of the Company's rough rice
purchases, excluding rough rice milled under contract for others, are made as
spot market purchases and matched against commodity orders at prices providing
a favorable margin to costs, (iii) the Company's high rice inventory turnover
rate of approximately five times per year reduces the Company's exposure to
seasonal price fluctuations, and (iv) the Company's diversity of rice sources
and rice customers increases the ability of the Company to take advantage of
supply and demand imbalances.
On July 5, 1996, the Company acquired the domestic and foreign olive business
of Campbell Soup Company for approximately $38 million. Assets acquired
include domestic inventories and fixed assets, all of the outstanding common
stock of Compania Envasadora Loreto, S.A., a Spanish company which comprises
the foreign olive business, and fifty-one percent of the stock of Sadrym
California, a marketer of olive processing machinery. The purchase was funded
primarily from ARI's credit facilities. The Olive Acquisition is accounted for
as a purchase, and the results of operations of the acquired business are
Page 15<PAGE>
included in the Company's consolidated financial statements after July 5,
1996.
Historically, sales of olives have pronounced seasonal elements, with higher
sales occurring in conjunction with holiday consumption. Accordingly, because
the quarterly period ending December 31 contains both the Thanksgiving and
Christmas holidays, the two holidays of highest consumption, it will have
significantly higher sales than the other three quarters of the fiscal year.
Margins normally follow the seasonal pattern of sales.
Results of Operations
Year Ended March 31, 1997 Compared with the Year Ended March 31, 1996
Net Sales. Net sales increased $121.7 million, or 30.9%, from $393.8 million
in fiscal 1996 to $515.5 million in fiscal 1997. The sales increase of $121.7
million was composed of $67.6 million in olives sales, $39.0 million in
increases in sales of exported rice, and $15.1 million in increases in sales
of rice in the U.S.
Export rice sales increased due primarily to higher volume, while average
export rice prices remained at approximately the same levels as the prior
year. Export rice sales volume increased approximately 3.1 million equivalent
rough rice hundredweight as a result of higher sales in the Middle East and
Africa partially offset by lower sales to Asia and the Western Hemisphere.
Domestic rice sales were higher as a result of higher average prices partially
offset by lower volume.
Gross Profit. Gross profit was 11.9% of sales for the fiscal 1997 period and
9.7 % for the same period in 1996. Gross profit increased $23.2 million, or
61.0%, from $38.1 million in fiscal 1996 to $61.3 million in fiscal 1997, due
primarily to the Olive Acquisition.
Selling, General, and Administrative Expenses. Selling, general and
administrative expense increased $11.1 million to $35.9 million in fiscal 1997
due primarily to higher advertising and promotional expenses associated with
the Olive Acquisition.
Interest. Interest expense increased $3.9 million from $17.4 million in fiscal
1996 to $21.3 million in fiscal 1997 due to higher average balances
outstanding, primarily as a result of the Olive Acquisition, and higher
average interest rates. Partially offsetting the increase in interest expense,
interest income increased $725 thousand to $2.5 million. Interest expense in
both periods includes amortization of capitalized debt issuance costs and
accretion of the $6 million original issue discount on the Notes.
Year Ended March 31, 1996 Compared with the Year Ended March 31, 1995
Net Sales. Net sales increased $20.7 million, or 5.5%, from $373.1 million in
fiscal 1995 to $393.8 million in fiscal 1996. The increase in sales was
composed of $8.8 million in increased export sales and $11.9 million from
increased sales in the U.S.
Export sales increased due to higher average prices partially offset by lower
volume. Average export prices increased approximately 23.0%, accounting for
$48.4 million in sales increases. Total export sales volume declined
approximately 4.1 million equivalent rough rice hundredweights or 16%,
accounting for a $39.6 million sales decline. Export volume was lower
primarily due to lower sales to the Caribbean partially offset by higher sales
to the Middle East. Sales to Asia were approximately the same as the prior
Page 16<PAGE>
year. Domestic sales were higher primarily due to higher volume.
Gross Profit. Gross profit was 9.7% of sales in fiscal 1996 compared to 10.9%
in fiscal 1995. Gross profit declined $2.7 million, or 6.8%, from
$40.8 million in fiscal 1995 to $38.1 million in fiscal 1996, due primarily to
lower sales to Japan partially offset by increases in gross profit on U.S.
sales.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses increased $1.5 million, or 6.6% from $23.2 million in
fiscal 1995 to $24.8 million in fiscal 1996. As a percentage of net sales,
selling, general and administrative expenses were approximately the same as
the prior year.
Provision for Loss on Disposal of Properties. In the fiscal year ended March
31, 1996, ARI entered into an agreement to sell its principal Houston property
for net proceeds of $11.2 million after expenses associated with the sale. In
anticipation of this transaction the carrying value of the property was
reduced to its approximate net realizable value by a non-recurring charge of
$7.2 million in the fiscal year ended March 31, 1996.
Interest. Interest Expense increased $5.1 million from $12.3 million in fiscal
1995 to $17.4 million in fiscal 1996 due to higher average balances
outstanding and higher average interest rates. Interest expense in both
periods includes amortization of capitalized debt issuance costs. Interest
expense in the fiscal 1996 period includes accretion of the $6 million
original issue discount on the Notes. Partially offsetting the increase in
interest expense, interest income increased $1.0 million to $1.8 million.
Liquidity and Capital Resources
ARI requires liquidity and capital primarily for the purchase of rough rice
and olives and to invest in property, plant and equipment necessary to support
operations. Historically, ARI has financed both working capital and capital
expenditures through internally generated funds and by funds provided by
credit lines.
Inventories increased due to a variety of factors which included the increased
inventory associated with the Olive Acquisition and higher rice inventories in
the Caribbean region and for the Saudi Arabia business. Historically, the rice
ARI sold in Saudi Arabia was shipped from the United States in packaged form.
In 1994, ARI began shipping rice in bulk form to the Middle East region and
packing it under strict quality supervision in order to reduce vessel loading
and freight costs while providing enhanced market competitiveness, improved
customer service, and product freshness. Until January 1997, products were
packed at a facility in Jeddah, Saudi Arabia (see Item 3 - Legal Proceedings).
Since January 1997 other Middle East facilities with similar advantages have
been utilized.
Notes payable, accounts payable and accrued expenses, and property, plant and
equipment have all increased over the levels at March 31, 1996 primarily due
to the Olive Acquisition. Accounts receivable have increased from March 31,
1996 as a result of a combination of the additional olive receivables and
March sales of approximately $19 million to customers in Saudi Arabia.
On September 18, 1996, ARI closed the sale of its principal Houston property
held for sale and received gross proceeds of approximately $13.1 million of
which approximately $1 million was used to retire mortgage notes as described
below.
In a public offering completed in August 1995, ARI issued $100 million in
Page 17<PAGE>
principal amount of 13.0% mortgage notes due 2002 (the "Notes"). Portions of
the net proceeds of $94 million were used to repay $53.8 million of existing
term debt, to make a $10.5 million 15% loan to ERLY due 2001, and to reduce
borrowings outstanding under the $47.5 million revolving credit loan. The
Notes provide for interest payments semiannually, accruing fixed interest at
an annual rate of 13.0%, an effective yield rate of 14.4%.
In addition to fixed interest, the Notes bear contingent interest of 4.0% of
consolidated cash flow (as defined) up to a limit of $40.0 million of
consolidated cash flow during the fiscal year in which such interest accrues.
Contingent interest accrues in each semiannual period (as defined) in which
consolidated cash flow in such period and the immediately preceding semiannual
period is equal to or greater than $20.0 million. Contingent interest is
payable semiannually, but ARI may elect to defer all or a portion of any such
payment to the extent that (a) the payment of such portion of contingent
interest will cause ARI's adjusted fixed charge coverage ratio (as defined)
for the two consecutive applicable semiannual periods to be less than 2.0:1
and (b) the principal of the Notes corresponding to such contingent interest
has not then matured and become due and payable. Consolidated cash flow (as
defined) for the year ended March 31, 1997 was as follows:
Consolidated
Cash Flow
----------
(in thousands)
Three Months Ended:
June 30, 1996 $ 2,309
September 30, 1996 8,336
December 31, 1996 13,185
March 31, 1997 9,126
----------
Year Ended March 31, 1997 $32,956
==========
Contingent interest of zero and $143 thousand for the semiannual periods (as
defined) ended June 30, 1996 and December 31, 1996, respectively were accrued
during fiscal 1997. Contingent interest of $447 thousand and zero for the
semiannual periods ended June 30, 1995 and December 31, 1995, respectively
were accrued during fiscal 1996. As the applicable fixed charge coverage ratio
was less than 2.0:1, ARI elected to defer payments of the contingent interest.
In January 1997, in accordance with the terms of the Indenture, ARI offered to
repurchase a portion of the Notes with the proceeds from the sale of the
Houston Property. Holders of the Notes redeemed $1 million face value for
approximately $948 thousand plus accrued and unpaid interest of approximately
$48 thousand.
On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan
with a $47.5 million revolving credit loan from a new lender, Harris Trust and
Savings Bank ("Harris"). Funds available for borrowing (including letters of
credit of up to $20.0 million) under this revolving credit loan at any time
may not exceed 85% of eligible accounts receivable (or 90% of accounts
receivable backed by acceptable letters of credit from customers), 75% of
eligible rough rice inventory, and 70% of eligible finished goods inventory.
The line is collateralized by substantially all of ARI's accounts receivable
and inventory. In addition, this facility contains restrictive covenants
which, among other things, require the attainment of certain financial ratios,
the maintenance of a minimum level of tangible net worth (as defined), and
Page 18<PAGE>
provide limitations on capital expenditures, lease obligations, and prohibit
dividend payments. The line also contains certain cross default provisions
with the indenture for Mortgage Notes. The Harris revolving credit line bears
interest at ARI's option at either the prime rate or the London Interbank
Offered Rate plus an applicable margin based upon ARI's adjusted funded debt
ratio as defined, with outstanding principal and interest due upon termination
of the agreement, which continues in full force and effect until May 31, 1999
or until terminated with five days written notice from ARI subsequent to May
31, 1997. This revolving credit loan was amended on June 28, 1996 to increase
the borrowing limit to $85.0 million. Substantially all covenants and
conditions remain unchanged. At March 31, 1997, the outstanding balance on
this loan was $71.5 million bearing interest at the prime rate of 8.5% and on
March 30, 1997 the borrowing base under the loan was $82.5 million. During
the period from June 7, 1996 through March 31, 1997, the maximum borrowing
under the loan was $77 million.
The Company intends to satisfy its obligations under the Notes as well as
future capital expenditures and working capital requirements primarily with
cash flow from operations and from funds available under existing and new
revolving lines 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.
Capital expenditures, limited by the Note indenture to $5.5 million per fiscal
year (with carryover provisions as defined therein) if the consolidated cash
flow (as defined therein) does not exceed $30 million per year, were $5.1
million and $3.7 million for the years ended March 31, 1997 and 1996,
respectively. Management anticipates the $5.5 million limitation will allow
for maintenance of existing facilities and will also support limited growth.
ARI's Preferred B and C stock carries annual cumulative, non-participating
dividends of $5.2 million and $750 thousand respectively. No dividends have
been declared or paid as of March 31, 1997. As of March 31, 1997, the
Preferred B dividends accumulated but not declared were $19.857 million and
the Preferred C dividends accumulated but not declared were $2.875 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 19<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 69 33 Chairman of the Board of Directors
Douglas A. Murphy 41 15 President, Chief Executive Officer and Director
Richard N. McCombs 51 13 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
Lee Adams 56 30 Senior Vice President of International Marketing
Bill J. McFarland 60 25 Senior Vice President and President of Comet
American Marketing Division
Kenneth C. McCorkle 48 9 Senior Vice President and President of Early
California Foods
John S. Poole 50 27 Senior Vice President and President of Comet
Rice Division
C. Bronson Schultz 55 23 Vice President of Finance and Data Processing
Joseph E. Westover 52 20 Vice President and Controller
Directors:
Gerald D. Murphy 69 33 Chairman of the Board of Directors
Douglas A. Murphy 41 15 President, Chief Executive Officer and Director
Richard N. McCombs 51 13 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
S.C. Bain, Jr. 48 9 Director
William H. Burgess 80 21 Director
John M. Howland 49 14 Director
George E. Prchal 54 15 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 Comet 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.
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 an advisory director 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.
Page 20<PAGE>
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.
Kenneth C. McCorkle has served as Senior Vice President of ARI and President
of Early California Foods since February 1996. He served in various capacities
with ERLY from 1977 to 1985.
John S. Poole has served as Senior Vice President of ARI since June 1993 and
served as President of Comet from August 1990 until its liquidation after the
Comet 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 until 1993, he served as Assistant Vice President of
Finance with ARI and the ARI Cooperative and in various positions with the ARI
Cooperative from 1977 to 1983.
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 in 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 of ARI from June 1993 until October 1993 when he resigned after
becoming President and Chief Executive Officer of Rice Milling and Trading
Ltd., Inc., a position which he held until January 1997. 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. He served as Executive Vice President of
ARI from August 1988 to October 1993 when he resigned after becoming Executive
Vice President of Rice Milling and Trading Ltd., Inc., a position which he
held until January 1997. Mr. Prchal served 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.
Page 21<PAGE>
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.
Pae 22<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, 1997 and 1996 ... F - 2
Consolidated Statements of Operations - Years Ended
March 31, 1997, 1996 and 1995 ........................... F - 4
Consolidated Statements of Cash Flows - Years
Ended March 31, 1997, 1996 and 1995 ..................... F - 5
Consolidated Statements of Stockholders' Equity -
Years Ended March 31, 1997, 1996 and 1995 ............... F - 6
Notes to Consolidated Financial Statements .............. F - 7
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)
4.8 - Form of Indenture by and among the Registrant and U.S. Trust
Company of Texas with respect to the $100,000,000 American
Rice, Inc. 13% Mortgage Notes due 2002 with Contingent
Interest (incorporated by Reference to Exhibit 4.1 of
Registrant's Form S-1 File #33-60539
10.1 - Ground lease dated June 6, 1985, between Brazos River Harbor
Navigation District and Predecessor ARI (1)
10.3 - Agreement for Construction of Facilities at Freeport, Texas,
Page 23<PAGE>
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)
10.22 - Lease dated October 1, 1974, as amended April 9, 1979, by
and between Colusa-Glenn Drier Company and
Comet (1)
10.23 - Secured Credit Agreement between American Rice, Inc. as
Borrower and Harris Trust and Savings Bank (1)
10.24- Amended and Restated Secured Credit Agreement between
American Rice, Inc. as Borrower and Harris Trust and Savings
Bank (1)
11.1 - Computation of Earnings per Share (2)
21 - Subsidiaries of ARI (2)
27 - Financial Data Schedule (2)
----------------
(1) - Previously filed.
(2) - Filed herewith.
Page 24<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 25, 1997
------------------------------
(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 25, 1997
- --------------------- Executive Officer and
Douglas A. Murphy Director
(principal executive officer)
Gerald D. Murphy Chairman of the Board June 25, 1997
- ----------------------
Gerald D. Murphy
John M. Howland Director June 25, 1997
- ---------------------
John M. Howland
S. C. Bain, Jr. Director June 25, 1997
- ---------------------
S. C. Bain, Jr.
William H. Burgess Director June 25, 1997
- --------------------
William H. Burgess
George E. Prchal Director June 25, 1997
- ----------------------
George E. Prchal
Richard N. McCombs Executive Vice-President June 25, 1997
- ---------------------- Finance & Administration,
Richard N. McCombs Secretary & Treasurer and Director
(principal financial officer)
Joseph E. Westover Vice-President and Controller June 25, 1997
- ---------------------- (principal accounting officer)
Joseph E. Westover
Page 25<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
American Rice, Inc.
We have audited the accompanying consolidated balance sheets of American Rice,
Inc. and subsidiaries ("ARI") at March 31, 1997 and 1996 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended March 31, 1997. Our audits also
included the consolidated financial statement schedule listed at Item
14(a)(2). 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 consolidated financial statements present fairly, in all
material respects, the financial position of ARI at March 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 1997 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.
DELOITTE & TOUCHE LLP
Houston, Texas
June 20, 1997
Page F-1
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31 1997 1996
---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $3,235 $2,803
Accounts receivable, net 64,062 33,541
Inventories:
Finished goods 75,969 26,535
Raw materials 46,289 44,489
Prepaid expenses 2,441 832
Deferred income taxes 2,791 2,982
Net assets of Houston properties
held for sale - 13,535
--------- ---------
Total current assets 194,787 124,717
Other assets 21,216 20,587
Receivable from ERLY 24,166 24,795
Property, plant and equipment, net 57,959 42,062
--------- ---------
Total assets $298,128 $212,161
========= =========
Continued on next page
See notes to consolidated financial statements
Page F-2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Thousands of Dollars)
March 31 1997 1996
---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $77,616 $19,826
Accounts payable 57,845 39,627
Accrued expenses 18,733 13,606
Current portion of long-term debt 438 106
--------- ---------
Total current liabilities 154,632 73,165
Long-term debt 96,144 95,609
Deferred income taxes 5,905 5,035
Commitments and contingencies (Note 6) - -
Stockholders' equity:
Preferred stock, $1.00 par value; 4,000,000
shares authorized;
Series A-777,777 convertible shares issued
and outstanding, liquidation preference
of $19,989 778 778
Series B- 2,800,000 convertible shares issued
and outstanding, liquidation preference
of $14,000 2,800 2,800
Series C- 300,000 shares issued
and outstanding, liquidation preference
of $1,500 300 300
Common stock, $1.00 par value; 10,000,000
shares authorized; 2,443,892 shares
issued and outstanding 2,444 2,444
Additional paid-in capital 25,286 25,286
Retained earnings 11,233 7,458
Cumulative foreign currency translation
adjustments (1,394) (714)
--------- ---------
Total stockholders' equity 41,447 38,352
--------- ---------
Total liabilities and stockholders' equity $298,128 $212,161
========= =========
See notes to consolidated financial statement
Page F-3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
Years Ended March 31 1997 1996 1995
---------------------------------------------------------------------
Net sales $515,518 $393,775 $373,050
Cost of sales 454,243 355,725 332,236
--------- --------- ---------
Gross profit 61,275 38,050 40,814
Selling, general and
administrative expenses 35,857 24,775 23,235
Provision for loss on
disposal of properties - 7,200 -
--------- --------- ---------
Earnings from operations 25,418 6,075 17,579
Interest expense 21,283 17,438 12,344
Interest income (2,498) (1,773) (727)
Other expense (income) 444 (381) (153)
--------- --------- ---------
Earnings (loss) before income taxes 6,189 (9,209) 6,115
Income tax provision (benefit) 2,414 (3,315) 2,202
--------- --------- ---------
Net earnings (loss) 3,775 (5,894) 3,913
Preferred stock dividend requirements (5,930) (5,930) (5,930)
--------- --------- ---------
Net loss applicable
to common stock ($2,155) ($11,824) ($2,017)
========= ========= =========
Loss per common and
common equivalent share
Primary ($.88) ($4.84) ($.83)
========= ========= =========
Fully diluted ($.88) ($4.84) ($.83)
========= ========= =========
See notes to consolidated financial statements
Page F-4<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
Years Ended March 31 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $3,775 ($5,894) $3,913
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 5,392 4,021 3,894
Amortization of debt issue costs
and trademarks 1,588 1,743 2,511
Mortgage note discount accretion 594 322 -
Provision for loss on disposal of property - 7,200 -
Loss on sales of property 355 12 48
Deferred tax provision 1,061 (3,112) 1,986
Provision for loss on accounts receivable 519 163 -
Changes in assets and liabilities that
provided (used) cash (net of acquired
assets and liabilities):
Accounts receivable (29,162) (281) (11,201)
Inventories (29,879) (20,819) 8,003
Prepaid expenses (1,556) (39) (187)
Income taxes payable to ERLY - (1,037) (419)
Other assets (1,463) 11 (679)
Accounts payable 14,103 14,124 (199)
Accrued expenses 3,270 2,769 3,279
Receivable from ERLY 629 (2,394) (1,402)
--------- --------- ---------
Net cash provided by (used in)
operating activities (30,774) (3,211) 9,547
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (5,116) (3,690) (3,562)
Campbell olive business acquisition (33,952)
Proceeds from sales of assets 13,137 49 48
Loan to ERLY - (10,500) -
--------- --------- ---------
Net cash used in investing activities (25,931) (14,141) (3,514)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 57,790 (14,111) 1,061
Proceeds from issuance of mortgage notes - 94,000 -
Proceeds from issuance of long-term debt 472 339 -
Repayment of long-term debt (1,284) (55,314) (6,908)
Mortgage notes issuance costs - (6,631) -
Other, net 159 8 (43)
--------- --------- ---------
Net cash provided by (used in)
financing activities 57,137 18,291 (5,890)
--------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 432 939 143
CASH AND CASH EQUIVALENTS:
Beginning of the period 2,803 1,864 1,721
--------- --------- ---------
End of the period $3,235 $2,803 $1,864
========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-5<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of Dollars)
<CAPTION>
Cumulative
Foreign Total
Additional Retained Currency Stock -
Preferred Common Paid-in Earnings Translation Holders'
Stock Stock Capital (Deficit) Adjustment Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1994 $19,389 $12,219 - $9,439 ($748) $40,299
Reverse stock split (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
Net loss - - - (5,894) - (5,894)
Foreign currency
translation adjustments - - - - 34 34
--------- --------- --------- --------- --------- ---------
Balance March 31, 1996 3,878 2,444 25,286 7,458 (714) 38,352
Net earnings - - - 3,775 - 3,775
Foreign currency
translation adjustments - - - - (680) (680)
--------- --------- --------- --------- --------- ---------
Balance March 31, 1997 $3,878 $2,444 $25,286 $11,233 ($1,394) $41,447
========= ========= ========= ========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-6<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations - ARI is a processor and marketer of food products, the principal
of which are rice and olives. These 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. ARI is
significantly affected by market factors including domestic and foreign supply
and demand. These market factors are influenced by a variety of external
forces including governmental actions, crop yields and weather. Although ARI
is not involved in rice farming, certain legislation affecting rice growers
can have a significant impact on the cost and availability of rough rice. As
discussed in Note 2, in July 1996 ARI purchased an olive business from
Campbell Soup Company.
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 an original 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,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Revolving notes (in millions):
Borrowings $313.4 $406.8 $355.3
Repayments 255.6 420.9 354.2
Payments for interest
and financing fees (in millions) $ 20.1 $ 14.0 $ 9.2
Payments for federal and state
income taxes (in thousands) $ 253 $1,269 $ 635
In the year ended March 31, 1996, ARI acquired property valued at $1,054
thousand through capital leases.
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
Page F-7<PAGE>
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.
Expenditures for maintenance and repairs are charged to expense as incurred.
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.
Income Taxes - ARI's current taxable income and loss is included in the
consolidated federal income tax return filed by ERLY Industries ("ERLY"),
which holds 81 percent of the combined voting power of ARI stock outstanding.
Under the terms of a tax sharing agreement, as amended, 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. All payments owed by ARI will be offset against ERLY's
principal and interest payment obligations under the 15% loan to ERLY (see
Note 5).
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 applicable to common stock reflect dividends in the amount of $5.9
million for the years ended March 31, 1997, 1996 and 1995, 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. The mortgage note and the revolving credit agreement
currently prohibit the payment of any dividends (see Note 3). The weighted
average number of shares included in the earnings per share calculation are
2,444 thousand for each of the years ended March 31, 1997, 1996, and 1995.
Impairment of Long-Lived Assets - On April 1, 1996, ARI adopted Financial
Accounting Standards Board Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which
requires that long-lived assets be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement did not have a material effect on
the consolidated financial statements.
Fair Value of Financial Instruments - ARI's financial instruments consist
Page F-8<PAGE>
primarily of cash, trade accounts and notes receivable, accounts and notes
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. It is not practicable to estimate
the fair value of the notes receivable from ERLY because of their related
party nature. The fair value of the $99 million principal amount of 13%
mortgage notes was approximately $98 million as of March 31, 1997, based on a
dealer quote.
Stock-Based Compensation - ARI adopted Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation," in fiscal 1997.
As permitted by the new standard, ARI will continue applying accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and will provide pro forma disclosures as necessary. The pro forma effect of
measuring compensation cost pursuant to this standard has no effect in 1997.
Foreign Currency Translation - All assets and liabilities of operations
outside the United States are translated from the functional currency to the
reporting currency at the foreign exchange rates in effect at year end.
Revenues and expenses for the year are translated at average exchange rates
during the year. Such translation gains and losses are not included in
determining net income but are accumulated and reported as a separate
component of stockholders' equity. Net realized and unrealized gains or
losses resulting from foreign currency transactions, including translations of
local currencies to the functional currency are credited or charged to income.
The U.S. dollar is currently the functional currency for all operations except
Vietnam, where the Vietnamese dong is the functional currency, and the Spanish
olive operations, where the Spanish paseta is the functional currency.
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.
New Accounting Pronouncement - In February 1997, the Financial Accounting
Standards Board issued statement No. 128, "Earnings Per Share" ("SFAS 128"),
which is effective for periods ending after December 15, 1997 and specifies
the computation, presentation and disclosure requirements of earnings per
share ("EPS"). SFAS 128 requires a dual presentation of basic and diluted EPS.
Basic EPS, which excludes the impact of common stock equivalents, replaces
primary EPS. Diluted EPS, which utilizes the average market price per share as
opposed to the greater of the average market price per share or ending market
price per share when applying the treasury stock method in determining common
stock equivalents, replaces fully diluted EPS. Pro forma basic and diluted EPS
for all historical periods presented, assuming SFAS No. 128 was effective at
the beginning of each such historical period, would not be materially
different from the primary and fully diluted EPS presented.
Reclassifications - Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the consolidated
financial statement presentation at March 31, 1997 and for the year then
ended.
2. OLIVE ACQUISITION
On July 5, 1996, the Company acquired the domestic and foreign olive business
of Campbell Soup Company ("CSC Olives") for approximately $38 million (the
"Olive Acquisition"). Assets acquired include domestic inventories and fixed
assets, all of the outstanding common stock of Compania Envasadora Loreto,
S.A., a Spanish company which comprises the foreign olive business, and fifty-
one percent of the stock of Sadrym California, a marketer of olive processing
Page F-9<PAGE>
machinery. The purchase was funded primarily from ARI's credit facilities. The
Olive Acquisition is accounted for as a purchase, and the results of
operations of the acquired business are included in the Company's consolidated
financial statements after July 5, 1996.
Operating results reflected in the accompanying financial statements do not
include CSC Olives operating activities before July 5, 1996. The following
summarized unaudited pro forma information assumes the Olive Acquisition
occurred on the first day of the operating period presented (thousands of
dollars, except per share):
Year Ended
March 31,
1997
--------
Net Sales $534,441
Net Earnings (loss) 1,646
Earnings (loss) per share:
Primary $ (1.75)
Fully diluted (1.75)
3. NOTES PAYABLE AND LONG-TERM DEBT
In a public offering completed in August 1995, ARI issued $100 million in
principal amount of 13.0% mortgage notes due 2002 (the "Notes"). Portions of
the net proceeds of $94 million were used to repay $53.8 million of existing
term debt, to make a $10.5 million 15% loan to ERLY due 2001, and to reduce
borrowings outstanding on a $47.5 million revolving credit loan. The Notes
were issued pursuant to an indenture between ARI and U.S. Trust Company of
Texas, N.A. (the "Indenture").
The Notes provide for interest payments semiannually, mature on July 31, 2002,
and are non callable by ARI prior to July 31, 1999, after which date the Notes
are callable at the option of ARI, in whole or in part, at any time upon not
less than 30 nor more than 60 days notice, at 107.0% of the principal amount,
declining ratably to par on or after July 31, 2001. Except under certain
changes of control, upon remarketing of the industrial revenue bonds, or asset
sales, as defined in the Indenture, ARI is not required to make mandatory
redemption payments on the Notes. The Notes accrue fixed interest at an
annual rate of 13.0%, an effective yield rate of 14.4%.
In addition to fixed interest, the Notes bear contingent interest of 4.0% of
consolidated cash flow (as defined) up to a limit of $40.0 million of
consolidated cash flow during the fiscal year in which such interest accrues.
Contingent interest accrues in each semiannual period (as defined) in which
consolidated cash flow in such period and the immediately preceding semiannual
period is equal to or greater than $20.0 million. Contingent interest is
payable semiannually, but ARI may elect to defer all or a portion of any such
payment to the extent that (a) the payment of such portion of contingent
interest will cause ARI's adjusted fixed charge coverage ratio (as defined)
for the two consecutive applicable semiannual periods to be less than 2.0:1
and (b) the principal of the Notes corresponding to such contingent interest
has not then matured and become due and payable. Contingent interest of zero
and $143 thousand for the semiannual periods (as defined) ended June 30, 1996
and December 31, 1996, respectively were accrued during fiscal 1997.
Contingent interest of $447 thousand and zero for the semiannual periods ended
June 30, 1995 and December 31, 1995, respectively were accrued during fiscal
1996. As the applicable fixed charge coverage ratio was less than 2.0:1, ARI
elected to defer payments of the contingent interest.
Page F-10<PAGE>
The Notes are secured by (a) a first or second priority security interest in
substantially all of ARI's property, plant and equipment (including related
leasehold interests), (b) a pledge agreement creating first priority security
interests in the capital stock of ARI held by ERLY (other than 200,000 shares
of ARI's Series B preferred stock pledged to the holders of ARI's Series C
preferred stock), (c) the ERLY notes receivable and (d) a security agreement
creating a first priority security interest in all registered U.S. trademarks
and a security interest in all other registered trademarks owned or licensed
by ARI.
The Notes rank senior in right of payment to all subordinated indebtedness and
pari passu in right of payment with all existing and future senior
indebtedness of ARI, including borrowings under the revolving credit loans.
The Indenture includes covenants that in certain instances restrict, among
other things, (a) the payment of dividends, (b) the redemption of equity
interests of ARI, (c) the payment on or redemption of indebtedness subordinate
to the Notes, (d) certain investments (as defined), (e) the incurrence of
certain indebtedness and issuance of preferred stock, (f) certain transactions
with affiliates and (g) certain mergers, consolidations or sales of assets.
In addition, the Indenture contains certain limitations on capital
expenditures, operating lease obligations and rice contract polices and
procedures. The Indenture and the revolving credit loans described below
contain cross default provisions.
On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan
with a $47.5 million revolving credit loan from a new lender, Harris Trust and
Savings Bank ("Harris"). Funds available for borrowing (including letters of
credit of up to $20.0 million) under this revolving credit loan at any time
may not exceed 85% of eligible accounts receivable (or 90% of accounts
receivable backed by acceptable letters of credit from customers), 75% of
eligible raw materials inventory, and 70% of eligible finished goods
inventory. The line is collateralized by substantially all of ARI's accounts
receivable and inventory. In addition, this facility contains restrictive
covenants which, among other things, require the attainment of certain
financial ratios, the maintenance of a minimum level of tangible net worth (as
defined), and provide limitations on capital expenditures, lease obligations,
and prohibit dividend payments. The line also contains certain cross default
provisions with the indenture for Mortgage Notes. The Harris revolving credit
line bears interest at ARI's option at either the prime rate or the London
Interbank Offered Rate plus an applicable margin based upon ARI's adjusted
funded debt ratio as defined, with outstanding principal and interest due upon
termination of the agreement, which continues in full force and effect until
May 31, 1999 or until terminated with five days written notice from ARI
subsequent to May 31, 1997. This revolving credit loan was amended on June 28,
1996 to increase the borrowing limit to $85.0 million. Substantially all
covenants and conditions remain unchanged. At March 31, 1997, the outstanding
balance on this loan was $71.5 million bearing interest at the prime rate of
8.5%.
Page F-11<PAGE>
Long-term debt consisted of the following:
March 31, March 31,
1997 1996
--------- ---------
(in thousands)
13% Mortgage Notes $ 99,000 $ 100,000
Less unamortized discount (5,032) (5,678)
Other notes-capital leases 2,614 1,393
--------- ---------
Total Debt 96,582 95,715
Less current maturities 438 106
--------- ---------
Total Long-term debt $ 96,144 $ 95,609
========= =========
ARI's long-term debt maturities are as follows (in thousands):
Year ended March 31, Long-Term Debt Capital Leases
------------------- -------------- --------------
1998 $ 324 $ 114
1999 1,247 121
2000 128 135
2001 83 123
2002 - -
Thereafter 99,339 -
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, 1997, 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 $20.0 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
Page F-12<PAGE>
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 $20.0 million at March 31, 1997. 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 200,000 shares of the
preferred stock to former term lenders in connection with a debt refinancing
that occurred in May 1993.
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 $2.9 million at March 31, 1997.
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 debt agreements currently prohibit the payment of any dividends (see
Note 3).
ARI issued warrants to former term lenders to purchase up to 155,000 shares of
ARI Common Stock at $5.00 per share. The warrants expire May 26, 2001.
Page F-13<PAGE>
5. TAXES ON INCOME
The provision (benefit) for taxes on income consists of:
Year ended March 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
U. S. taxes currently payable $1,100 $ - $ 94
Deferred U. S. taxes 1,061 (3,112) 1,986
State income taxes 253 (203) 122
--------- --------- ---------
$2,414 ($3,315) $2,202
========= ========= =========
Temporary differences which give rise to deferred tax assets and liabilities
are as follows:
March 31,
---------------------------------------
1997 Deferred Tax 1996 Deferred Tax
------------------ ------------------
Asset Liability Asset Liability
-------- -------- -------- --------
(in thousands)
Property, plant and equipment $ $6,257 $ $7,650
Allowance for doubtful accounts
and other reserves 620 - 679 -
Change in tax accounting principles 702 - 971 -
Alternative minimum tax credit 1,528 - 1,471 -
Net operating loss carryovers - - 2,296 -
Other 293 - 180 -
-------- -------- -------- --------
$3,143 $6,257 $5,597 $7,650
======== ======== ======== ========
A comparison of income tax expense at the federal statutory rate to ARI's
provision (benefit) in lieu of taxes is as follows:
Year Ended March 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
Earnings from continuing
operations before income
taxes and extraordinary items $6,189 ($9,209) $6,115
========= ========= =========
Statutory taxes $2,105 ($3,131) $2,079
Amortization of trademarks 137 126 135
State income taxes 253 (203) 122
Other (81) (107) (134)
--------- --------- ---------
Provision for taxes on income $2,414 ($3,315) $2,202
========= ========= =========
Effective tax rate 39.0% 36.0% 36.0%
========= ========= =========
Page F-14<PAGE>
6. COMMITMENTS AND CONTINGENCIES
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 matters
noted below. While the results of such litigation cannot be predicted with
certainty, the Company believes that the resolution of such legal proceedings,
including the matters noted below, will not have a material adverse effect on
the consolidated financial position or consolidated results of operations of
ARI; however, as with any litigation, the ultimate outcome is unknown.
Accordingly, no provision for any liability that might result has been made in
the Consolidated Financial Statements.
In April 1995, a lawsuit was filed in the district court of Harris County,
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs
against G.D. Murphy and D.A. Murphy, Chairman and President, respectively, of
ARI and ERLY. ARI and ERLY were named as codefendants in the lawsuit by an
amendment to the original petition in September 1995. This is a dispute
between the general partner of a proposed real estate development and G.D.
Murphy and D.A. Murphy. Damages sought are in the range of $10 million, plus
attorneys' fees and punitive damages. ARI and ERLY were named as defendants in
the lawsuit because of their actions to obtain restraining orders to prevent
threatened foreclosures on ERLY common stock pledged as collateral by G.D.
Murphy and to stop interference by the plaintiff in the lawsuit with ARI's
mortgage note financing, as well as certain other alleged activities,
including knowing participation in breaches of fiduciary duties, civil
conspiracy with the Murphys, and conversion.
The Company has also been named as a codefendant with Messrs. John M. Howland
and George E. Prchal in a lawsuit filed in February 1997 in U.S. district
court in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle
of Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI for
processing the Company's rice through RMTI's facility in Jeddah, Saudi Arabia.
Messrs. Howland and Prchal were officers of RMTI through January 1997 and have
also been directors of ARI since October 1993 and prior to October 1993 were
officers of ARI (See Item 10 herein). In January 1997, RMTI ceased shipping
ARI's rice through its Jeddah facility and terminated the employment of
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI failed
to perform under the terms of the agreement and Messrs. Howland and Prchal
breached their fiduciary duties to RMTI. On April 21, 1997, ARI obtained a
restraining order from the U.S. District Court for the Southern District of
Texas ordering RMTI to desist and refrain from purchasing rice of U.S. or
Vietnam origin from any supplier other than ARI and from introducing and/or
marketing rice of U.S. and Vietnam origin in Saudi Arabia targeted against
ARI's U.S. origin and Vietnam origin rice.
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
Page F-15<PAGE>
operating leases with noncancellable terms of more than one year are as
follows:
Year Ending March 31, Amount
--------------------- -------------
(in thousands)
1998 $ 3,423
1999 3,055
2000 2,660
2001 2,287
2002 1,997
Thereafter 23,368
ARI incurred total rental expense of approximately $6.0 million, $5.4 million
and $4.0 million for the years ended March 31, 1997, 1996 and 1995,
respectively.
7. 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, as defined, 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, 1997,
1996 and 1995 were $554,000, $191,000 and $1.0 million, respectively.
8. EXPORT SALES
Net sales include export sales as follows:
Year ended March 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
Middle East $165,666 $117,359 $91,449
Caribbean, Mexico, and
South America 64,991 64,654 84,806
Asia 31,583 49,453 49,963
Other 42,197 26,845 23,302
--------- --------- ---------
Total $304,437 $258,311 $249,520
========= ========= =========
Percent of total revenues 59% 66% 67%
========= ========= =========
Page F-16<PAGE>
9. OTHER ASSETS
Other assets consist of the following:
March 31,
-----------------------
1997 1996
--------- ---------
(in thousands)
Trademarks $12,247 $12,211
Investments 499 284
Debt issuance costs 7,442 6,897
Notes receivable 684 755
Other 344 440
--------- ---------
Total $21,216 $20,587
========= =========
Accumulated amortization of trademarks was $2.5 million and $2.2 million at
March 31, 1997 and 1996, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
March 31,
-----------------------
1997 1996
--------- ---------
(in thousands)
Land $ 2,784 $ 277
Buildings and improvements 28,778 23,497
Machinery and equipment 52,397 39,920
--------- ---------
Total 83,959 63,694
Less: accumulated depreciation (26,000) (21,632)
--------- ---------
Property, plant and equipment, net $57,959 $42,062
========= =========
11. ACCOUNTS RECEIVABLE
Accounts receivable and allowance for doubtful accounts consisted of the
following:
March 31,
----------------------
1997 1996
--------- ---------
(in thousands)
Accounts receivable - trade $65,187 $34,982
Less allowance for doubtful accounts (1,125) (1,441)
--------- ---------
Net $64,062 $33,541
========= =========
Page F-17<PAGE>
12. TRANSACTIONS WITH RELATED PARTIES
ARI has entered into a number of transactions in the ordinary course of
business with ERLY and its affiliates.
At March 31, 1997 and 1996, amounts due from ERLY are summarized as follows:
March 31,
----------------------
1997 1996
--------- ---------
(in thousands)
15% loan balance $ 9,500 $10,500
Accrued interest - 15% loan 1,705 949
6% loan balance 12,961 13,346
--------- ---------
$24,166 $24,795
========= =========
Net proceeds of $10.5 million of the $100 million notes issued in August,
1995, (Note 3) were used to make a 15% loan to ERLY which is due in 2001.
Under the terms of the 15% loan, ERLY is obligated to pay principal and
interest annually by offsetting payments due ERLY from ARI under the tax
sharing agreement. Such offsets shall be applied first to reduce principal
(up to $.5 million), then to pay interest accrued and payable, and then to
further reduce outstanding principal. ERLY will be responsible for paying
cash to pay principal to the extent such offsets are less than $.5 million and
may defer payment of interest to the extent such offsets are not available for
such payment. The terms of this 15% loan may not be modified without the
consent of a majority of the holders of the Mortgage Notes. As security for
payments due on the 15% loan, ERLY has issued a warrant equivalent to 7.5% of
the then issued and outstanding voting common stock of ERLY, exerciseable at
$0.01 per share after any payment default, which warrant will be reduced
proportionately by the amount of all principal payments made on the 15% loan
and canceled automatically upon payment in full of the principal of the 15%
loan.
In fiscal year 1994, intercompany payables and receivables were netted,
resulting in an obligation owed to ARI by ERLY that is reflected in a note
receivable from ERLY bearing an interest rate of 6% and maturing in 2002. In
addition, all intercompany transactions not settled quarterly accrue interest
at 6%. The note is payable out of one half of dividends received by ERLY on
the Series B Preferred Stock until the 15% loan to ERLY is paid in full, at
which time the 6% note will be payable by offsets against tax sharing
agreement payments due ERLY from ARI and one-half of any dividends received on
the Series B Preferred Stock.
In fiscal year 1994, 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 is to pay ERLY a monthly management fee of $80 thousand. For the
years ended March 31, 1997 and 1996, no management fees were incurred by
agreement between the Company and ERLY. The accrual for such fees was resumed
on April 1, 1997. During the year ended March 31, 1995 ARI incurred and paid
$923 thousand.
In October 1996, ARI entered into a new seven year lease agreement for the
office space for the corporate headquarters of the Company with 411 North Sam
Houston Parkway, LTD., a limited partnership. Douglas A. Murphy, ARI's
President, and Gerald D. Murphy, the Chairman of ARI's board of directors,
Page F-18<PAGE>
have combined ownership interests in the partnership of 32%. In connection
with the lease ARI performs building management services in exchange for
certain reductions in the lease cost. Management believes ARI's lease cost
under this agreement is comparable to or better than rates for similar office
space in the proximity. At March 31, 1997, ARI had an account receivable of
approximately $190 thousand related to amounts paid on behalf of the limited
partnership. This receivable was collected on April 1, 1997.
13. QUARTERLY INFORMATION (Unaudited)
The following table summarizes the unaudited quarterly information for the
years ended March 31, 1997 and 1996. In the opinion of management, all
adjustments necessary for a fair presentation of the unaudited results for the
periods are included. (In thousands of dollars, except per share amounts)
Quarter Ended June 30 Sep. 30 Dec. 31 Mar. 31 Year
------ ------ ------- ------- -------
1997
- ----
Net Sales $ 97,407 $121,513 $153,699 $142,899 $515,518
Earnings from
Operations 118 6,725 10,001 8,574 25,418
Earnings(loss) before
income taxes (4,056) 1,525 4,828 3,892 6,189
Net earnings (loss) (2,596) 976 3,090 2,305 3,775
Net earnings (loss)
per share $ (1.67) ($.21) $.33 $.24 ($.88)
1996
- ----
Net Sales $ 86,392 $90,369 $101,440 $115,574 $393,775
Earnings (loss) from
Operations 3,766 3,643 (5,049)(1) 3,715 6,075
Earnings(loss) before
income taxes 587 (157) (9,204)(1) (435) (9,209)
Net earnings (loss) 376 (101) (5,891) (278) (5,894)
Net loss per share ($.45) ($.65) ($3.02) ($.72) ($4.84)
(1) Includes $7.2 million pre-tax provision for loss on disposal of property
held for sale.
Page F-19<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:
1997 $1,441 $ 519 $ 112(b) $ (947)(a) $1,125
1996 1,711 163 - (433)(a) 1,441
1995 1,798 - - (87)(a) 1,711
Allowance for doubtful
noncurrent receivables:
1997 $ - $ - $ - $ - $ -
1996 471 - - (471)(a) -
1995 4,387 - - (3,916)(a) 471
<FN>
- ----------
(a) Reductions related to accounts receivable written off.
(b) Acquired in olive business acquisition less adjustment for foreign currency translation.
</TABLE>
<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Year Ended March 31 1997 1996 1995
---------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE
Net earnings (loss) $3,775 ($5,894) $3,913
Less dividends on preferred stock:
Series B (5,180) (5,180) (5,180)
Series C (750) (750) (750)
--------- --------- ---------
Loss applicable to
common stock ($2,155) ($11,824) ($2,017)
========= ========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444 2,444
--------- --------- ---------
2,444 2,444 2,444
========= ========= =========
Loss per share applicable to
common stock ($.88) ($4.84) ($.83)
========= ========= =========
FULLY DILUTED EARNINGS PER SHARE *
Net earnings (loss) $3,775 ($5,894) $3,913
Less dividends on preferred stock:
Series C (750) (750) (750)
--------- --------- ---------
Earnings (loss) applicable to
common stock $3,025 ($6,644) $3,163
========= ========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444 2,444
Preferred Series A 778 778 778
Preferred Series B 5,600 5,600 5,600
--------- --------- ---------
8,822 8,822 8,822
========= ========= =========
Fully diluted earnings per share:
Earnings (loss) per share
applicable to common stock $.34 ($.75) $.36
========= ========= =========
* This calculation is presented in accordance with Regulation
S-K item 601(b)(11) although it is contrary to paragraphs 14, 30,
and 40 of APB Opinion No. 15 because it produces an antidilutive
result. The Opinion provides that a computation on a fully
diluted basis which results in an improvement in earnings
per share when compared to primary earnings per share
(antidilution) not be taken into account. Therefore fully diluted
earnings per share reported on the income statement are the same
as primary earnings per share.
<PAGE>
Exhibit 21
AMERICAN RICE, INC. AND SUBSIDIARIES
SUBSIDIARIES OF ARI
Jurisdiction of Percentage
Name Incorporation or Ownership
Organization
Comet Ventures, Inc. California 90%
Comet Rice of Puerto
Rico, Inc. Delaware 100%
Comet Rice of Jamaica
Limited Jamaica 100%
Rice Corporation of
Haiti, S. A. Haiti 100%
ARI-Vinafood Vietnam 55%
Compania Envasadora Loreto, S.A. Spain 100%
Sadrym California, Inc. California 51%
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> YEAR
<CASH> 3,235
<SECURITIES> 0
<RECEIVABLES> 65,187
<ALLOWANCES> 1,125
<INVENTORY> 122,258
<CURRENT-ASSETS> 194,787
<PP&E> 83,959
<DEPRECIATION> 26,000
<TOTAL-ASSETS> 298,128
<CURRENT-LIABILITIES> 154,632
<BONDS> 0
0
3,878
<COMMON> 2,444
<OTHER-SE> 35,125
<TOTAL-LIABILITY-AND-EQUITY> 298,128
<SALES> 515,518
<TOTAL-REVENUES> 515,518
<CGS> 454,243
<TOTAL-COSTS> 454,243
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,283
<INCOME-PRETAX> 6,189
<INCOME-TAX> 2,414
<INCOME-CONTINUING> 3,775
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,775
<EPS-PRIMARY> ($.88)
<EPS-DILUTED> ($.88)
</TABLE>
