-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WImvG+VE+dorhfFyFg3ymgs+2zl9BPIzQessUi7L0yhM2JJ7gEW2EqcdhsnU5Cji vsnf55sPXhEcbb5X/1kWZg== 0000890566-98-001611.txt : 19980924 0000890566-98-001611.hdr.sgml : 19980924 ACCESSION NUMBER: 0000890566-98-001611 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980923 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVIANA FOODS INC /DE/ CENTRAL INDEX KEY: 0000934650 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 760177572 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25294 FILM NUMBER: 98713160 BUSINESS ADDRESS: STREET 1: 2777 ALLEN PARKWAY STREET 2: STE 1500 CITY: HOUSON STATE: TX ZIP: 77019-2141 BUSINESS PHONE: 7135293251 MAIL ADDRESS: STREET 1: PO BOX 2636 CITY: HOUSTON STATE: TX ZIP: 77252-2636 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _______________ COMMISSION FILE NUMBER 0-25294 RIVIANA FOODS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0177572 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 2777 ALLEN PARKWAY HOUSTON, TX 77019-2141 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 529-3251 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 (TITLE OF CLASS ) 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 [ ] 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 the 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. [ ] As of August 31, 1998 the aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $138,862,000. The number of shares of Common Stock of the Registrant, par value $1.00 per share, outstanding at August 31, 1998 was approximately 15,460,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders to be held October 21, 1998 (the "Proxy Statement") are incorporated by reference into Part III, Items 10, 11, 12 and 13. ================================================================================ PART I ITEM 1. BUSINESS. Riviana Foods Inc. ("Riviana", the "Company", or the "Registrant") was incorporated on January 31, 1986. The Company's predecessors date back to 1911 when Frank A. Godchaux began the amalgamation of 25 rice mills in southwest Louisiana. Riviana processes, markets and distributes rice products in the United States, cookies, crackers, fruit juices, nectars and drinks, and processed fruits and vegetables in Central America, and rice and other food products in Europe. For fiscal 1998, the Company's domestic operations accounted for approximately 61% and 66% of net sales and operating income before general corporate expenses, respectively, and international operations accounted for approximately 39% and 34% of net sales and operating income before general corporate expenses, respectively. Financial segment information by geographic area for the most recent three fiscal years is set forth in Item 8, Note 12, "Segment information." Riviana's domestic operations consist primarily of sales of retail branded and private-label rice products, sales of rice products to retail food service chains, sales of rice and rice by-products to major food processors and other industrial users and exports of branded and value-added rice products to Puerto Rico and a number of international markets. Sales of retail branded and private-label rice products represent the most significant component of the Company's domestic operations, accounting for approximately 45% of the Company's total net sales during fiscal 1998. By volume, Riviana is the largest seller of retail branded and private-label rice products in the United States, offering a variety of products in each of the retail rice industry's four categories: dried rice (milled white and parboiled rice), instant rice (rice that cooks in 10 minutes or less), prepared rice (specialty mixes) and brown rice. The Company's domestic sales by hundredweight ("cwt") of retail rice products have grown at a compound annual rate of 5% from fiscal 1994 to 1998. The Company believes its consistent growth has resulted from its longstanding national presence and reputation for quality, and its ability to develop and market easy-to-prepare, value-added instant and specialty mix products. Sales of instant and specialty mixes have increased at a compound annual rate of 4% from fiscal 1994 to 1998. The Company markets its branded products under a number of nationally recognized brand names including: Mahatma(R)-- the best selling brand in the U.S. for nine years. Success(R) -- the leading brand of instant boil-in-bag rice and the second leading brand of instant rice in the U.S. Carolina(R)-- one of the top leading brands of packaged long grain rice in the northeastern and mid-Atlantic U.S. WaterMaid(R) -- the leading brand of medium grain rice in the south and southeastern U.S. River(R) -- the top-selling brand of packaged medium grain rice in several northeastern and mid-Atlantic U.S. markets. Riviana also markets a variety of easy-to-prepare, flavored rice mixes under the Mahatma(R), Carolina(R) and Success(R) brand names, including Mahatma(R) brand Yellow Rice, Red Beans & Rice, Spanish Rice and Black Beans & Rice, Carolina(R) brand Yellow Rice, Black Beans & Rice and Pilaf Rice, and Success(R) brand Brown & Wild Rice, Broccoli & Cheese Rice and Red Beans & Rice. In addition to its branded products, the Company supplies a full range of private-label rice products -- dried rice, instant rice, rice mixes and brown rice -- to numerous food retailers, including 19 of the top 20 supermarket chains in the United States. In July 1998, the Company also began marketing and distributing retail rice products in the United States and the Bahamas for Riceland Foods, Inc., with whom it also participates in rice flour milling and co-generation projects. 1 The Company supplies parboiled and instant rice in bulk to a number of the nation's major food processors for use as an ingredient in other food products. The Company also markets a range of food service products, principally instant rice, parboiled rice, and rice mixes, to several of the top restaurant chains and food service companies in the United States, and sells bulk rice and rice by-products to industrial users. Riviana exports brand name and value-added rice products to Puerto Rico and a number of foreign countries. The Company's Puerto Rican brands, El Mago(R), Sello Rojo(R) and Mahatma(R), represent approximately 20% of the total Puerto Rican retail rice market, where per capita rice consumption is approximately five times the United States level. The Company also exports brand-name and private-label rice products to Canada, Mexico and countries in the Caribbean, Europe, Africa and the Middle East. The Company's Costa Rican subsidiary, Pozuelo, S.A. ("Pozuelo"), is one of the largest manufacturers of cookies and crackers in Central America. Costa Rica is Pozuelo's largest market, followed by Guatemala and El Salvador. The Company has committed significant resources to Pozuelo in the past five years to modernize its facilities and convert it into a modern, efficient baking operation. Pozuelo's principal brands are Riviana Pozuelo(R) soda crackers and saltines, Bokitas(R) oil sprayed crackers, Familia(R) assortments of sweet biscuits, and Chiky(R), which is a chocolate-enrobed sweet biscuit. Many of these products are market leaders in Central America. Pozuelo's sales, expressed in dollars, have grown at a compound annual rate of 6.5% for the past five fiscal years. The Company's Guatemalan subsidiary, Alimentos Kern de Guatemala, S.A. ("Kern"), is one of the largest fruit and vegetable processing operations in Central America. Kern produces a wide variety of products, including fruit nectars and juices, fruit drinks, tomato products (sauces, ketchup and paste), canned vegetables and refried beans under the Kern's(R), Ducal(R), Fun-C(R) and Koolfrut(R) brands. Kern's products are sold principally in Central America with its largest markets being Guatemala, Costa Rica and El Salvador. Exports, including refried beans exported to the United States, represent a growing part of Kern's business. Many of Kern's primary brand name products are market leaders in Central America in their respective categories. Kern's sales, expressed in dollars, have grown at a compound annual rate of 5.0% for the past five fiscal years. The Company's subsidiaries in Central America accounted for approximately 17% of net sales and 26% of operating income before general corporate expenses in fiscal 1998. The Company's Belgian subsidiary, N & C Boost N.V. ("N&C"), competes in the continental European rice market through its management of Boost Distribution C.V. ("Boost"). Boost is accounted for as an unconsolidated affiliate and is jointly owned by N&C and Arrocerias Herba, S.A., a major European rice miller and marketer. Boost buys parboiled and regular brown rice in bulk, which it then mills, packages and markets under its own and private-label brand names and in bulk. Boost markets its own brand name, Bosto(R), which is a leading brand of consumer packaged rice in Belgium. Boost's Boss(R) brand canned cream rice is the leading canned creamed rice in Belgium. Boost also distributes bulk and private-label packaged rice to major retailers in Europe. The Boost joint ownership agreement provides that after January 1, 1997, each party has certain rights to buy the other's interest or require the other to buy its interest. N&C also owns a one-third interest in Herto N.V., a major European rice cake manufacturer. Stevens & Brotherton Ltd. ("S&B"), the Company's United Kingdom subsidiary, is a distribution company that distributes a variety of brand name and private-label products including rice, and canned fruits, vegetables and meats to retail, wholesale, food service and industrial customers in the United Kingdom. S&B also sells branded dried fruits and nuts from Sun-Diamond Growers of California and Welch's Concord grape juice. The products distributed by S&B are all produced by other manufacturers and generate a lower gross profit margin than other Riviana operations. The Company's European operations accounted for approximately 22% of net sales and 8% of operating income before general corporate expenses in fiscal 1998. Financial segment information by geographic area for the most recent three fiscal years is set forth in Item 8, Note 12, "Segment information." 2 The Company is exposed to certain political, economic and other risks inherent in doing business abroad, including exposure to currency exchange rate fluctuations, currency exchange restrictions, potentially unfavorable changes in tax or other laws, partial or total expropriation, and the risks of war, terrorism and other civil disturbances. Additional information related to this matter is set forth in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "General." The Company's strategies for minimizing the effect of currency rate fluctuations are to borrow in local currencies, denominate accounts receivable in local currencies and hedge certain short-term foreign product procurement commitments with specific currency exchange contracts. Currency rate fluctuations have not materially impacted the historical results of operations. The functional currencies of the Company's foreign subsidiaries are the local currency of each subsidiary. The Company has a large customer base that includes retail supermarket chains, wholesalers, industrial ingredient users, restaurant chains, breweries and other food processors. No customer, domestic or international, accounted for more than 5% of the Company's consolidated revenues in fiscal 1998. In the United States, the Company supports its branded business primarily with regional media advertising and trade and consumer promotions, including significant coupon and product tie-in programs. These programs are coordinated by Company marketing and sales departments through nine regional managers and a national network of food brokers. The Company's sales of retail rice products are executed on a purchase order basis, although the Company does have a limited number of short-term (one year or less) contracts under which it supplies rice products to industrial and international customers. The Company's sales of retail rice products are conducted through independent food brokers, who are coordinated by the Company's regional sales managers. Products are distributed through a nationwide network of Company and public warehouses. The Company buys rough rice from a variety of farm sources, primarily in Arkansas and Louisiana. No single source accounts for more than 13% of rough rice purchases. In addition to milling rice in its own facilities, the Company purchases significant amounts of rice milled to the Company's specifications from a number of the leading rice milling companies in the United States. In fiscal 1998, 81% of the Company's milled rice purchases were from three suppliers. The Company believes adequate alternative sources of supply are readily available. The Company's competitive position depends largely on continued consumer brand loyalty and its ability to introduce and gain customer acceptance for new products. The Company competes with three major industry leaders and with several regional competitors on the basis of price, quality, brand name recognition, availability of products, and product innovation. Mars, Inc., through its subsidiary Uncle Ben's, Inc., is the largest seller of branded rice in the industry measured in dollars. The Company is the industry leader in sales of branded rice measured by volume. Kraft General Foods Inc., a subsidiary of Philip Morris Companies, Inc., produces the leading brand of instant rice (Minute), and The Quaker Oats Company produces the leading brand of rice mixes (Rice-A-Roni). The Company's Central American subsidiaries have local competitors, some of which are affiliated with multinational companies. New competition has come from an influx of international brands imported from the United States, Mexico and South America attributable largely to declining import duties in Central America. In Belgium, Boost competes with branded products from Master Foods (a subsidiary of Mars, Inc.) as well as branded products packaged by other European millers and processors. In the United Kingdom, S&B competes with European rice millers, including mills in the United Kingdom, from which it also purchases rice, for its share of the rice market. In the private-label market for products other than rice, S&B competes with importers representing world-wide manufacturing operations that process fruits, vegetables and other food products. Although the Company is not involved in rice farming, certain government regulations affecting United States rice farmers have an impact on the Company's cost of raw materials. Substantially all rice grown in the United States is influenced by government programs. 3 In April 1996, the Federal Agriculture Improvement and Reform Act ("1996 Farm Bill") was enacted to replace the 1990 predecessor, the Food, Agriculture, Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill provides marketing loans and agricultural marketing 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 payments under the 1990 Farm Bill, the agricultural market transition payments are fixed without reference to price levels. Other important provisions of the 1996 Farm Bill include the elimination of acreage reduction incentives and increased flexibility of farmers to plant different crops other than rice as market conditions warrant. The changes introduced by the 1996 Farm Bill may have a significant impact on the supply and price level of rice grown in the United States. The Company is subject to various federal, state and local environmental laws and regulations concerning air quality, water quality, and the generation, use and disposal of materials relating to plant operations and to the processing of rice. The Company procures and maintains the necessary environmental permits and licenses in order to operate its facilities and considers itself to be in compliance in all material respects with those environmental laws and regulations currently applicable to its business and operations. Such compliance has not materially affected the Company's business, financial condition or results of operations. The manufacture and marketing of the Company's products are subject to regulation in the United States by federal regulatory agencies, including the Environmental Protection Agency, the Occupational Safety and Health Administration, the Food and Drug Administration ("FDA"), and by various state and local authorities. The FDA also regulates the labeling of the Company's products. The Company's operations outside the United States are subject to similar regulation in a number of countries. Compliance with existing requirements of such governmental bodies has not materially affected the Company's capital expenditures, earnings or competitive position. The Company's brands are protected by numerous trademark registrations in the United States and foreign jurisdictions. The Company believes that its registered trademarks have significant value, and are adequate to protect the brand names significant to its business. As of August 31, 1998, the Company employed approximately 2,656 employees, 23% of whom were covered by collective bargaining agreements. In Houston, Texas, the Company is a party to collective bargaining agreements with General Drivers, Warehousemen and Helpers Teamsters Local Union No. 968, covering a total of 234 employees. In Memphis, Tennessee, the Company is a party to a collective bargaining agreement with Teamsters Local Union No. 1196 covering 102 employees. In Guatemala, Kern is a party to a collective bargaining agreement with a local union covering 287 employees. The Company believes its labor relations are good. 4 ITEM 2. PROPERTIES. The following table lists the Company's principal properties, all of which are owned unless otherwise indicated.
LOCATION NATURE OF FACILITY SQUARE FOOTAGE - ------------------------------------------------------------------------------------------- --------------- Houston, Texas........................................ Processing, packaging, technical 170,600 center, warehouse Houston, Texas(1)..................................... Corporate headquarters 52,100 Abbeville, Louisiana.................................. Processing, packaging, warehouse 137,200 Memphis, Tennessee.................................... Packaging, warehouse 99,700 Carlisle, Arkansas.................................... Processing 47,500 Jonesboro, Arkansas(1)................................ Operations, gasification, storage for 6,000 rice hulls Stuttgart, Arkansas(1)................................ Operations, gasification, storage for 36,705 rice hulls Edison, New Jersey(1)................................. Warehouse 99,902 Orpington, England(1)................................. Trading office 11,100 Bristol, England(2)................................... Distribution 210,000 San Jose, Costa Rica.................................. Production, packaging, warehouse 257,000 Guatemala City, Guatemala............................. Production, packaging, warehouse 267,000
- ------------ (1) Leased facility. (2) Contracted space and services. In addition to the properties listed in the table, the Company owns six drying and storage facilities strategically located in the rice growing region of the southeastern United States, and leases warehouse facilities in Houston and Memphis. ITEM 3. LEGAL PROCEEDINGS. The Company is from time to time subject to claims and suits arising in the ordinary course of business. The Company is not currently a party to any proceeding which, in management's opinion, would have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the fourth quarter of the fiscal year ended June 28, 1998, no matter was submitted to a vote of the stockholders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information relating to the Company's common stock is set forth in Item 8 in Note 10, "Capital stock", and in Note 13, "Selected quarterly financial data (unaudited)." On August 28, 1998, the Board of Directors declared a quarterly cash dividend of $.11 per common share payable October 13, 1998 to stockholders of record on September 8, 1998. The Company has a continuing stock repurchase program. The program authorizes the repurchase of up to 1,500,000 shares of the Company's common stock from time to time. As of August 31, 1998, the Company had repurchased 514,500 shares. The Company expects to finance any future repurchases from working capital, unused short-term credit lines and cash flow from operations. 5 ITEM 6. SELECTED FINANCIAL DATA. The following table represents selected consolidated financial data for the Company and its subsidiaries for each of the five fiscal years 1994 through 1998. All amounts are in thousands except per share data.
1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- INCOME STATEMENT DATA: Net sales....................... $ 454,012 $ 460,183 $ 440,492 $ 427,229 $ 419,143 Income before extraordinary item.......................... 22,590 20,025 18,342 14,931 17,480 Net income...................... 22,590 20,025 18,342 14,931 16,443 Earnings per share: Income before extraordinary item Basic................. 1.44 1.27 1.16 0.96 1.14 Diluted............... 1.42 1.26 1.15 0.96 1.14 Net income Basic................. 1.44 1.27 1.16 0.96 1.07 Diluted............... 1.42 1.26 1.15 0.96 1.07 BALANCE SHEET DATA (AT END OF YEAR): Total assets.................... $ 205,328 $ 191,889 $ 182,504 $ 175,683 $ 175,635 Short-term debt and current maturities of long-term debt.......................... 2,705 6,874 13,031 13,276 31,597 Long-term debt, net of current maturities.................... 1,861 2,619 3,644 2,372 2,432 Total debt...................... 4,566 9,493 16,675 15,648 34,029 Stockholders' equity............ 137,744 127,076 116,506 106,795 90,654 Dividends paid per share........ 0.4200 0.3800 0.3466 0.2499 0.2000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the related notes. GENERAL The Company operates on a 52/53-week fiscal year ending on the Sunday closest to June 30th. This period is utilized because it closely coincides with the rice crop year in the southern United States and rice is the largest component of the Company's business. The Company utilizes derivative financial instruments as hedges to manage a portion of its exposure to currency fluctuations related to inventory purchases. These instruments qualify for hedge accounting treatment and, accordingly, gains and losses on these instruments are deferred and included in the basis of the inventory hedged. The Company enters into forward exchange contracts to hedge specific product commitments. The contracts have varying maturities with none exceeding twelve months and are settled at maturity, based on rates agreed to at the inception of the contracts. At June 28, 1998, the Company had established bank lines available to purchase forward exchange contracts in the amount of $41.6 million, of which $14.5 million was outstanding. Gains and losses deferred in outstanding instruments at year-end were immaterial. As a matter of policy, the Company does not engage in foreign currency speculation and does not hedge to protect the translated results of foreign operations or other economic exposures for which speculative accounting treatment of the hedging instrument would be required. The Company operates in various foreign countries and is therefore subject to currency fluctuations. Changes in the value of the United States dollar against these currencies will affect the Company's results of operations and financial position. When the United States dollar strengthens compared to other local 6 currencies, the operating results of the Company's foreign units translate into fewer United States dollars, thus decreasing the revenues and expenses of the Company on a consolidated basis. If the United States dollar weakens against the other relevant currencies, the opposite occurs. The Company's foreign units attempt to minimize the effects of currency risk by borrowing externally in the local currency and by hedging their limited purchases made in foreign currencies when that option is available. As a matter of policy, the Company does not engage in currency speculation. Changes in exchange rates historically have not materially impacted the Company's net sales, costs or business practices and management expects this to continue. Inflationary conditions in the United States and Europe have been moderate and have not had a material impact on the results of operations or financial position for the three years ended June 28, 1998. Despite higher inflationary rates in Central America, inflation has not had a material impact on the results of operations or financial position of the Company's units located in that region because the Company has generally been able to pass on cost increases to its customers. The Company includes in domestic operations all export sales originating from the United States and sales in Puerto Rico. FISCAL 1998 COMPARED TO FISCAL 1997 For the fiscal year ended June 28, 1998, sales declined $6.2 million or 1.3% to $454.0 million from $460.2 million for the previous fiscal year. In the prior year, the Company entered into a joint venture with a major rice milling company in Arkansas, which began operations in the fourth quarter of the prior year. The joint venture is involved in the cogeneration of steam and electricity using rice hulls as fuel. This unit added $2.2 million to sales in the current year reflecting a full year's operation compared to only one quarter in the prior year. Excluding the effect of the cogeneration business, sales for the period ended June 28, 1998 declined by $8.4 million or 1.8% to $451.1 million from $459.5 last year. Increased volumes added $2.5 million to sales while a combination of price and product mix reduced sales by $7.6 million and unfavorable currency translation reduced sales a further $3.3 million. In the domestic rice business sales of $276.1 million decreased $0.2 million or 0.1% from the prior year sales of $276.3 million. Despite competitive market conditions and declining total-market category sales, the Company's retail sector sales increased by $1.3 million to $203.9 million in fiscal 1998 from $202.6 million in the prior year. Within the retail sector, sales of regular rice increased by $1.5 million or 1.5% due primarily to a unit volume increase of 4.5% that added $2.8 million to sales while the product mix decreased sales by $1.3 million. Sales of value-added products decreased by $0.4 million or 0.4% despite a 1.0% increase in unit volume sales due primarily to competitive market conditions. Sales of brown rice increased over the prior year by $0.2 million due to a 3.5% increase in unit volumes. In the non-retail sector, sales decreased $1.5 million or 2.0%. Sales increased $2.0 million or 33.5% in the foodservice sector with increased volumes adding $3.7 million and a change in the product mix reducing sales by $1.7 million. The industrial sector recorded a 22.7% increase in unit volumes and a $1.5 million or 15.6% increase in sales. In the lower margin export/commodity sector, sales declined by $5.0 million or 8.7%. Lower volumes reduced sales by $3.0 million and a combination of price and product mix decreased sales a further $2.0 million. Sales in Central America increased $1.5 million or 1.9% to $76.3 million compared to $74.8 million in the prior year. Higher volumes were recorded in both fruit nectar and juice products and cookie and cracker product lines. In total, higher volumes increased sales by $2.6 million. Higher prices, particularly in the cookie and cracker product lines, increased sales by $4.1 million and unfavorable currency translation reduced sales by $5.3 million. In Europe, sales declined by $9.7 million or 8.9% to $98.7 million from $108.4 million last year. Lower unit volumes decreased sales by $6.0 million as the Company continued to eliminate sales of certain lower margin products. A combination of price and product mix reduced sales by $5.6 million and favorable currency translation increased sales by $2.0 million. Gross profit increased by $3.7 million or 3.0% to $129.0 million from $125.3 million a year ago and increased as a percentage of sales to 28.4% from 27.2% due to higher percentage margins in all segments of the business. In the domestic rice business gross profit increased $0.6 million or 0.7% to $94.0 million from $93.4 million in the same period last year. Gross profit increased primarily as a result of the product mix of 7 sales and reduced rice costs. In the domestic rice business, gross profit as a percentage of sales increased to 34.1% from 33.8%. The domestic energy cogeneration operations essentially broke even at the gross profit level. As anticipated, initial operating costs in the start-up phase were high. Gross profit in Central America improved by $2.3 million or 10.7% to $24.6 million, and also improved as a percentage of sales to 32.3% from 29.7% in the prior year. Gross profit on the sale of cookie and cracker products increased over the prior year due mostly to improved operating efficiencies. Margins in the Company's fruit nectar and juice products were up reflecting improvements in operating efficiencies and increased volumes. In Europe gross profit increased by $0.8 million or 8.7% to $10.4 million and increased as a percentage of sales to 10.6% from 8.9% last year. The increase in gross margin was due to improved margins on the ethnic rice business and the elimination of lower margin products. Operating income increased $0.8 million or 2.7% to $30.9 million from $30.1 million in the same period last year. As a percentage of sales, operating income increased to 6.8% from 6.5% in the prior period. The increase in operating income was principally due to improved results in Europe and Central America and $0.2 million lower general corporate expenses. The improvement in European operations of $0.9 million was related to the improved gross profit as discussed previously. Operating income in the domestic rice business decreased by $0.8 million or 3.0% to $26.3 million. Competitive market conditions required additional advertising and promotional spending of $1.0 million which more than offset the $0.6 million improvement in gross profit. In Central America, operating income increased by $0.6 million or 6.4% to $10.5 million. The increase in gross profit of $2.3 million was partially offset by increased selling and administrative expenses of $1.7 million related to expanded distribution and new product introductory costs. Other income of $2.1 million increased by $2.2 million from the prior year when the category reflected a net expense of $0.1 million. Net interest income of $0.4 million for the current period improved by $1.8 million from the prior period's net interest expense of $1.4 million. Improved cash flow and declining international interest rates were the main factors affecting this item. Equity in the earnings of unconsolidated affiliates of $1.4 million was $0.6 million higher than the same period last year. In the prior year, a provision of $0.8 million was made to cover the expected loss on the disposition of an unconsolidated affiliate. Also, gain on the sale of marketable securities was $0.1 million lower than the same period last year. Income tax expense of $10.0 million reflected an increase of $0.4 million from the same period last year and the effective rate decreased to 30.2% from 31.9%. This decrease in the rate reflected energy tax credits related to the Company's cogeneration joint venture and Central American investment tax credits. The Company periodically reviews estimated useful lives of property, plant and equipment. Based on the most recent review, the Company determined that actual lives for certain machinery and equipment were generally longer than the useful lives for depreciation purposes. Therefore the Company extended the estimated useful lives of those assets from 10 to 15 years, effective June 30, 1997. This change in estimate reduced depreciation expense for the fiscal year ended June 28, 1998 by $1.7 million and increased net income by $1.1 million, and diluted earnings per share by $0.07. Net income for the current year increased $2.6 million or 12.8% to $22.6 million from $20.0 million in the prior fiscal year. Diluted earnings per share were $1.42, up from $1.26 in the prior period. FISCAL 1997 COMPARED TO FISCAL 1996 Sales in fiscal 1997 advanced to $460.2 million, which is an increase of $19.7 million or 4.5% over sales of $440.5 million in fiscal 1996. Domestic sales increased 8.9% or $22.6 million to $277.0 million in fiscal 1997 from $254.4 million last year. During the year the Company entered into a joint venture with a major rice milling company in Arkansas. The joint venture is involved in the cogeneration of steam and electricity using rice hulls as fuel. This venture added $0.7 million to domestic sales in the current year. In the domestic rice business, unit volumes increased by 9.5% accounting for $14.6 million of the increase in sales. A combination of product mix and higher prices added $7.3 million to sales. Sales increases were recorded in all sectors of the domestic rice business with the exception of the industrial sector where strong 8 competition limited growth and volumes declined from the previous year. The retail sector recorded strong unit volume growth of 11.6% and sales increased by $13.4 million with $11.9 million of that increase related to the higher volumes. The export and commodity sectors also recorded good growth with sales increasing by $6.2 million and $5.7 million, respectively. Of the total increase of $11.9 million in these two sectors, $5.8 million was volume related and $6.1 million was related to product mix and higher prices. In the industrial sector sales declined by $4.2 million with $4.0 million related to lower volumes. In the foodservice sector, sales increased by $0.8 million. Increased volumes added $0.9 million to sales and a combination of price and product mix reduced sales by $0.1 million. In Central America, sales increased by $5.1 million or 7.4% to $74.8 million in fiscal 1997. Increased volumes added $3.0 million and higher prices added an additional $7.2 million, while unfavorable currency translation reduced sales by $5.1 million. Healthy volume gains were recorded in cookies and crackers, fruit nectars and juices and bean products. In Europe, sales declined by $8.0 million to $108.4 million primarily due to lower volumes, as the Company discontinued certain lower margin products. Lower volumes reduced sales by $14.0 million and a combination of product mix and higher prices added $1.1 million to sales. Favorable currency translation added $4.9 million to sales. Gross profit increased 1.4% or $1.7 million to $125.3 million in fiscal 1997 from $123.6 million in fiscal 1996. As a percentage of sales, gross profit declined to 27.2% from 28.1% in the previous year. The major factor contributing to the reduced gross profit percentage was a reduction in gross profit both in absolute terms and as a percentage of sales in the domestic rice business. Gross profit in the domestic rice business was $93.4 million, which was $2.6 million or 2.7% below the gross profit in the prior year. Despite increased sales in this segment, gross profit declined as a result of the change in sales mix. Gross profit as a percentage of sales in the domestic rice business declined to 33.8% in fiscal 1997 from 37.8% in the same period last year. In fiscal 1997, a greater proportion of sales were in the regular white rice category which earns a lower gross profit than the value added rice products. Sales of value added rice products were negatively impacted by extremely competitive market conditions in the category. Lower advertising and promotional spending offset the reduction in gross profit as noted below. The gross profit for the Central American business increased by $3.5 million or 18.4% to $22.3 million in fiscal 1997. This increase in gross profit was the result of increased sales, improved operating efficiencies and better economic conditions in the region aided by the peace accord signed in December in Guatemala. Gross profit as a percentage of sales increased significantly to 29.7% in fiscal 1997 from 27.0% last year. In Europe, gross profit increased by $0.8 million or 9.9% to $9.6 million in the current year from $8.8 million in the prior year. Also, as a percentage of sales, gross profit increased to 8.9% from 7.5% last year. This improvement resulted primarily from discontinuation of sales of certain lower margin products. Spending for advertising, selling and warehousing expenses declined $2.6 million in fiscal 1997 to $75.8 million from $78.5 million last year. As a percentage of sales these expenses declined to 16.5% from 17.8% in the same period of the previous year. Spending in this category was approximately the same as last year for both the Central American and European businesses with the primary decline coming in the domestic rice business due to a reduction in spending for introductory and other promotional programs. Administrative and general expenses increased by $0.1 million to $19.4 million in fiscal 1997 from $19.3 million in the prior year. As a percentage of sales, this expense category declined to 4.2% from 4.4% last year. Most of the increase was related to normal inflationary increases. Income from operations increased $4.3 million or 16.4% to $30.1 million from $25.8 million in the previous year. As a percentage of sales, income from operations increased to 6.5% from 5.9%. Domestic operating income increased by $0.2 million to $17.7 million. This increase was primarily related to the decrease in advertising, selling and warehousing expenses as noted above. In Central America, operating income increased $3.2 million or 46.2% to $9.9 million from $6.7 million last year. The increase in operating income was directly related to the increase in gross profit as discussed above. In Europe, income from operations increased by $0.9 million or 49.8% to $2.5 million from $1.6 million in the same period last year. This increase, also, was directly related to the improved gross profit previously discussed. 9 Other income decreased by $0.8 million. The Company recorded an asset impairment charge of $0.8 million related to the planned disposition of its equity method investment in a European joint venture operation. Gains from the sale of marketable securities increased by $0.7 million and interest income increased by $0.1 million in the current year. Interest expense was reduced primarily in Central America and Europe by $0.8 million due to reduced financing requirements for working capital. Miscellaneous other expenses increased by a net $1.4 million. Dividend income was reduced by $0.3 million due to the sale of marketable securities. Commercial grain storage income was $0.2 million lower. Also, the Company recorded a $0.1 million loss on the sale of assets while in the prior year a gain of $0.1 million was recognized. Income from a former business venture was $0.5 million lower and other miscellaneous expenses increased by $0.2 million. Income tax expense increased to $9.6 million from $7.8 million recorded in the previous year. As a percentage of income before income taxes, tax expense increased to 31.9% from 29.4% last year. In the prior year, income tax expense was favorably impacted by a favorable opinion received by the Company in Costa Rica regarding previously applied for investment tax credits. In Guatemala, the authorities passed an extraordinary tax that partially offset the benefit received in Costa Rica. The net effect was a reduction in income tax expense and excluding this benefit the effective tax rate would have been 31.2%. LIQUIDITY AND CAPITAL RESOURCES The financial condition of the Company remained strong during fiscal 1998. The Company requires liquidity and capital primarily to provide the working capital and plant and equipment to support its operations and growth. The Company's primary sources of liquidity are cash provided by operating activities and external borrowing. A strong working capital position and continued profitable operations are the key factors that allow the Company to generate most of its capital requirements internally. The Company's total of cash and marketable securities at June 28, 1998 exceeded total debt by $17.0 million. The ratio of debt to total capitalization (total debt plus stockholders' equity) decreased to 3.2% at the end of fiscal 1998 from 7.0% the previous year. The current ratio increased to 2.4 in fiscal 1998 from 2.3 at the end of the prior year. Consistent with historical results, operations provided a strong, positive cash flow in fiscal 1998, which resulted in net cash provided by operations of $32.7 million. This represented an increase of $4.9 million from the prior year. Net income increased by $2.6 million or 12.8% to $22.6 million and non-cash depreciation and amortization charges decreased by $0.7 million. Based on the Consolidated Statements of Cash Flows which eliminate the effect of fluctuations in foreign currency translation rates, working capital requirements were reduced and cash of $5.7 million was provided compared to the prior year when working capital requirements decreased and provided cash of $5.1 million. The largest change was in inventory levels. In fiscal 1998, inventories increased by $1.9 million whereas in the prior year inventories decreased by $5.2 million. The increase in inventories in the current year was offset by an increase in accounts payable of $4.6 million. For the three year period ended June 28, 1998, net cash provided by operations has exceeded capital expenditures by $34.3 million. The capital spending program in fiscal 1998 was focused on expanding capacity and cost reduction projects. Dividends paid per share of common stock increased 10.5% to $0.42 in fiscal 1998. In fiscal 1996, the board of directors of the Company authorized the open-market repurchase, from time to time, of up to 500 thousand shares of the Company's common stock. The repurchased stock will be used for general corporate purposes including issuance of stock under employee stock option plans. During 1998 the Company spent $3.9 million to repurchase 178.7 thousand shares at an average price of $21.87 per share. Through the end of fiscal 1998, the Company has repurchased a total of 343.5 thousand shares and 89.4 thousand shares have been reissued upon exercise of employee stock options. Subsequent to year end, the board of directors of the Company authorized the open-market repurchase, from time to time, of up to an additional 1.0 million shares. The Company has an aggregate of $45.0 million in domestic, short-term, unsecured revolving credit facilities with two banks. Under the terms of these facilities, the Company has the option of borrowing at 10 the bank's prime rate or at the Eurodollar rate plus 3/8%. At June 28, 1998, the Company had no loans and $1.6 million in letters of credit outstanding under these credit facilities. One of these facilities will expire in fiscal 1999 and the Company expects to renew the facility for another one-year period. One of the agreements contains limited financial covenants and the Company is currently in compliance with all of these covenants. The Company's international operations are financed internally or through borrowings in local currency without the benefit of parent Company guarantees. The Company's foreign subsidiaries have a total of $16.1 million in short-term credit lines from local sources and at June 28, 1998, the subsidiaries have borrowed a total of $1.3 million. The Company holds a portfolio of marketable securities with a market value of $4.3 million at June 28, 1998, which is available to provide additional liquidity. The Company believes that the combination of its working capital, unused and available short-term credit lines and cash flow from operations will provide it with sufficient capital resources and liquidity to meet its foreseeable needs. IMPACT OF THE YEAR 2000 ISSUE The Company is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive data by the Company's computerized information systems. The year 2000 is critical to these systems as many computer programs are written using two digits rather than four to define the applicable year. As a result, any of the Company's computer applications that have date-sensitive programs may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions including but not limited to a temporary inability to process transactions, issue invoices, communicate with customers and financial institutions and update internal accounting systems. If not corrected, such disruptions could have a significant impact on the Company's operations. The Company has initiated a Company-wide program to prepare the Company's computer systems and applications for the year 2000. Based on present information, the Company believes that it will be able to achieve year 2000 compliance through modification of some existing programs and the replacement of other programs with new programs that are already year 2000 compliant. The Company will utilize both internal and external resources to reprogram, or replace, and test software for year 2000 compliance. The Company plans to complete the year 2000 conversion project by July 1, 1999. The total project costs are presently estimated not to exceed $1.0 million and will be expensed as incurred, unless new software is purchased in which case costs will be capitalized. The Company is taking steps to resolve year 2000 compliance issues that may be created by customers, suppliers and financial institutions with whom the Company does business. However, there can be no guarantee that the systems of other entities will be converted timely. A failure to convert by another entity could have a significant adverse effect on the Company. The costs of the year 2000 conversion project and the date on which the Company plans to complete the project are based on management's best estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. There can be no guarantee that these estimates will be achieved and actual results could vary significantly from current estimates. The Company does not have a written contingency plan to address the issues that could arise should the Company or any of its suppliers or customers not be prepared to accommodate year 2000 issues timely. The Company believes that in an emergency it could revert to the use of manual systems that do not rely on computers and could perform the minimum functions required to maintain the flow of goods and provide information reporting to maintain satisfactory control of the business. Should the Company have to utilize manual systems, it is uncertain that it could maintain the same level of operations and this could have a 11 material adverse impact on the business. The Company intends to maintain constant surveillance on this situation and will develop such contingency plans as are required by the changing environment. EURO CONVERSION The Company operates in Europe through a subsidiary and two joint ventures in the United Kingdom and Belgium. On January 1, 1999 many of the member countries of the European Union are scheduled to establish fixed conversion rates between the existing sovereign currencies and the euro. At this time, the United Kingdom is not participating in this change. However, the Company's European operations do conduct business in certain of the participating member countries. The Company believes it is taking the necessary steps to accommodate this change and does not believe the euro conversion will have a significant impact on its operations. FORWARD LOOKING STATEMENTS The statements contained in this Form 10-K include forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Consolidated Financial Statements: Consolidated Balance Sheets as of June 28, 1998, and June 29, 1997........................... 14 Consolidated Statements of Income for the fiscal years ended June 28, 1998, June 29, 1997, and June 30, 1996........................... 15 Consolidated Statements of Capital Accounts and Retained Earnings for the fiscal years ended June 28, 1998, June 29, 1997, and June 30, 1996........ 16 Consolidated Statements of Other Equity Accounts for the fiscal years ended June 28, 1998, June 29, 1997, and June 30, 1996.... 16 Consolidated Statements of Cash Flows for the fiscal years ended June 28, 1998, June 29, 1997, and June 30, 1996........ 17 Notes to Consolidated Financial Statements..................... 18 Report of Independent Public Accountants.................... 31 13 RIVIANA FOODS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- ASSETS CURRENT ASSETS: Cash............................ $ 7,609 $ 4,562 Cash equivalents................ 9,588 2,478 Marketable securities........... 4,328 4,405 Accounts receivable, less allowance for doubtful accounts of $1,265 and $529............. 40,514 43,493 Inventories..................... 49,566 48,454 Prepaid expenses................ 2,008 2,295 ------------- ------------- Total current assets....... 113,613 105,687 PROPERTY, PLANT AND EQUIPMENT: Land............................ 3,530 3,550 Buildings....................... 25,271 21,848 Machinery and equipment......... 87,668 81,830 ------------- ------------- Property, plant and equipment, gross....... 116,469 107,228 Less accumulated depreciation........... (41,241) (38,065) ------------- ------------- Property, plant and equipment, net......... 75,228 69,163 INVESTMENTS IN UNCONSOLIDATED AFFILIATES......................... 10,745 11,471 OTHER ASSETS......................... 5,742 5,568 ------------- ------------- Total assets............... $ 205,328 $ 191,889 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term debt................. $ 1,280 $ 5,011 Current maturities of long-term debt........................... 1,425 1,863 Accounts payable................ 23,988 20,629 Accrued liabilities............. 14,894 13,940 Income taxes payable............ 6,255 5,382 ------------- ------------- Total current liabilities............ 47,842 46,825 LONG-TERM DEBT, net of current maturities......................... 1,861 2,619 DUE TO AFFILIATES.................... 1,347 135 DEFERRED INCOME TAXES................ 6,805 5,884 OTHER NONCURRENT LIABILITIES......... 3,246 2,995 COMMITMENTS AND CONTINGENCIES........ MINORITY INTERESTS................... 6,483 6,355 STOCKHOLDERS' EQUITY: Preferred stock, $1 par, 5,000 shares authorized, none issued......................... Common stock, $1 par, 24,000 shares authorized, 15,883 issued......................... 15,883 15,883 Paid-in capital................. 6,455 6,215 Retained earnings............... 125,503 109,851 Unrealized gains on marketable securities, net of taxes....... 2,394 2,273 Cumulative foreign currency translation adjustment......... (7,358) (5,059) Treasury stock, at cost, 254 and 130 shares..................... (5,133) (2,087) ------------- ------------- Total stockholders' equity................. 137,744 127,076 ------------- ------------- Total liabilities and stockholders' equity... $ 205,328 $ 191,889 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. 14 RIVIANA FOODS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED ----------------------------------------------- JUNE 28, 1998 JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- ------------- NET SALES............................ $ 454,012 $ 460,183 $ 440,492 COST OF SALES........................ 324,919 334,837 316,913 ------------- ------------- ------------- Gross profit.................... 129,093 125,346 123,579 ------------- ------------- ------------- COSTS AND EXPENSES: Advertising, selling and warehousing................... 78,199 75,879 78,445 Administrative and general...... 20,026 19,413 19,311 ------------- ------------- ------------- Total costs and expenses... 98,225 95,292 97,756 ------------- ------------- ------------- Income from operations..... 30,868 30,054 25,823 OTHER INCOME (EXPENSE): Gain on sale of marketable securities.................... 1,584 1,676 977 Interest income................. 1,061 587 465 Interest expense................ (619) (2,002) (2,814) Equity in earnings of unconsolidated affiliates..... 1,363 796 1,819 Other income (expense), net..... (1,324) (1,189) 176 ------------- ------------- ------------- Total other income (expense)............... 2,065 (132) 623 ------------- ------------- ------------- Income before income taxes and minority interests.. 32,933 29,922 26,446 INCOME TAX EXPENSE................... 9,956 9,559 7,770 MINORITY INTERESTS IN EARNINGS OF CONSOLIDATED SUBSIDIARIES.......... 387 338 334 ------------- ------------- ------------- Net income...................... $ 22,590 $ 20,025 $ 18,342 ============= ============= ============= Earnings per share: Basic........................... $ 1.44 $ 1.27 $ 1.16 Diluted......................... 1.42 1.26 1.15 Weighted average common shares outstanding: Basic........................... 15,727 15,814 15,873 Diluted......................... 15,936 15,919 15,931
The accompanying notes are an integral part of these consolidated financial statements. 15 RIVIANA FOODS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS AND RETAINED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COMMON STOCK TREASURY STOCK ------------------- PAID-IN RETAINED ------------------ SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL --------- ------- -------- --------- ------- ------- ---------- BALANCE, July 2, 1995................ 15,883 $15,883 $ 6,060 $ 83,314 $ 105,257 Net income...................... 18,342 18,342 Sales of common stock........... (12) 12 $ 158 146 Dividends declared ($.3533 per share)........................ (5,608) (5,608) Repurchases of common stock..... 7 (28) (366) (359) --------- ------- -------- --------- ------- ------- ---------- BALANCE, June 30, 1996............... 15,883 15,883 6,067 96,036 (16) (208) 117,778 Net income...................... 20,025 20,025 Sales of common stock........... (47) 23 323 276 Dividends declared ($.39 per share)........................ (6,163) (6,163) Repurchases of common stock..... (137) (2,202) (2,202) Collection of employee discount on stock...................... 117 117 Tax credit for disqualifying dispositions of stock......... 31 31 --------- ------- -------- --------- ------- ------- ---------- BALANCE, June 29, 1997............... 15,883 15,883 6,215 109,851 (130) (2,087) 129,862 Net income...................... 22,590 22,590 Sales of common stock........... (181) 55 861 680 Dividends declared ($.43 per share)........................ (6,757) (6,757) Repurchases of common stock..... (179) (3,907) (3,907) Collection of employee discount on stock...................... 120 120 Tax credit for disqualifying dispositions of stock......... 120 120 --------- ------- -------- --------- ------- ------- ---------- BALANCE, June 28, 1998............... 15,883 $15,883 $ 6,455 $ 125,503 (254) $(5,133) $ 142,708 ========= ======= ======== ========= ======= ======= ==========
CONSOLIDATED STATEMENTS OF OTHER EQUITY ACCOUNTS (IN THOUSANDS) UNREALIZED CUMULATIVE GAINS ON FOREIGN MARKETABLE CURRENCY SECURITIES, TRANSLATION NET OF TAXES ADJUSTMENT ------------- ----------- BALANCE, July 2, 1995................ $ 2,040 $ (502) Marketable securities, net of taxes: Realized (gains)........... (634) Unrealized gains........... 958 Effect of balance sheet translations................... (3,134) ------------- ----------- BALANCE, June 30, 1996............... 2,364 (3,636) Marketable securities, net of taxes: Realized (gains)........... (1,161) Unrealized gains........... 1,070 Effect of balance sheet translations................... (1,423) ------------- ----------- BALANCE, June 29, 1997............... 2,273 (5,059) Marketable securities, net of taxes: Realized (gains)........... (1,029) Unrealized gains........... 1,150 Effect of balance sheet translations................... (2,299) ------------- ----------- BALANCE, June 28, 1998............... $ 2,394 $(7,358) ============= =========== The accompanying notes are an integral part of these consolidated financial statements. 16 RIVIANA FOODS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED ----------------------------------------------- JUNE 28, 1998 JUNE 29, 1997 JUNE 30, 1996 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................... $ 22,590 $ 20,025 $ 18,342 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............ 4,506 5,228 4,328 Deferred income taxes...... 876 (413) 551 Gain on disposition of assets.................. (1,567) (1,566) (1,068) Equity in earnings of unconsolidated affiliates.............. (1,363) (796) (1,819) Change in assets and liabilities: Accounts receivable, net................ 1,750 (187) (3,012) Inventories........... (1,920) 5,193 (4,167) Prepaid expenses...... 217 (177) (415) Other assets.......... 1,560 (18) 3,452 Accounts payable and accrued liabilities........ 4,649 (1,224) (3,898) Income taxes payable............ 967 1,448 (33) Other noncurrent liabilities........ 341 67 172 Minority interests.... 142 242 249 ------------- ------------- ------------- Net cash provided by operating activities.... 32,748 27,822 12,682 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment..................... (11,498) (22,031) (11,041) Proceeds from disposals of property, plant and equipment..................... 157 63 432 Investment by joint venture partner....................... 75 4,759 749 Proceeds from sale of marketable securities.................... 1,727 5,503 3,594 Increase (decrease) in due to affiliates.................... 1,208 (707) 593 Increase in marketable securities.................... (10) (95) (335) Other........................... 166 52 14 ------------- ------------- ------------- Net cash used in investing activities.... (8,175) (12,456) (5,994) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in short-term debt..... (3,574) (5,903) (560) Additions to long-term debt..... 888 763 5,835 Repayments of long-term debt.... (1,759) (2,440) (3,753) Dividends paid.................. (6,613) (6,017) (5,504) Repurchases of common stock..... (3,907) (2,202) (359) Sales of common stock........... 680 276 146 Collection of employee discount on stock...................... 120 117 ------------- ------------- ------------- Net cash used in financing activities.... (14,165) (15,406) (4,195) ------------- ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......... (251) (310) (245) ------------- ------------- ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ 10,157 (350) 2,248 CASH AND CASH EQUIVALENTS, beginning of period.......................... 7,040 7,390 5,142 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, end of period............................. $ 17,197 $ 7,040 $ 7,390 ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 17 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 28, 1998, JUNE 29, 1997 AND JUNE 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (1) ORGANIZATION AND NATURE OF BUSINESS: Riviana Foods Inc. (Riviana) and subsidiaries (collectively, Company) are primarily engaged in the processing, marketing and distributing of rice and other food products. The Company has rice operations in the United States and in Belgium through unconsolidated affiliates, Boost Distribution C.V. (Boost) and Herto N.V. (Herto), food operations in Guatemala and Costa Rica, Alimentos Kern de Guatemala, S.A., (Kern) and Pozuelo, S.A., (Pozuelo) and a food distribution operation in the United Kingdom, Stevens & Brotherton Ltd. (S&B). In the United States, the Company processes, markets and distributes branded and private-label rice products to the retail grocery trade and food service industry, rice and rice by-products to industrial customers and branded products to Puerto Rico and international markets. Riviana's primary domestic brand names are Success(R), Mahatma(R), Carolina(R), River(R), Watermaid(R), Sello Rojo(R) and El Mago(R). Also, the Company is a partner in joint ventures with another rice company in rice flour processing and co-generation of power from the gasification of rice hulls. Through unconsolidated affiliates Boost and Herto, the Company processes and sells packaged rice products under the Bosto(R) brand within Belgium, private-label packaged rice products to major retailers in the European Union and both bulk and branded rice products to Eastern Europe and other export markets. In Central America, Kern produces and markets a wide range of processed fruits and vegetables under the Kern's(R), Ducal(R), Koolfrut(R) and Fun-C(R) brands. Pozuelo produces and markets cookies and crackers under the Riviana Pozuelo(R) brand. Both Kern's and Pozuelo's products are sold primarily in Central America with some products under the Ducal(R) and Pozuelo(R) brands exported to certain United States markets. S&B distributes rice under the Phoenix(R) brand and private labels as well as dried fruits, processed meats and other food products in the United Kingdom to retail, wholesale, food service and industrial customers. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: FISCAL REPORTING PERIODS The Company operates on a 52/53 week fiscal year ending on the Sunday closest to June 30. This period is utilized as it is a natural business year closely coinciding with the rice crop year in the southern United States, rice being the largest component of the Company's sales. All fiscal years presented are 52-week fiscal years. CONSOLIDATION The consolidated financial statements include the accounts of Riviana and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. INVESTMENTS IN UNCONSOLIDATED AFFILIATES The Company has equity investments in certain food processing, marketing and distribution companies, which are accounted for utilizing the equity method of accounting. Ownership interests range from 33 to 50 percent in these unconsolidated affiliates. 18 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following represents summarized financial information with respect to the assets, liabilities and results of operations of the unconsolidated affiliates. BALANCE SHEET DATA JUNE 28, 1998 JUNE 29, 1997 - ------------------- ------------- ------------- Current assets....................... $29,448 $28,809 Noncurrent assets.................... 14,736 15,866 ------------- ------------- Total assets............... $44,184 $44,675 ============= ============= Current liabilities.................. $14,707 $12,981 Noncurrent liabilities............... 7,827 8,365 Common equity: Riviana......................... 10,144 10,986 Other........................... 11,506 12,343 ------------- ------------- Total liabilities and equity.................. $44,184 $44,675 ============= ============= INCOME STATEMENT DATA 1998 1997 1996 - ---------------------- --------- ---------- ---------- Net sales............................ $ 95,832 $ 122,734 $ 129,620 Gross profit........................ 16,596 16,496 16,467 Income before income taxes........... 3,464 4,311 5,845 Net income........................... 2,393 3,042 3,846 Equity in earnings of unconsolidated affiliates......................... 1,363 796 1,819 CHANGES IN ACCOUNTING PRINCIPLES Effective July 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and SFAS No. 123, "Accounting for Stock-Based Compensation". As allowed by SFAS No. 123, the Company elected to continue to account for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, and, accordingly, will recognize no compensation expense for stock options granted, as all option plans require that the option exercise price be equal to the fair value of the common stock at the date of grant. See Note 11 for the pro forma impact of adoption of SFAS No. 123. Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Effective December 28, 1997, the Company adopted SFAS No. 128, "Earnings per Share", which revises the manner in which earnings per share is calculated. All per share amounts included herein have been restated accordingly. The effect of adopting these statements had no material impact on the Company's results of operations or financial position. RECENTLY ISSUED ACCOUNTING STANDARDS SFAS No. 130, "Reporting Comprehensive Income", was issued in June 1997. The Company will adopt SFAS No. 130 in the first quarter of 1999. Had SFAS No. 130 been adopted as of June 28, 1998, net income, as reported, would have been adjusted by changes in unrealized gains on marketable securities, net of taxes, and cumulative foreign currency translation adjustment. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued in June 1998. In March 1998 and April 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", and SOP 98-5, "Reporting on the Costs of Start-Up Activities". The Company will adopt all of these pronouncements in the first quarter of 2000 and does not expect adoption to have a material impact on the Company's results of operations or financial position. 19 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING 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 gains and losses at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the consolidated balance sheets and the consolidated statements of cash flows, the Company considers all investments with original maturities of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE In the normal course of business, the Company extends credit to its customers. The Company regularly reviews the accounts and makes adequate provision for any potentially uncollectible balances. Management believes that the Company has no significant concentrations of credit risk and has incurred no impairments in the carrying values of its accounts receivable, other than that for which provision has been made. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out (FIFO) method. Inventories were composed of the following: JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- Raw materials........................ $ 9,390 $ 8,555 Work in process...................... 23 31 Finished goods....................... 34,007 33,130 Packaging supplies................... 6,146 6,738 ------------- ------------- Total...................... $49,566 $48,454 ============= ============= PROPERTY, PLANT AND EQUIPMENT Land, buildings, machinery and equipment are stated at cost. Depreciation is provided for financial reporting purposes on the straight-line basis over the following estimated useful lives: Buildings........................................... 30 to 40 years Machinery and equipment............................. 3 to 15 years Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and betterments are capitalized. The cost of assets sold or retired and the related accumulated depreciation is removed from the accounts at the time of disposition, and any resulting gain or loss is reflected as other income or expense for the period. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities are composed primarily of certain postretirement benefits and staff termination indemnities. REVENUE RECOGNITION Sales are recognized when products are shipped. 20 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ADVERTISING The costs of advertising, promotion and marketing programs are charged to operations in the period incurred. EARNINGS PER SHARE Basic and diluted earnings per share are computed by dividing net income by the respective number of weighted average common shares outstanding. The reconciliation of weighted average common shares outstanding used in computing basic and diluted earnings per share is as follows: 1998 1997 1996 --------- --------- --------- Weighted Average Common Shares Outstanding: Basic.............................. 15,727 15,814 15,873 Stock options...................... 209 105 58 --------- --------- --------- Diluted............................ 15,936 15,919 15,931 ========= ========= ========= TRANSLATION OF FOREIGN CURRENCIES The assets and liabilities of consolidated foreign subsidiaries are translated into United States dollars at exchange rates in effect at the date of the financial statements. Revenues and expenses are translated at the average rates during the reporting periods. Resulting translation gains and losses are accumulated as a separate component of stockholders' equity. Because the Company follows the policy of not providing taxes on unremitted foreign earnings as discussed in Note 6, such translation gains and losses are not tax effected. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash, cash equivalents, trade receivables, trade payables and debt instruments. The Company periodically reviews these instruments for any impairment of value and records a provision for any impairment identified. The book values of these instruments are considered to be representative of their respective fair values. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes derivative financial instruments as hedges to manage a portion of its exposure to currency fluctuations related to inventory purchases. These instruments qualify for hedge accounting treatment and, accordingly, gains and losses on these instruments are deferred and included in the basis of the inventory hedged. The Company enters into forward exchange contracts to hedge specific product commitments. The contracts have varying maturities with none exceeding twelve months and are settled at maturity, based on rates agreed to at the inception of the contracts. At June 28, 1998, the Company had established bank lines available to purchase forward exchange contracts in the amount of $41,615, of which $14,494 was outstanding. Gains and losses deferred in outstanding instruments at year end were immaterial. As a matter of policy, the Company does not engage in foreign currency speculation and does not hedge to protect the translated results of foreign operations or other economic exposures for which speculative accounting treatment of the hedging instrument would be required. RECLASSIFICATION Certain prior-year balances have been reclassified to conform with the current-year presentation. 21 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (3) MARKETABLE SECURITIES: Investments in debt and equity securities are recorded as required by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Company's marketable securities consist of high-grade equity securities that are all considered available for sale. Available-for-sale securities, securities that the Company purchased without any specific intent to sell in the near term, are carried at fair value with unrealized gains and losses included directly in stockholders' equity, net of applicable deferred income taxes. The basis upon which costs were determined in computing realized gains was specific identification. JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- Aggregate fair value................. $ 4,328 $ 4,405 Cost basis........................... 645 908 ------------- ------------- Unrealized net gain before taxes... 3,683 3,497 Income taxes......................... 1,289 1,224 ------------- ------------- Unrealized gain, net of taxes...... $ 2,394 $ 2,273 ============= ============= Unrealized gains..................... $ 3,699 $ 3,503 Unrealized losses.................... (16) (6) ------------- ------------- Unrealized net gain before taxes......................... $ 3,683 $ 3,497 ============= ============= 1998 1997 1996 --------- --------- --------- Proceeds from sales of marketable securities......................... $ 1,727 $ 5,503 $ 3,594 Realized gross gains................. 1,584 1,681 992 Realized gross losses................ (5) (15) (4) ACCRUED LIABILITIES: Accrued liabilities consisted of the following: JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- Payroll, commissions and bonuses..... $ 8,111 $ 7,508 Coupon redemption and advertising.... 1,557 2,185 Taxes, other than income taxes....... 2,364 1,132 Other................................ 2,862 3,115 ------------- ------------- Total...................... $14,894 $13,940 ============= ============= (5) BORROWING ARRANGEMENTS: Interest rates related to short-term debt vary according to the country in which the funds are borrowed, but generally approximate the market rate of interest. The weighted average interest rate at June 28, 1998, and June 29, 1997, was 12.0% and 14.5%. A portion of the short-term debt at June 28, 1998, and June 29, 1997, is secured by certain assets of the foreign subsidiaries. The Company has unused lines of credit totaling about $58,236 at June 28, 1998, net of borrowings and $1,901 in letters of credit. 22 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Long-term debt consisted of the following: JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- Total long-term debt................. $ 3,286 $ 4,482 Less -- Current maturities........... 1,425 1,863 ------------- ------------- Long-term debt, net of current maturities.................... $ 1,861 $ 2,619 ============= ============= Total long-term debt at June 28, 1998, matures as follows: 1999................................. $ 1,425 2000................................. 745 2001................................. 350 2002................................. 192 2003................................. 192 Thereafter........................... 382 --------- Total........................... $ 3,286 ========= Total interest paid was $930, $2,025 and $2,862 for 1998, 1997 and 1996. (6) INCOME TAXES: The provision for income taxes consisted of the following: 1998 1997 1996 --------- --------- --------- Federal.............................. $ 5,351 $ 6,432 $ 2,140 State................................ 517 556 523 Foreign.............................. 3,167 3,035 1,805 --------- --------- --------- Total current provision......... 9,035 10,023 4,468 --------- --------- --------- Federal.............................. 953 (443) 3,316 Foreign.............................. (32) (21) (14) --------- --------- --------- Total deferred provision (benefit)..................... 921 (464) 3,302 --------- --------- --------- Income tax expense.............. $ 9,956 $ 9,559 $ 7,770 ========= ========= ========= Total income taxes paid.............. $ 8,444 $ 8,396 $ 7,807 ========= ========= ========= 23 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The difference between the statutory United States federal income tax rate and the Company's global effective tax rate as reflected in the consolidated statements of income was as follows:
1998 1997 1996 -------------------- -------------------- -------------------- PERCENT PERCENT PERCENT TAX OF TAX OF TAX OF EXPENSE PRETAX EXPENSE PRETAX EXPENSE PRETAX (BENEFIT) INCOME (BENEFIT) INCOME (BENEFIT) INCOME --------- ------- --------- ------- --------- ------- Taxes at U.S. federal statutory rate............................... $ 11,527 35.0% $ 10,473 35.0% $ 9,256 35.0% Resolution of issues at less than estimate previously provided....... (753) (2.3) (2,032) (7.7) Foreign earnings subject to tax rates that are different than the U.S. federal statutory rate............. (1,122) (3.4) (923) (3.1) (443) (1.7) State taxes, net of federal benefit............................ 336 1.0 362 1.2 340 1.3 Taxes on dividends received from foreign subsidiaries............... 210 0.6 211 0.7 495 1.9 Other................................ (242) (0.7) (564) (1.9) 154 0.6 --------- ------- --------- ------- --------- ------- Income tax expense / effective rate.......................... $ 9,956 30.2% $ 9,559 31.9% $ 7,770 29.4% ========= ======= ========= ======= ========= =======
The components of deferred taxes were as follows: JUNE 28, 1998 JUNE 29, 1997 -------------- -------------- Staff termination indemnities........ $ 204 $ 328 Accrued employee benefits............ 983 948 State taxes.......................... 833 823 Accrued liabilities.................. 1,282 1,214 Allowance for doubtful accounts...... 255 160 Other................................ 2 33 -------------- -------------- Total deferred tax assets.................. 3,559 3,506 -------------- -------------- Property, plant and equipment and other.............................. 7,907 6,626 Inventories.......................... 1,168 1,540 Marketable securities................ 1,289 1,224 -------------- -------------- Total deferred tax liabilities............. 10,364 9,390 -------------- -------------- Net deferred tax liabilities........ $ 6,805 $5,884 ============== ============== Income before income taxes and minority interest of foreign subsidiaries was $14,030, $10,959 and $6,878 for 1998, 1997 and 1996. The Company does not provide deferred income taxes on unremitted earnings of foreign subsidiaries, since such earnings are considered to be permanently invested. Cumulative unremitted earnings of foreign subsidiaries were $36,323, $32,967 and $30,274 as of June 28, 1998, June 29, 1997 and June 30, 1996. (7) PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS: Riviana has a defined benefit plan covering substantially all United States employees. The benefits are based on years of service and the employee's compensation. The Company's funding policy is to contribute annually at least the minimum amount actuarially necessary to provide for retirement benefits. 24 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets: JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $15,523 and $12,799........... $17,878 $14,901 ============= ============= Projected benefit obligation for service rendered through fiscal year end............... $21,317 $17,717 Plan assets at fair value, primarily listed stocks, short-term cash investments, and government securities......................... 21,288 17,453 ------------- ------------- Plan assets below projected benefit obligation......................... (29) (264) Unrecognized net gain from experience different from that assumed........ (736) (97) Unrecognized prior service costs..... 529 400 ------------- ------------- (Accrued) prepaid pension cost included in accrued liabilities................... $ (236) $ 39 ============= ============= Net pension costs included the following components: 1998 1997 1996 --------- --------- --------- Service cost-benefits earned during the year........................... $ 1,943 $ 1,719 $ 1,588 Interest cost on projected benefit obligation......................... 1,292 1,185 1,005 Actual return on plan assets......... (3,601) (3,254) (2,421) Net amortization and deferral........ 1,915 1,900 1,428 --------- --------- --------- Net pension costs............... $ 1,549 $ 1,550 $ 1,600 ========= ========= ========= Significant assumptions: Weighted average discount rate.......................... 7.0% 7.25% 7.0% Rate of increase in compensation levels........................ 4.5 4.5 5.0 Long-term rate of return on plan assets........................ 9.0 9.0 9.0 Riviana has a defined contribution plan which covers substantially all United States employees. The Company contributes an amount equal to a percentage of employee contributions. Total expense related to this plan was $548, $547 and $403 during 1998, 1997 and 1996. Riviana provides death and additional retirement benefits to certain key employees. These plans are funded through Company-owned life insurance. The net cash surrender value of the insurance policies is recorded as a noncurrent asset in the accompanying consolidated balance sheets. The actuarially computed present value of the retirement benefits is recorded as an other noncurrent liability in the accompanying consolidated balance sheets. The Company recorded expense of $219, $204 and $175 related to these plans for 1998, 1997 and 1996. (8) RELATED PARTY TRANSACTIONS: The Company paid $935, $1,318 and $2,234 for 1998, 1997 and 1996, to W. Elton Kennedy, a director of the Company, or entities controlled by him for rice purchases at market prices. Also, the Company and Kennedy Rice Dryers, Inc., a corporation of which Mr. Kennedy is the principal stockholder and a director and officer, each owns a 50% interest in South LaFourche Farm Partnership. The Company and Mr. Kennedy are each contingently liable on a $2,108 promissory note payable by the Partnership. The Company has also executed transactions with other companies owned by certain directors which were not 25 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) material to the Company's results of operations or financial position. Management of the Company believes that the foregoing transactions were on terms no less favorable to the Company than could normally be obtained from unaffiliated parties. (9) COMMITMENTS AND CONTINGENCIES: LEASE COMMITMENTS At June 28, 1998, future minimum lease payments and sublease rentals under long-term operating lease obligations amounted to: GROSS SUBLEASE LEASE RENTAL NET LEASE PAYMENTS INCOME PAYMENTS -------- -------- ---------- 1999................................. $ 3,052 $ 278 $ 2,774 2000................................. 2,327 132 2,195 2001................................. 1,462 111 1,351 2002................................. 1,147 113 1,034 2003................................. 956 114 842 Thereafter........................... 2,850 65 2,785 -------- -------- ---------- Total........................... $ 11,794 $ 813 $ 10,981 ======== ======== ========== Rent expense net of rental income was $3,311, $2,777 and $3,252 for 1998, 1997 and 1996. LITIGATION Various actions and claims, which arose in the ordinary course of business, are pending against the Company. In the opinion of management, the ultimate liability, if any, which may result from these actions and claims will not materially affect the financial position or future results of operations of the Company. BUY-SELL AGREEMENT As of June 28, 1998, the Company had a $6,926 investment in Boost which represents a 49% ownership interest. The Boost stockholder agreement provides, effective in 1997, that either stockholder has the right to purchase the other's interest. The initial bid price offered by one stockholder to the other, if not accepted, would require the rejecting stockholder to counteroffer the initial bid price plus five percent. Each rejection thereafter would also require a five percent premium over the prior offer until one stockholder accepts. (10) CAPITAL STOCK: COMMON STOCK At June 28, 1998, the Company had outstanding 1,966 shares of common stock sold before the initial public offering to directors, officers and key employees of the Company or Boost at a discount of $2,051. The amount of discount was determined by the Board of Directors and represents a percentage reduction of about 50% from the formula based estimate of fair value at the time of sale. The majority of the shares discounted were sold as an inducement for predecessor management to continue employment and to participate in the initial capitalization of the Company in 1986. The discount is recorded in the accompanying consolidated financial statements as a reduction of stockholders' equity. Under a contractual agreement with the stockholders, the discount must be repaid when the shares are sold. The Company's common stock trades on The Nasdaq Stock Market (trading symbol RVFD). 26 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PREFERRED STOCK At June 28, 1998, 5,000 shares of $1.00 per share par value preferred stock are authorized. No shares of preferred stock have been issued. (11) STOCK OPTION PLANS: On December 28, 1994, and October 22, 1997, the Company's stockholders adopted incentive stock option plans (1994 Plan and 1997 Plan). On October 11, 1995, the Company's stockholders adopted a non-employee directors stock option plan (1995 NEDSOP) which was retroactively effective May 17, 1995. Collectively, these are the "Plans". Under the 1994 Plan and 1997 Plan, a total of 795 and 1,000 shares of common stock have been reserved for issuance pursuant to options that may be granted by a committee of the Board of Directors to eligible employees of the Company or Boost, including officers. Options granted allow the holders of the options to purchase shares of common stock at the fair market value on the date of the grant for a period of ten years. No options will become exercisable sooner than one year after the date of the grant. The 1995 NEDSOP, as amended, permits the issuance of options to purchase up to 250 shares of common stock to directors who are not employees of the Company and who beneficially own less than 2% of the outstanding common stock of the Company. Such directors receive options to purchase 2 shares annually on May 17. Options granted allow holders of the options to purchase shares of common stock at the fair market value on the date of the grant for a period of ten years. No options will become exercisable sooner than one year after the date of the grant. The Plans' activity is summarized below:
1998 1997 1996 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------ -------- ------ -------- ------ -------- Options outstanding, beginning of year............................... 558 $13.74 403 $12.21 418 $12.08 Granted.............................. 246 17.42 209 16.40 8 18.50 Exercised............................ (54) 12.53 (23) 12.00 (12) 12.00 Canceled............................. (29) 15.92 (31) 13.13 (11) 12.00 ------ ------ ------ End of year: Options outstanding................ 721 15.00 558 13.74 403 12.21 ====== ====== ====== Options exercisable................ 192 13.04 129 12.23 70 12.12 ====== ====== ====== Options outstanding price range.... $12.00-$22.41 $12.00-$18.50 $12.00-$18.50
All options outstanding at June 28, 1998, have a weighted average remaining contractual life of 7.9 years. 27 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for options granted under the Plans. Accordingly, no compensation expense has been recognized. Had compensation expense been determined based on the Black-Scholes option pricing model value at the grant date for awards in 1998, 1997 and 1996 consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been as follows: 1998 1997 1996 --------- --------- --------- Net income: As reported..................... $ 22,590 $ 20,025 $ 18,342 Pro forma....................... 21,576 19,469 18,338 Earnings per share -- basic: As reported..................... $ 1.44 $ 1.27 $ 1.16 Pro forma....................... 1.37 1.23 1.16 Earnings per share -- diluted: As reported..................... $ 1.42 $ 1.26 $ 1.15 Pro forma....................... 1.36 1.23 1.15 The SFAS No. 123 method of accounting has not been applied to options granted prior to July 3, 1995, and the resulting pro forma compensation expense may not be indicative of pro forma expense in future years. The Black-Scholes option pricing model was used to value the grants issued in 1998, 1997 and 1996. The weighted average value and the assumptions used were as follows: 1998 1997 1996 ----- ----- ----- Weighted average value per share..... $7.32 $6.92 $7.92 Option term until exercised (years)............................ 7 7 7 Risk-free interest rate.............. 6.3% 6.5% 6.7% Expected dividend yield.............. 2.4% 2.5% 2.6% Volatility........................... 0.37 0.37 0.39 (12) SEGMENT INFORMATION: INDUSTRY SEGMENTS The Company operates in one dominant industry segment which involves the processing, marketing and distribution of food products. GEOGRAPHIC SEGMENTS The Company's export sales, other than those intercompany sales reported below as sales between geographic areas, are not significant. Sales between geographic areas consist of sales of raw materials and finished food products which are sold at adjusted market prices. The Company does not derive more than 10% of its revenue from any single customer. Corporate assets consist primarily of cash, cash equivalents, marketable securities, investments in unconsolidated affiliates and other assets. 28 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's geographic area data are as follows: 1998 1997 1996 ---------- ---------- ---------- Sales to unaffiliated customers: Domestic........................... $ 279,054 $ 277,019 $ 254,403 Europe............................. 98,690 108,315 116,384 Central America.................... 76,268 74,849 69,705 ---------- ---------- ---------- Total consolidated............ $ 454,012 $ 460,183 $ 440,492 ========== ========== ========== Sales between geographic areas: Domestic........................... $ 872 $ 1,552 $ 1,717 Central America.................... 11,253 9,384 11,041 Eliminations....................... (12,125) (10,936) (12,758) ---------- ---------- ---------- Total consolidated............ $ 0 $ 0 $ 0 ========== ========== ========== Income: Operating income: Domestic........................ $ 26,254 $ 27,140 $ 26,509 Europe.......................... 3,319 2,455 1,639 Central America................. 10,493 9,865 6,746 ---------- ---------- ---------- Total operating income........ 40,066 39,460 34,894 Equity in earnings of unconsolidated affiliates....... 1,363 796 1,819 General corporate expenses......... (9,198) (9,406) (9,071) Interest expense................... (619) (2,002) (2,814) Other income, net.................. 1,321 1,074 1,618 ---------- ---------- ---------- Income before income taxes and minority interests.............. $ 32,933 $ 29,922 $ 26,446 ========== ========== ========== Identifiable assets at end of year: Domestic........................... $ 116,393 $ 112,017 $ 96,381 Europe............................. 31,461 31,131 39,619 Central America.................... 37,813 36,687 31,108 ---------- ---------- ---------- Total identifiable assets..... 185,667 179,835 167,108 Corporate assets................... 19,661 12,054 15,396 ---------- ---------- ---------- Total assets.................. $ 205,328 $ 191,889 $ 182,504 ========== ========== ========== 29 RIVIANA FOODS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
QUARTERS ENDED ---------------------------------------------- SEPTEMBER DECEMBER MARCH JUNE YEAR --------- -------- ---------- ---------- ---------- 1998 Net sales....................... $ 108,014 $121,472 $ 114,068 $ 110,458 $ 454,012 Gross profit.................... 27,358 37,011 32,461 32,263 129,093 Income before income taxes and minority interests............ 6,144 9,272 8,221 9,296 32,933 Net income...................... 3,924 6,408 5,868 6,390 22,590 Per share: Earnings: Basic...................... .25 .41 .37 .41 1.44 Diluted.................... .25 .40 .37 .40 1.42 Cash dividends paid........... .10 .10 .11 .11 .42 Market price: High....................... 21.000 21.000 22.500 25.000 25.000 Low........................ 17.250 18.750 19.750 21.500 17.250 1997 Net sales....................... $ 105,005 $118,791 $ 119,022 $ 117,365 $ 460,183 Gross profit.................... 26,564 33,606 33,056 32,120 125,346 Income before income taxes and minority interests............ 4,996 8,685 7,705 8,536 29,922 Net income...................... 3,240 5,778 5,184 5,823 20,025 Per share: Earnings: Basic...................... .20 .37 .33 .37 1.27 Diluted.................... .20 .36 .33 .37 1.26 Cash dividends paid........... .09 .09 .10 .10 .38 Market price: High....................... 17.000 18.500 18.500 19.500 19.500 Low........................ 14.500 14.875 16.750 15.250 14.500
Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the annual earnings per share. 30 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Riviana Foods Inc.: We have audited the accompanying consolidated balance sheets of Riviana Foods Inc. (a Delaware corporation) and subsidiaries as of June 28, 1998, and June 29, 1997, and the related consolidated statements of income, capital accounts and retained earnings, other equity accounts and cash flows for each of the three fiscal years in the period ended June 28, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Riviana Foods Inc. and subsidiaries as of June 28, 1998, and June 29, 1997, and the results of their operations and their cash flows for each of the three fiscal years in the period ended June 28, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas August 11, 1998 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There is nothing to be reported under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information relating to the Directors of the Company is set forth under the captions "General" and "The Company recommends Voting "FOR" the nominees" in the Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information relating to executive compensation is set forth under the captions "Compensation Tables" and "Retirement Plan" in the Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information relating to the ownership of equity securities of the Company by certain beneficial owners and management is set forth under the caption "Common Stock Outstanding and Principal Holders Thereof" in the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information relating to certain relationships with a beneficial stockholder and certain related transactions is set forth under the captions "Compensation and Stock Option Committee Interlock and Insider Participation" and "Certain Transactions" in the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Consolidated Financial Statements -- See Index to Consolidated Financial Statements on page 13. (2) Consolidated Financial Statement Schedules -- None. (3) Exhibits required to be filed by Item 601 of Regulation S-K are listed below and are filed as a part hereof. Documents not designated as being incorporated herein by reference are filed herewith. The paragraph numbers correspond to the exhibit numbers designated in Item 601 of Regulation S-K.
3(i) -- The Company's Restated Certificate of Incorporation dated December 28, 1994 is incorporated herein by reference to Exhibit 3.01 to the Company's Registration Statement on Form S-1, NO. 33-87838 under the Securities Act of 1933, as amended (the "Registration Statement") 3(ii) -- The Company's By-laws, as amended effective May 17, 1995, is incorporated herein by reference to Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended July 2, 1995 *10(i) -- Consulting Agreement between Riviana Foods Inc. and Frank A. Godchaux III dated January 1, 1996 is incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 *10(ii) -- Consulting Agreement between Riviana Foods Inc. and Charles R. Godchaux dated July 1, 1994 is incorporated herein by reference to Exhibit 10.02 to the Registration Statement *10(iii) -- Benefit Restoration Plan is incorporated herein by reference to Exhibit 10.03 to the Registration Statement *10(iv) -- Management Security Agreement between the Registrant and Joseph A. Hafner, Jr. dated July 17, 1989 is incorporated herein by reference to Exhibit 10.04 to the Registration Statement 32 10(v) -- Shareholders Agreement between Sun-Land Products of California and Stevens & Brotherton Ltd. dated March 24, 1994 is incorporated herein by reference to Exhibit 10.05 to the Registration Statement 10(vi) -- Shareholder Agreement among N&C Boost N.V., Arrocerias Herba, S.A. and Ricegrowers' Co-Operative Limited dated January 29, 1992 is incorporated herein by reference to Exhibit 10.06 to the Registration Statement 10(vii) -- Stock Purchase Agreement by and among N&C Boost N.V., Riceherba International Inc. and Ricegrowers' Co-Operative Limited dated as of January 29, 1992 is incorporated herein by reference to Exhibit 10.07 to the Registration Statement 10(viii) -- Shareholder Agreement among N&C Boost N.V., Arrocers Herba, S.A. and Herto B.V.B.A. dated January 1, 1991, as amended, is incorporated herein by reference to Exhibit 10.08 to the Registration Statement 10(ix) -- Agreement of Partnership between Riviana Foods Inc. and Kennedy Rice Dryers, Inc. dated February 12, 1990 is incorporated herein by reference to Exhibit 10.09 to the Registration Statement 10(x) -- Partnership Agreement between Riviana Foods Inc. and Riceland Foods, Inc. dated March 22, 1989 is incorporated herein by reference to Exhibit 10.10 to the Registration Statement *10(xi) -- 1994 Stock Option Plan is incorporated herein by reference to Exhibit 10.11 to the Registration Statement *10(xii) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana Foods Inc. and W. David Hanks dated December 15, 1994 is incorporated herein by reference to Exhibit 10.12 to the Registration Statement *10(xiii) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana Foods Inc. and Jack M. Nolingberg dated December 15, 1994 is incorporated herein by reference to Exhibit 10.13 to the Registration Statement *10(xiv) -- Amendment and Restatement of Executive Officer's Stock Purchase Agreement between Riviana Foods Inc. and Robert D. Watts dated December 15, 1994, as amended, is incorporated herein by reference to Exhibit 10.14 to the Registration Statement *10(xv) -- Director's Stock Purchase Agreement between Riviana Foods Inc. and W. Elton Kennedy dated March 27, 1986 is incorporated herein by reference to Exhibit 10.15 to the Registration Statement *10(xvi) -- Amended and Restated 1995 Non-Employee Director Stock Option Plan dated May 17, 1996 is incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1996 *10(xvii) -- Amendment of Amendment and Restatement of Executive Officer's Stock Purchase Agreement dated December 15, 1994 between Riviana Foods Inc. and W. David Hanks dated November 8, 1996 *10(xviii) -- Amendment of Amendment and Restatement of Executive Officer's Stock Purchase Agreement dated December 15, 1994 between Riviana Foods Inc. and Jack M. Nolingberg dated November 8, 1996 *10(xviv) -- Amended and Restated 1997 Stock Option Plan dated September 1, 1997 21 -- A list of the subsidiaries of the Registrant is incorporated herein by reference to Exhibit 21.01 to the Registration Statement 23 -- The following Exhibit is filed by incorporation by reference to Item 14(a)(2) of this Report: (a) Consent of Arthur Andersen LLP 24 -- Powers of Attorney of the Company's directors
(b) Reports on Form 8-K--None. - ------------ * A management contract, compensatory plan or arrangement 33 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, on September 23, 1998. RIVIANA FOODS INC. (Registrant) By /s/ JOSEPH A. HAFNER, JR. JOSEPH A. HAFNER, JR. CHIEF EXECUTIVE OFFICER 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 indicated, on September 23, 1998.
SIGNATURE CAPACITY ---------------- ------------ /s/JOSEPH A. HAFNER, JR. Chief Executive Officer, President JOSEPH A. HAFNER JR. and Director (Principal Executive Officer) /s/W. DAVID HANKS Executive Vice President and Director W. DAVID HANKS /s/E. WAYNE RAY, JR. Vice President, Chief Financial E. WAYNE RAY, JR. Officer, Treasurer and Director (Principal Financial and Accounting Officer) *FRANK A. GODCHAUX III Chairman of the Board *CHARLES R. GODCHAUX Vice Chairman of the Board *THERESA G. PAYNE Director *W. ELTON KENNEDY Director *E. JAMES LOWREY Director *PATRICK W. ROSE Director *THOMAS B. WALKER, JR. Director *MARY GODCHAUX WIECK Director *By /s/ ELIZABETH B. WOODARD ELIZABETH B. WOODARD (AS ATTORNEY-IN-FACT FOR EACH OF THE PERSONS INDICATED)
34 EX-10 2 EXHIBIT 10 (XVIV) RIVIANA FOODS INC. AMENDED AND RESTATED 1997 STOCK OPTION PLAN 1. PURPOSE This 1997 Stock Option Plan (the "Plan") is intended as an incentive and to encourage stock ownership by certain officers and other eligible employees of Riviana Foods Inc. (the "Corporation"), or of its subsidiary corporations (the "Subsidiary" or "Subsidiaries") as that term is defined in Section 424(f) of the Internal Revenue Code of 1986 (the "Code"), or of its affiliates and joint ventures of which the Corporation is an equal partner or majority owner (the "Affiliate" or "Affiliates"), so that they may acquire or increase their proprietary interest in the Corporation and to reward them for services to the Corporation, the Subsidiaries or the Affiliates in a manner that creates an incentive to increase the value of the stock of the Corporation and also to strengthen the Corporation's ability to attract and retain officers and key employees in the employ of the Corporation. Options granted pursuant to the Plan shall be either Incentive Stock Options ("IS0's") meeting the requirements of Section 422 of the Code, or any succeeding provisions, or Nonqualified Stock Options ("NQSO's") (collectively an "Option" or the "Options"). 2. TERM OF PLAN The Plan is effective September 1, 1997, if within 90 days of such date, it shall have been approved by the vote of the holders of the majority of the shares of the Corporation. Options may be granted pursuant to the Plan from time to time within a period of ten (10) years from such date. 3. ADMINISTRATION The Plan shall be administered by a committee appointed by the Board of Directors of the Corporation (the "Committee"). The Committee shall consist of not less than two members of the Corporation's Board of Directors. The Board of Directors may from time 1 to time remove members from or add members to the Committee. Vacancies on the Committee, however caused, shall be filled by the Board of Directors. The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine. The action of a majority of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. Each director, while a member of the Committee, shall meet the definition of "Non-Employee Director" contained in Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, (The "1934 Act"), and "Outside Director" under Section 162(m) of the Code. (a) AUTHORITY. The Committee shall periodically in its discretion have the authority to designate the eligible employees who shall be granted Options, the number of shares to be optioned to each optionee, and to establish any other Option terms and conditions consistent with provisions of the Plan. The interpretation and construction by the Committee of any provisions of the Plan or of any Option granted under it shall be final. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. (b) DELEGATION OF AUTHORITY. The Committee may delegate some or all of its authority to the Chief Executive Officer or other senior member of management as it may determine in its discretion; provided, however, that any such delegation shall be in writing and that the Committee may not delegate its authority with regard to any matter or action affecting an officer subject to Section 16 of the 1934 Act. (c) SECTION 162 (M) OF THE CODE. With regards to all eligible employees, the Plan shall for all purposes, be interpreted and construed in accordance with Section 162(m) of the Code. 2 4. ELIGIBILITY Full time employees (an "Optionee" or collectively, "Optionees") of the Corporation or its Subsidiaries or its Affiliates (including officers, whether or not they are directors) shall be able to participate in the Plan if designated by the Committee and who in the opinion of the Committee, can further the Plan's purpose. 5. STOCK (a) SOURCES OF SHARES. The stock subject to the Options shall be shares of the Corporation's authorized and unissued or reacquired $1 par value Common Stock (the term "shares" as used herein shall refer to shares of said $1 par value Common Stock of the Corporation, and the term "Shares" shall refer to shares that are subject to an Option granted under the Plan). The shares available for granting Options under the Plan shall be increased by any Options which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares. In addition, any shares reserved for issuance under the Corporation's 1994 Stock Option Plan ("the 1994 Plan") in excess of the number of shares as to which options have been granted thereunder, plus any shares to which options granted under the 1994 Plan may terminate, expire, forfeit or cancel, shall also be reserved and available for issuance or re-issuance under the Plan. Shares under the Plan may be delivered by the Corporation from its authorized but un-issued shares of Common Stock or from Common Stock held in the Corporation's Treasury. (b) MAXIMUM SHARES. The aggregate number of shares that may be issued under Options pursuant to the Plan shall not exceed 1,000,000 shares. The aggregate number of shares that may be issued under Options pursuant to the Plan to any Optionee shall not exceed 50,000 shares. The limitations established in Section 7 of the Plan shall be subject to adjustment as provided in Section 9 of the Plan. 3 6. FORM OF OPTIONS Options granted pursuant to the Plan need not be uniform and may be made selectively among eligible employees who received, or who are eligible to receive Options, whether or not such eligible employees are similarly situated. 7. LIMITATIONS (a) The aggregate fair market value (determined at the date of grant of an ISO in accordance with Section 8(c) of the Plan) of shares with respect to which Options first become exercisable by an Optionee in any calendar year shall not exceed $100,000, plus any carryover amount permitted under the Code. (b) No Options shall be granted to any person who, on the date of the grant, is the owner of more than 10% of the total combined voting power of the Corporation, the Subsidiaries or the Affiliates. 8. TERMS AND CONDITIONS (a) INDIVIDUAL STOCK OPTION AGREEMENTS. Each Option granted pursuant to the Plan shall be evidenced by a written agreement, specifying the number of shares of Stock covered thereby, in such form as the Committee shall from time to time approve. (b) TERM OF OPTIONS. All Stock Options shall not expire later than ten (10) years from the effective date of the Option's grant. (c) OPTION PRICE. Each Option shall state the Option price, which shall not be less than the greater of (i) 100% of the fair market value of the Shares subject to the Option and (ii) the par value of the Common Stock. Fair market value shall be determined as the last closing price of the shares on the Nasdaq National Market on the date that the Option is granted by 4 the Committee. Subject to the foregoing, the Committee, in fixing the Option price, shall have full authority and discretion and be fully protected in doing so. (d) METHOD AND TIME OF PAYMENT. The Option price shall be payable on the exercise of the Option and may be paid (i) in United States Dollars in cash or by check, or (ii) by transferring a number of shares, previously owned for a period of at least six months, valued as provided in Section (c) above, as of the date of transfer having a value equal to the Option price, or (iii) by any combination thereof. (e) VESTING. The shares covered by an Option may be purchased in such installments and on such exercise dates as the Committee may determine. (f) TRANSFERABILITY AND NON-ASSIGNABILITY. Except as set forth below, no Option granted under this Plan shall be transferable or assignable by the Optionee otherwise than by will or under the laws of descent and distribution of the state or country in which the Optionee resided on the date of Optionee's death or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder and allowed by Section 424(c)(4) of the Code, nor shall any Option be granted to or exercisable, during the Optionee's lifetime, by anyone other than the Optionee. At its discretion, the Committee may grant Options that are transferable, without payment of consideration, to immediate family members of the Optionee or to trusts or partnerships for such family members. (g) CONDITIONS TO EXERCISE OF OPTIONS. In order to exercise an Option granted hereunder, in whole or in part, the Optionee must meet any additional specific conditions imposed by the Committee at the time of the granting of the Option. Such conditions, which if achieved, and in the discretion of the Committee, may result in exercisability or early exercisability of the Option provided that no Option granted under this Plan (or any portion thereof) shall be exercisable within one (1) year after the date of grant. Such specific 5 conditions may be in the form of achievement goals for the individual Optionee based upon predetermined minimum increases over a specified period or periods of time, in sales, gross profits, pre-tax earnings, productivity, or other goals or standards. The imposition of such achievement goals and conditions shall be in the sole discretion of the Committee. Such goals and conditions may differ between individual employees of the Corporation or of its Subsidiaries, affiliates and joint ventures, between classes of employees of the Corporation or any Subsidiary, or Affiliate, and separately as a class between the employees of the Corporation, and the employees of the Subsidiaries or the Affiliates. (h) DEATH OF OPTIONEE AND TRANSFER OF OPTION. If the Optionee shall die while in the employ of the Corporation, the Subsidiary, or the Affiliate and shall not have fully exercised the Option, the Option may be exercised, subject to the condition that no Option shall be exercisable after the expiration of ten years from the date it is granted, to the extent that Optionee's right to exercise such Option had accrued pursuant to this Section 8 of the Plan at the time of the Optionee's death and had not previously been exercised, at any time within one (1) year after the Optionee's death, by the executors or administrators of the Optionee or by any person or persons who shall have acquired the Option directly from the Optionee by bequest or inheritance. (i) TERMINATION OF EMPLOYMENT. (i) Upon termination of the Optionee's employment by reason of permanent and total disability as defined under Section 22(e)(3) of the Code, an Option may be exercised, but only to the extent exercisable on the date of such permanent and total disability, within one (1) year from and after the date of such termination of employment. (ii) Upon termination of the Optionee's employment by reason of retirement, an Option may be exercised, but only to the extent exercisable on the date of such retirement, within (1) year from and after the date of such termination of employment. (iii) Upon termination of the Optionee's employment by reason of termination, other than retirement or disability as defined by clause (i) or (ii) of this Section 8 (i), an Option may be exercised, but only to the extent exercisable on the date of such termination, within three (3) months 6 from and after the date of such termination of employment. (iv) A transfer of the Optionee's employment from one Subsidiary or Affiliate to another shall not be deemed to be a termination of the Optionee's employment. (j) LEAVE OF ABSENCE. The Committee shall be entitled to make such rules, regulations and determination as it deems appropriate under the Plan in respect of any leave of absence taken by an Optionee. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (i) whether or not any such leave of absence shall constitute a termination of employment within the meaning the Plan and (ii) the impact , if any, of any such leave of absence on Options granted under the Plan theretofore made to any Optionee who takes such leave of absence. 9. CHANGES IN CAPITALIZATION Subject to any required action by the stockholders, the number of shares covered by each outstanding Option and the price per share of each such Option shall be proportionately adjusted for any increase or decrease in the number of issued shares of the Corporation resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the shares) or any other increase or decrease in the number of such shares effected without receipt of consideration by the Corporation. If the Corporation merges or consolidates with another corporation, whether or not the Corporation is a surviving corporation, or if the Corporation is liquidated or sells or otherwise disposes of substantially all of its assets while unexercised Options remain outstanding under the Plan, (i) subject to the provisions of clause (iii) of this Section 9 below, after the effective date of the merger, consolidation, liquidation, sale or other disposition, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of that Option, to receive, in lieu of shares, the number and class or classes of shares of stock or other securities or property to which the holder would have been entitled if, immediately prior to the merger, consolidation, liquidation, sale or other 7 disposition, the holder had been the holder of record of a number of shares equal to the number of shares as to which that Option may be exercised; (ii) the Board of Directors may waive any limitations set forth in or imposed pursuant to this Plan so that all Options, from and after a date prior to the effective date of such merger, consolidation, liquidation, sale or other disposition, as the case may be, specified by the Board of Directors, shall be exercisable in full; and (iii) all outstanding Options may be canceled by the Board of Directors as of the effective date of any merger, consolidation, liquidation, sale or other disposition, provided that any Optionee shall have the right immediately prior to such event to exercise his Option to the extent such Optionee is otherwise able to do so in accordance with this Plan and his individual stock option agreement. In the event of a change in the shares of the Corporation as presently constituted that is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the shares within the meaning of the Plan. To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive; provided that the character of an Option shall be not adjusted in a manner that causes the Option to not qualify under the terms and conditions of that Option or the meaning of the Plan. Except as hereinbefore expressly provided in this Section 9, the Optionee shall have no rights (i) by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, or (ii) by reason of any dissolution, liquidation, merger, or consolidation, spin-off of assets or stock of another corporation, or any issue by the 8 Corporation of shares of stock of any class, nor shall any of these actions affect or cause an adjustment to be made with respect to, the number or price of shares subject to an Option. The grant of any Option pursuant to the Plan shall not affect in any way the right or power of the Corporation (i) to make adjustments, reclassification, reorganization or changes of its capital or business structure, (ii) to merge or consolidate, (iii) to dissolve, liquidate or sell or transfer all or any part of its business or assets, or (iv) to issue any bonds, debentures , preferred or other preference stock ahead of or affecting the shares. If any action described in the preceding sentence results in a fractional share for any Optionee under any Option hereunder, such fraction shall be disregarded and Optionee shall only be entitled to the whole number of shares resulting from such adjustment. 10. RIGHTS AS A STOCKHOLDER An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any Shares covered by his Option until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8 and Section 9 hereof. 11. INVESTMENT PURPOSE The Company shall not be obligated to sell or issue any shares pursuant to any Option unless the shares with respect to which the Option is being exercised are at the time effectively registered or exempt from registration under the Securities Act of 1933, as amended. Notwithstanding anything in the Plan to the contrary, each Option under the Plan shall be granted on the condition that the purchase of shares thereunder shall be for 9 investment purposes, and not with a view to resale or distribution. However, if the shares subject to such Option are registered under the Securities Act of 1933, as amended, or if a resale of such shares without such registration otherwise would be permissible, such condition shall be inoperative if in the opinion of counsel for the Corporation such condition is not required under the Securities Act of 1933, as amended, or any other applicable law, regulation, or rule of any governmental agency. 12. OTHER PROVISIONS Options granted under the Plan shall also contain such other provisions as the Committee or the Board of Directors of the Corporation shall deem advisable subject to any limitation in the discretion of the Board of Directors required by Rule 16b-3 under the 1934 Act, or by Section 162(m) of the Code. 13. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorneys' fees actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding (except in relation to matters as to which it shall adjudged in such action, suit or proceeding that such Committee member is liable for willful misconduct in the performance of his duties) if within sixty (60) days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. 10 14. FORFEITURE Notwithstanding any other provision of this Plan, if the Committee finds that (i) the Optionee, before or after termination of his employment with the Corporation, Subsidiary, affiliate or joint venture (as used in this Section 14, an "Employer"), committed fraud, embezzlement, theft, a felony, or proven dishonesty in the course of his employment by Employer that damaged Employer, or disclosed trade secrets of Employer, or (ii) the Optionee, before or after termination of employment with the Employer for any reason, participated, engaged in or had a financial or other interest as an employee, officer, shareholder, owner or otherwise (except as the owner of less than 1% of the common stock of a corporation whose stock is registered under the 1934 Act), in any commercial endeavor that is competitive with the business of Employer, then any outstanding Options that have not been exercised by the Optionee will be forfeited. The decision of the Committee as to the nature of an Optionee's conduct, the damage done to Employer and the extent of the Optionee's competitive activity will be final. No decision of the Committee, however, will affect the finality of the termination of the Optionee by Employer in any manner. 15. MISCELLANEOUS (a) AMENDMENT OF THE PLAN. The Board of Directors of the Corporation may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to Options, suspend or discontinue the Plan or revise or amend it in any respect whatsoever except that, without approval of the stockholders, (i) no such revision or amendment shall change the number of shares subject to the Plan, change the designation of the class of employees eligible to receive Options, decrease the price at which Options may be granted or remove the administration of the Plan from the Committee, and (ii) no such revision or amendment shall materially increase the number of shares that may be issued under the Plan, materially modify the requirements as to eligibility for participation in the Plan, or otherwise materially increase the benefits accruing to participants under the Plan. 11 (b) FOREIGN JURISDICTIONS. Options may be granted, without amending the Plan, to participants who are foreign nationals or employed outside the United States or both, on such terms and conditions different from those specified in the Plan as may, in the judgement of the Committee, be necessary or desirable to further the purpose of the Plan or to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or alternative versions of the Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of the Plan as in effect for any other purpose; provided, however, no such supplement or alternative version shall (i) increase the number of available shares under Section 5 (b) of the Plan; or (ii) cause the Plan to cease to satisfy any considerations of Rule 16b-3 under the 1934 Act or with respect to employees subject to Section 162 (m) of the Code. (c ) WITHHOLDING TAX REQUIREMENT. Whenever the Corporation proposes or is required to issue or transfer shares under the Plan, the Corporation shall have the right to require the Optionee to remit to the Corporation an amount sufficient to satisfy any federal, state, or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Alternatively, the Corporation may issue or transfer such shares net of the number of shares sufficient to satisfy the withholding tax requirements. For withholding tax purposes, the shares shall be valued on the date the withholding obligation is incurred. (d) NO RIGHTS OF EMPLOYMENT. Neither the granting of Options or the exercise of the same shall be construed as granting the Optionee any right with respect to continuance of employment with the Corporation, the Subsidiary or the Affiliate. Except as may otherwise be limited by a written agreement between the Corporation and the Optionee, the right of the Corporation, the Subsidiary or the Affiliate to terminate at will the Optionee's employment with it at any time (whether by dismissal, discharge, retirement or otherwise) is specifically reserved by the Corporation, the Subsidiary or the Affiliate. 12 (e) GOVERNING LAWS. The validity, construction, interpretation and effect of this Plan and instrument shall exclusively be governed by and determined in accordance with the laws of the State of Delaware, except to the extent preempted by Federal law, which shall to that extent govern. 13 ADOPTED BY THE BOARD OF DIRECTORS DATE: SEPTEMBER 1, 1997 APPROVED BY THE STOCKHOLDERS DATE: OCTOBER 22, 1997 14 EX-23 3 EXHIBIT 23 CONSENT OF ARTHUR ANDERSEN LLP As independent public accountants, we hereby consent to the incorporation of our report in this Form 10-K into the Company's previously filed Registration Statement File Nos. 33302484, 33315843, 33317901 and 33340865. ARTHUR ANDERSEN LLP Houston, Texas September 23, 1998 EX-24 4 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ FRANK A. GODCHAUX III Frank A. Godchaux III, Chairman of the Board of Directors POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ CHARLES R. GODCHAUX Charles R. Godchaux, Vice Chairman of the Board of Directors POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in her name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in her capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ MARY G. WIECK Mary G. Wieck, Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in her name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in her capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ THERESA G. PAYNE Theresa G. Payne, Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ W. ELTON KENNEDY W. Elton Kennedy, Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ E. JAMES LOWREY E. James Lowrey, Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ THOMAS B. WALKER, JR. Thomas B. Walker, Jr., Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer and/or director of Riviana Foods Inc. (the "Company") hereby constitutes and appoints Elizabeth B. Woodard as Attorney-in-Fact in his name, place and stead to execute the Company's Annual Report on Form 10-K for the fiscal year ended June 28, 1998, together with any and all subsequent amendments thereof, in his capacity as Director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. September 23, 1998 /s/ PATRICK W. ROSE Patrick W. Rose, Director EX-27 5
5 The financial data schedule contains summary financial information extracted from Riviana Foods Inc.'s Year End Form 10K for Fiscal 1998 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JUN-28-1998 JUN-28-1998 7,609 4,328 40,514 1,265 49,566 113,613 116,469 41,241 205,328 47,842 0 0 0 15,883 121,861 205,328 454,012 454,012 324,919 98,225 2,065 0 (619) 32,933 9,956 22,590 0 0 0 22,590 1.44 1.42
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