SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended June 30, 1997
Commission File Number 0-17039
American Rice, Inc.
(Exact Name of Registrant as Specified in its Charter)
Texas 76-0231626
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
411 North Sam Houston Parkway East
Houston, Texas 77060
(Address of Principal Executive Offices) (Zip Code)
(281) 272-8800
Registrant's Telephone Number,
Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, $1 par
value, as of August 7, 1997 is 2,443,667 shares
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months
Ended June 30,
1997 1996
----------------------
Net sales $113,385 $97,407
Cost of sales 101,929 90,864
----------------------
Gross profit 11,456 6,543
Selling, general and
administrative expenses 8,879 6,425
----------------------
Operating income 2,577 118
Interest expense 6,121 4,619
Interest income (674) (566)
Other income and expense 59 121
----------------------
Loss before income taxes (2,929) (4,056)
Provision for income tax benefit (1,142) (1,460)
----------------------
Net loss ($1,787) ($2,596)
======================
Preferred stock dividend
requirements 1,483 1,483
----------------------
Net loss applicable
to common stock ($3,270) ($4,079)
======================
Loss per applicable
common and common equivalent
share:
Primary ($1.34) ($1.67)
======================
Fully diluted ($1.34) ($1.67)
======================
See Notes to Consolidated Financial Statement
Page 1<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
June 30, March 31,
1997 1997
----------------------
ASSETS (Unaudited)
Current assets:
Cash $4,199 $3,235
Accounts receivable, net 70,778 64,062
Inventories
Finished goods 74,320 75,969
Raw materials 42,751 46,289
Prepaid expenses 3,592 2,441
Deferred income taxes 2,791 2,791
----------------------
Total current assets 198,431 194,787
Other assets 20,606 21,216
Receivable from ERLY 24,546 24,166
Property, plant and equipment, net 57,407 57,959
----------------------
Total assets $300,990 $298,128
======================
Continued on next page
See Notes to Consolidated Financial Statement
Page 2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Thousands of Dollars, except share amounts)
June 30, March 31,
1997 1997
----------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 88,822 $ 77,616
Accounts payable 51,320 57,845
Accrued expenses 19,586 18,733
Current portion of long-term debt 468 438
----------------------
Total current liabilities 160,196 154,632
Long-term debt 96,298 96,144
Deferred income taxes 4,763 5,905
Commitments and contingencies (Note 5) - -
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
Paid-in capital 25,286 25,286
Retained earnings 9,446 11,233
Cumulative foreign currency translation
adjustments (1,321) (1,394)
----------------------
Total stockholders' equity 39,733 41,447
----------------------
Total liabilities and stockholders' equity $300,990 $298,128
======================
See Notes to Consolidated Financial Statement
Page 3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months
Ended June 30,
1997 1996
----------------------
OPERATING ACTIVITIES:
Net earnings ($1,787) ($2,596)
Adjustments to reconcile net earnings to net cash
provided by (used in) in operating activities:
Depreciation and amortization 1,898 1,419
Mortgage note discount accretion 161 139
Loss on sales of property - 5
Deferred income taxes, net (1,142) (1,460)
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (6,716) (999)
Inventories 5,187 6,156
Prepaid expenses (1,151) (302)
Other assets 186 (772)
Receivable from ERLY (380) 1,290
Accounts payable (6,525) (5,476)
Accrued expenses 853 3,459
----------------------
Net cash provided by
operating activities (9,416) 863
INVESTING ACTIVITIES:
Property, plant and equipment additions (809) (988)
Proceeds from sales of assets - 20
----------------------
Net cash used in
investing activities (809) (968)
FINANCING ACTIVITIES:
Increase (decrease) in notes payable 11,206 1,435
Proceeds from issuance of long-term debt 117 117
Repayment of long-term debt (94) (21)
Other, net (40) -
----------------------
Net cash provided by (used in)
financing activities 11,189 1,531
----------------------
NET INCREASE IN CASH 964 1,426
CASH:
Beginning of the period 3,235 2,803
----------------------
End of the period $4,199 $4,229
======================
See Notes to Consolidated Financial Statement
Page 4<PAGE>
<TABLE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended June 30, 1997
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Foreign Total
Additional Currency Stock -
Preferred Common Paid-in Retained Translation Holders'
Stock Stock Capital Earnings Adjustments Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1997 $3,878 $2,444 $25,286 $11,233 ($1,394) $41,447
Net loss - - - (1,787) - (1,787)
Foreign currency
translation - - - - 73 73
--------- --------- --------- --------- --------- ---------
Balance June 30, 1997 $3,878 $2,444 $25,286 $9,446 ($1,321) $39,733
========= ========= ========= ========= ========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
Page 5<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements presented herein at June 30, 1997 and
for each of the three month periods ended June 30, 1997 and 1996 are
unaudited; however, all adjustments which are, in the opinion of management
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods covered have been made and are of a
normal, recurring nature. The results of the interim periods are not
necessarily indicative of results for the full year. The consolidated balance
sheet at March 31, 1997 is derived from the March 31, 1997 audited
consolidated financial statements but does not include all disclosures
required by generally accepted accounting principles. Although management
believes the disclosures are adequate, certain information and disclosures
normally included in the notes to the financial statements has been condensed
or omitted as permitted by the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the audited financial statements and notes thereto included in American
Rice, Inc.'s ("ARI" or the "Company") Annual Report on Form 10-K for the
fiscal year ended March 31, 1997.
2. Olive Business Acquisition
On July 5, 1996, the Company acquired the domestic and foreign olive business
from 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
machinery. The purchase was funded primarily from ARI's credit facilities. The
Olive acquisition was accounted for as a purchase, and the results of
operations of the acquired business are included in ARI'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 Acquistion
occurred on the first day of the operating period presented (thousands of
dollars, except per share):
Three Months
Ended June 30,
1996
--------
Net Sales $115,629
Net Earnings (loss) (5,119)
Earnings (loss) per share:
Primary $ (2.70)
Fully diluted (2.70)
3. Notes Payable
ARI has an $85 million revolving credit line with 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
Page 6<PAGE>
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 and
provide limitations on capital expenditures, lease obligations, and prohibit
dividend payments. As of June 30, 1997, ARI was not in compliance with one of
the covenants related to interest coverage. The Company has obtained a waiver
to this covenant as of the June 30, 1997 measuring date. The line also
contains certain cross default provisions with the indenture for the 13.0%
mortgage notes due 2002. 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. At June 30, 1997 and March 31, 1997 respectively, the outstanding
balances on this loan were $83.7 million and $71.5 million, bearing interest
at the prime rate of 8.5%.
4. Statement of Cash Flows
Borrowings under the revolving credit line in the three months ended June 30,
1997 and 1996 totaled $49.7 million and $93.4 million, respectively, and
repayments during the same periods totaled $38.5 million and $92 million,
respectively. ARI made cash payments for interest and financing fees of
approximately $2 million and $1.8 million during the three months ended June
30, 1997 and 1996, respectively. ARI did not pay any federal or state income
taxes during the three months ended June 30, 1997 and 1996, respectively.
5. 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 plaintiff recently added a
claim that the Company and ERLY were the alter egos of the Murphys. 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 ratably.
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 the U.S. District
Page 7<PAGE>
Court for the Southern District of 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.
On July 24, 1997, Farmers Rice Milling Company ("FRM"), a Louisiana
corporation and beneficial owner of 171,933 shares of ERLY, filed a derivative
complaint on behalf of ARI and ERLY against Gerald D. Murphy, Douglas A.
Murphy, the Company, and ERLY in the United States District Court, Central
District of California. The complaint alleges among other things that Gerald
D. Murphy endangered ARI and ERLY by pledging ERLY stock owned personally by
him, as part of a proposed real estate development (see above paragraph
regarding Tenzer lawsuit). Both the Company and ERLY are nominal defendants.
The lawsuit was brought on behalf of the Company and ERLY.
6. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS No. 128, which is effective for periods ending after December 15,
1997, specifies the computation, presentation and disclosure requirements of
earnings per share ("EPS") and supersedes Accounting Principles Board Opinion
No. 15 ("APB No. 15"). 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 than the presentations using APB No. 15.
Such SFAS is effective for periods ending after December 15, 1997. In June
1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income and its components. SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments and related information in interim and annual financial
statements. SFAS No. 130 and 131 are effective for periods beginning after
December 15, 1997. These three statements will not have any effect on the
Company's 1997 financial statements, however, management is evaluating what,
if any, additional disclosures may be required when these three statements are
implemented.
Page 8<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations
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
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.
Three Months Ended June 30, 1997 Compared to
Three Months Ended June 30, 1996
Net Sales. Net sales increased $16.0 million, or 16.4%, from $97.4 million in
fiscal 1997 to $113.4 million in fiscal 1998. The sales increase was composed
of $16.2 million in olives sales due to the Acquisition and $707 thousand in
increases in sales of exported rice partially offset by a $947 thousand
decline in sales of rice in the U.S.
Gross Profit. Gross profit was 10.1% of sales for the fiscal 1998 quarter and
6.7% for the same period in 1997. Gross profit increased $5.0 million from
$6.5 million in the fiscal 1997 third quarter to $11.5 million in fiscal 1998,
due primarily to the Acquisition.
Page 9<PAGE>
Selling, general and administrative expense. Selling, general and
administrative expense increased $2.5 million to $8.9 million in the fiscal
1998 quarter due primarily to higher advertising and promotional expenses
associated with the Acquisition.
Interest. Interest expense increased $1.5 million from $4.6 million in the
fiscal 1997 period to $6.1 million in fiscal 1998 due to higher average
balances outstanding, primarily as a result of the Acquisition, and higher
average interest rates. Interest expense in both periods includes amortization
of capitalized debt issuance costs and accretion of the $6 million original
issue discount on the $100 million in principal amount of 13.0% mortgage notes
due 2002.
Liquidity and Capital Resources
ARI requires liquidity and capital primarily for the purchase of raw materials
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.
ARI has an $85 million revolving credit line with 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 and
provide limitations on capital expenditures, lease obligations, and prohibit
dividend payments. As of June 30, 1997, ARI was not in compliance with one of
the covenants related to interest coverage. The Company has obtained a waiver
to this covenant as of the June 30, 1997 measuring date. The line also
contains certain cross default provisions with the indenture for the 13.0%
mortgage notes due 2002. 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. At June 30, 1997 and March 31, 1997 respectively, the outstanding
balances on this loan were $83.7 million and $71.5 million, bearing interest
at the prime rate of 8.5%. The borrowing base under this line of credit at
June 30, 1997 was $85 million and the maximum borrowing during the three
months ended June 30,1997 was $84.7 million.
In July, 1997 ARI completed a sale and leaseback transaction with MDFC
Equipment Leasing Corporation ("MDFC") for substantially all of its olive
processing machinery and equipment located in Visalia, California. ARI
realized proceeds from the sale of approximately $9 million which were used
for operating purposes. ARI has leased these assets from MDFC for a seven year
term with a two year extension option.
In the quarter ended June 30 and currently the liquidity of the Company has
been impaired primarily as a result of the loss of financing associated with
the RMTI agreement (see Note 5 to the Financial Statements and Part II - Legal
Proceedings). In addition to the MDFC sale and leaseback transaction discussed
above, management is exploring several other opportunities to improve
liquidity. However, no assurances can be given the Company can conclude the
other arrangements being considered.
Page 10<PAGE>
The Mortgage Notes provide for interest payments semiannually on February 28th
and August 31st, accruing fixed interest at an annual rate of 13.0%, an
effective yield rate of 14.4%. In addition to fixed interest, the Mortgage
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 Mortgage
Notes corresponding to such contingent interest has not then matured and
become due and payable. The consolidated cash flow for the quarter ended June
30, 1997 was $4.2 million. Contingent interest of $430.4 thousand was accrued
during the quarter. The total contingent interest accrued and unpaid at June
30, 1997 was $1.0 million. Additional contingent interest of $286.9 thousand
and $534.6 thousand will accrue in July and August 1997 and over the period
from September 1, 1997 to February 28, 1998, respectively. To date, no
contingent interest has been paid because the applicable fixed cost coverage
ratio permits deferral of payment.
ARI's Preferred B and C stock carries annual cumulative, non-participating
dividends of $5.2 million and $750 thousand respectively. No dividends have
been declared or paid as of June 30, 1997. As of June 30, 1997, the Preferred
B dividends accumulated but not declared are $21.2 million and the Preferred C
dividends accumulated but not declared are $3.1 million.
PART II - OTHER INFORMATION
Item 1. 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. The plaintiff recently added a
claim that the Company and ERLY were the alter egos of the Murphys. 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 ratably.
Page 11<PAGE>
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 the U.S. District
Court for the Southern District of 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.
On July 24, 1997, Farmers Rice Milling Company ("FRM"), a Louisiana
corporation and beneficial owner of 171,933 shares of ERLY, filed a derivative
complaint on behalf of ARI and ERLY against Gerald D. Murphy, Douglas A.
Murphy, the Company, and ERLY in the United States District Court, Central
District of California. The complaint alleges among other things that Gerald
D. Murphy endangered ARI and ERLY by pledging ERLY stock owned personally by
him, as part of a proposed real estate development (see above paragraph
regarding Tenzer lawsuit). Both the Company and ERLY are nominal defendants.
The lawsuit was brought on behalf of the Company and ERLY.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
(b) During the quarter ended June 30, 1997, Registrant did not file any Form
8-K Reports.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Rice, Inc.
-------------------
Registrant
By: /S/ Joseph E. Westover
---------------------------
Joseph E. Westover
Vice-President / Controlle
Page 12<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars Except Per Share Data)
Three Months
Ended June 30,
1997 1996
----------------------
PRIMARY EARNINGS (LOSS) PER SHARE
Net earnings ($1,787) ($2,596)
Less dividends on preferred stock:
Series B (1,295) (1,295)
Series C (188) (188)
----------------------
(1,483) (1,483)
----------------------
Earnings (loss) applicable to
common stock ($3,270) ($4,079)
======================
Average common and common
equivalent shares outstanding:
Common 2,444 2,444
Preferred Series A - -
----------------------
2,444 2,444
======================
Earnings (loss) per share
applicable to common stock ($1.34) ($1.67)
======================
Continued on next page
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands of Dollars Except Per Share Data)
Three Months
Ended June 30,
1997 * 1996 *
----------------------
FULLY DILUTED EARNINGS PER SHARE
Net earnings ($1,787) ($2,596)
Less dividends on preferred stock:
Series C (188) (188)
----------------------
Earnings applicable to
common stock ($1,975) ($2,784)
======================
Average common and common
equivalent shares outstanding:
Common 2,444 2,444
Preferred Series A 778 778
Preferred Series B 5,600 5,600
----------------------
8,822 8,822
======================
Earnings per share
applicable to common stock ($.22) ($.32)
======================
* This calculation is presented in accordance with Regulation
S-K item 601(b)(11) although it is contrary to paragraphs 14, 30,
and 40 of APB Opinion No. 15 because it produces an antidilutive
result. The Opinion provides that a computation on a fully
diluted basis which results in an improvement in earnings
per share when compared to primary earnings per share
(antidilution) not be taken into account. Therefore fully diluted
earnings per share reported on the income statement are the same
as primary earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 3-MOS
<CASH> 4,199
<SECURITIES> 0
<RECEIVABLES> 71,929
<ALLOWANCES> 1,151
<INVENTORY> 117,071
<CURRENT-ASSETS> 198,431
<PP&E> 84,287
<DEPRECIATION> 26,880
<TOTAL-ASSETS> 300,990
<CURRENT-LIABILITIES> 160,196
<BONDS> 94,129
0
3,878
<COMMON> 2,444
<OTHER-SE> 33,411
<TOTAL-LIABILITY-AND-EQUITY> 300,990
<SALES> 113,385
<TOTAL-REVENUES> 113,385
<CGS> 101,929
<TOTAL-COSTS> 101,929
<OTHER-EXPENSES> 59
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,121
<INCOME-PRETAX> (2,929)
<INCOME-TAX> (1,142)
<INCOME-CONTINUING> (1,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,787)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
