<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended Commission file number 1-7894
September 30, 1994
ERLY INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
California 95-2312900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10990 Wilshire Boulevard, Los Angeles, California 90024-3955
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 879-1480
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
As of September 30, 1994, there were 3,675,436 shares of the
Registrant's common stock outstanding (including redeemable common stock).
<PAGE>
<PAGE> 2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 30, March 31,
1994 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash $ 4,421,000 $ 3,065,000
Notes and accounts receivable, less
allowance for doubtful accounts of
$1,968,000 (September 30) and
$1,865,000 (March 31) 53,887,000 34,894,000
Inventories:
Raw materials 21,906,000 28,182,000
Finished goods 25,350,000 35,114,000
------------ ------------
47,256,000 63,296,000
Prepaid expenses and other
current assets 1,885,000 1,522,000
------------ ------------
Total current assets 107,449,000 102,777,000
Long-term notes receivable, net 1,492,000 1,792,000
Property, plant and equipment, net 54,911,000 55,034,000
Assets held for sale, net (Note 6) 22,578,000 22,546,000
Other assets 16,278,000 17,001,000
------------ ------------
$202,708,000 $199,150,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, collateralized $ 39,810,000 $ 49,273,000
Accounts payable 40,723,000 37,000,000
Accrued payroll and other
current liabilities 9,073,000 2,724,000
Income taxes payable 4,701,000 3,339,000
Current portion of long-term
and subordinated debt 9,046,000 8,946,000
------------ ------------
Total current liabilities 103,353,000 101,282,000
Long-term debt (Note 7) 56,584,000 60,592,000
Subordinated debt (Note 7) 7,313,000 7,313,000
Minority interest (Note 5) 19,717,000 19,769,000
Redeemable common stock,
300,000 shares issued and outstanding 1,800,000 1,800,000
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 5,000,000 shares
Issued and outstanding:
3,375,436 shares (September 30) and
3,374,765 shares (March 31) 34,000 34,000
Additional paid-in capital 16,160,000 16,157,000
Retained earnings (deficit) (1,031,000) (6,450,000)
Cumulative foreign currency
adjustments (1,222,000) (1,347,000)
------------ ------------
Total stockholders' equity 13,941,000 8,394,000
------------ ------------
$202,708,000 $199,150,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<PAGE> 3
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the three and six months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------- --------------------------
1994 1993* 1994 1993*
------------ ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $111,866,000 $ 84,600,000 $233,128,000 $135,750,000
Cost of sales 93,833,000 71,721,000 199,432,000 115,717,000
------------ ------------ ------------ ------------
Gross profit 18,033,000 12,879,000 33,696,000 20,033,000
Selling, general and
administrative expenses 10,284,000 9,198,000 18,897,000 14,322,000
Interest expense 4,374,000 2,989,000 7,848,000 5,376,000
Interest income (79,000) (209,000) (145,000) (341,000)
Other (income) expense 81,000 (106,000) 217,000 303,000
Investment income (426,000)
Gain on sale of partial
interest in subsidiary
(Note 2) (11,768,000)
------------ ------------ ------------ -----------
14,660,000 11,872,000 26,817,000 7,466,000
Income before taxes on income,
discontinued operations,
extraordinary items and
minority interest 3,373,000 1,007,000 6,879,000 12,567,000
Taxes on income 910,000 149,000 1,509,000 520,000
------------ ------------ ------------ -----------
Income from continuing
operations before
discontinued operations,
extraordinary items
and minority interest 2,463,000 858,000 5,370,000 12,047,000
Loss on discontinued operations (4,140,000) (6,156,000)
------------ ------------ ------------ -----------
Income (loss) before
extraordinary items and
minority interest 2,463,000 (3,282,000) 5,370,000 5,891,000
Extraordinary income - gain on
extinguishment of debt
(Note 4) 5,625,000 15,895,000
------------ ------------ ------------ -----------
Income before minority interest 2,463,000 2,343,000 5,370,000 21,786,000
Minority interest in (earnings)
loss of consolidated
subsidiary (Note 5) 595,000 156,000 49,000 (4,952,000)
------------ ----------- ------------ ------------
Net income $ 3,058,000 $ 2,499,000 $ 5,419,000 $ 16,834,000
============ =========== ============ ============
</TABLE>
* Restated for discontinued operations.
<PAGE>
<PAGE> 4
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
-------------------------------------------------
For the three and six months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------- ---------------------
1994 1993 1994 1993
--------- ---------- ---------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income (loss) per common and
common share equivalents:
Primary:
Continuing operations $ .73 $ .29 $1.29 $3.10 *
Discontinued operations (1.19) (1.77)
Extraordinary items 1.62 3.50 *
-------- -------- -------- --------
$ .73 $ .72 $1.29 $4.83
======== ======== ======== ========
Fully diluted:
Continuing operations $ .69 $ .27 $1.22 $2.88 *
Discontinued operations (1.10) (1.64)
Extraordinary items 1.50 3.25 *
-------- -------- -------- --------
$ .69 $ .67 $1.22 $4.49
======== ======== ======== ========
Weighted average common and
common share equivalents:
Primary 4,211,000 3,484,000 4,211,000 3,485,000
Fully diluted 4,478,000 3,751,000 4,478,000 3,752,000
</TABLE>
* Net of applicable minority interest ($1.3 million relating to
continuing operations and $3.7 million relating to extraordinary item).
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<PAGE> 5
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the three and six months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
------------ ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,058,000 $ 2,499,000 $5,419,000 $16,834,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Minority interest in earnings
(loss) of consolidated
subsidiary (595,000) (156,000) (49,000) 4,952,000
Gain on sale of partial interest
in subsidiary (11,768,000)
Extraordinary income on
extinguishment of debt (5,625,000) (15,895,000)
Depreciation and amortization 1,725,000 1,842,000 3,447,000 2,967,000
Provision for loss on receivables (31,000) 1,418,000 (18,000) 1,440,000
Equity in net income of
American Rice, Inc. (426,000)
Loss on sale of plant 2,690,000 2,690,000
Loss on disposition of subsidiary 880,000
Change in assets and liabilities:
(Increase) in receivables (15,369,000) (2,883,000) (18,975,000) (3,120,000)
(Increase) decrease in
inventories (5,534,000) 804,000 16,040,000 7,472,000
(Increase) decrease in
prepaid expenses and other
current assets (149,000) (89,000) (363,000) 297,000
(Increase) in assets held
for sale (448,000) (448,000)
Increase (decrease) in accounts
payable and other current
liabilities 20,117,000 843,000 10,070,000 (5,861,000)
Increase in taxes payable 749,000 62,000 1,362,000 550,000
Other, net 115,000 (1,349,000) 200,000 (3,469,000)
----------- ----------- ----------- ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,086,000 (392,000) 17,133,000 (2,905,000)
INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (796,000) (332,000) (2,490,000) (647,000)
Disposition of property, plant
and equipment 79,000 28,000 84,000 203,000
Acquisition of American Rice, Inc. 12,608,000
Proceeds from sale of plant 11,838,000 11,838,000
Proceeds from disposition of
subsidiary 2,092,000
----------- ----------- ---------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (717,000) 11,534,000 (2,406,000) 26,094,000
</TABLE>
<PAGE>
<PAGE> 6 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
-------------------------------------------------
For the three and six months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in
notes payable $ 1,784,000 ($ 1,149,000) ($ 9,463,000) ($ 166,000)
Principal payments on
long-term debt (2,508,000) (7,887,000) (3,908,000) (8,610,000)
Proceeds from notes and
long-term debt 79,458,000
Repayment of notes and term
debt on refinancing (93,736,000)
----------- ------------ ----------- -----------
NET CASH (USED IN)
FINANCING ACTIVITIES (724,000) (9,036,000) (13,371,000) (23,054,000)
----------- ----------- ----------- -----------
INCREASE IN CASH DURING
THE PERIOD 2,645,000 2,106,000 1,356,000 135,000
CASH, BEGINNING OF PERIOD 1,776,000 1,901,000 3,065,000 3,872,000
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 4,421,000 $ 4,007,000 $ 4,421,000 $ 4,007,000
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<PAGE> 7
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
For the six months ended September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Cumulative
Common Stock Additiona Retained Foreign Total
--------------------- Paid-in Earnings Currency Stockholders'
Shares Dollars Capital (Deficit) Adjustments Equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance
April 1, 1994 3,374,765 $34,000 $16,157,000 ($ 6,450,000) ($1,347,000) $8,394,000
Net income
for the period 5,419,000 5,419,000
Common stock
issued 671 3,000 3,000
Foreign currency
adjustments 125,000 125,000
--------- ----------------------------------------------------------------
Balance
September 30,
1994
(unaudited) 3,375,436 $ 34,000 $16,160,000 ($1,031,000) ($1,222,000) $13,941,000
======== ================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<PAGE>
<PAGE> 8
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
For the three and six months ended September 30, 1994 and 1993
Basis of Presentation:
The information furnished is unaudited but reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Results for interim periods are not
necessarily indicative of results to be expected for the entire year.
Reference should be made to the Notes To Consolidated Financial Statements
in the Company's 1994 Form 10-K for a discussion of accounting policies
and other significant matters.
The accompanying consolidated financial statements include the accounts of
ERLY Industries Inc. and its subsidiaries (the "Company" or "ERLY"). All
significant intercompany accounts, intercompany profits and intercompany
transactions are eliminated. As discussed in Notes 1 and 2, substantially
all of the assets and liabilities of ERLY's wholly owned subsidiary, Comet
Rice, Inc. ("Comet"), were acquired by American Rice, Inc. ("ARI") on
May 26, 1993, in a transaction accounted for as a reverse acquisition by
ERLY's subsidiary, Comet. Prior to the transaction, ERLY owned 48% of the
voting rights of ARI, and its investment in ARI was accounted for using
the equity method. ERLY's equity in ARI's net results of operations was
reflected as investment income in ERLY's consolidated statements of
operations. As a result of the transaction, ERLY's ownership increased to
81% of the voting rights of ARI; therefore, beginning in June 1993, ARI's
balance sheet and results of operations are consolidated with ERLY's with
appropriate adjustments to reflect minority interest.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred income taxes and liabilities are computed for differences between
the financial statement basis and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future. Valuation
allowances have been established to reduce deferred tax assets to the
amount expected to be realized. At March 31, 1994, the Company had net
operating loss carryforwards for federal tax reporting purposes of
approximately $32 million which can be used to offset future taxable
income. Tax expense reflected in the consolidated statements of
operations represents estimated federal, state and foreign tax expense on
pre-tax earnings reduced by the utilization of deferred tax assets
relating to net operating loss carryforwards that had previously been
reserved.
Primary earnings per share are based on the weighted average number of:
(1) common shares, and (2) dilutive common share equivalents (consisting
of stock options and warrants) outstanding during each period presented.
Fully diluted earnings per share assumes conversion of a $1 million
convertible note payable, unless conversion would be antidilutive.
Note 1 - Acquisition of Comet Rice, Inc. by American Rice, Inc.
On May 26, 1993, ARI consummated a transaction to acquire substantially
all of the assets of Comet and assume all of Comet's liabilities (the
"Transaction"). The Transaction also involved refinancing the combined
indebtedness of ARI and Comet.
<PAGE>
<PAGE> 9
Note 1 - Acquisition of Comet Rice, Inc. by American Rice, Inc.
(continued)
The operating results reflected in the accompanying financial statements
do not include ARI's operating activities prior to May 26, 1993, the date
of the Transaction. The following consolidated unaudited pro forma
results relating to the six months ended September 30, 1993, however, have
been prepared assuming the Transaction had occurred at the beginning of
the fiscal year, April 1, 1993.
Six months
ended
September 30, 1993
------------------
Pro Forma
---------
Net sales $162,553,000
Income from continuing
operations before discontinued
operations, extraordinary item
and minority interest* 1,668,000*
Income per common share
from continuing operations*:
Primary $ .48
Fully diluted $ .44
* Excluding one-time gain on sale of partial interest in subsidiary of
$11,768,000.
Note 2 - Gain on Sale of Partial Interest in Subsidiary
In conjunction with the May 26, 1993 Transaction, ERLY received an
additional 33% interest in ARI in exchange for all of the assets (except
for the ARI stock owned by Comet) and all of the liabilities of ERLY's
wholly owned subsidiary, Comet Rice, Inc.
Since ERLY, the sole shareholder of Comet at the time of the Transaction,
owned the larger portion of the voting rights in the surviving
corporation, the Transaction was accounted for as a reverse step
acquisition of ARI by ERLY through its subsidiary, Comet, reflecting the
change of control that occurred. The Transaction was accounted for under
the guidelines of APB Opinion No. 16, "Business Combinations" and Emerging
Issues Task Force ("EITF") Issue No. 90-13, "Accounting for Simultaneous
Common Control Mergers."
The accounting consists of three steps: Step one consists of a
recognition by ARI of ERLY's historical cost of its original 48% interest.
When ERLY purchased 48% of ARI in 1988 for $20 million, the purchase price
was greater than 48% of ARI stockholders' equity. ERLY attributed the
excess to ARI's Houston property and thus the excess (which was $5.2
million at March 31, 1993) was added to the book value of the Houston
property.
<PAGE>
<PAGE> 10
Note 2 - Gain on Sale of Partial Interest in Subsidiary (continued)
Step two recognizes the acquisition by ERLY of an additional equity
interest in ARI of approximately 33% in exchange for substantially all of
the assets of Comet and all of Comet's liabilities. ARI's assets are
valued at fair market value to the extent acquired.
Step three, in accordance with EITF 90-13, the fair value of Comet's net
assets was determined. ERLY accounted for the Transaction as a partial
sale of 19% of Comet Rice (19% is the percentage ownership of ARI by
minority shareholders), and a step acquisition of ARI, increasing its
ownership from 48% to 81%. Under EITF 90-13, a gain of $11.8 million was
recognized by ERLY in the quarter ended June 30, 1993, to the extent of
the 19% of Comet Rice sold.
In accordance with EITF 90-13, Comet's net assets were revalued in ERLY's
consolidated financial statements to the extent that Comet was acquired by
the minority shareholders of ARI. This resulted in an $11.6 million
increase in the carrying value of Comet assets. This increase was
attributed to Comet's Maxwell, California facility, now owned by ARI. It
is being depreciated over 30 years (buildings and improvements) and 15
years (machinery and equipment).
Note 3 - Discontinued Operations
In December 1993, the Company sold its juice manufacturing facility
located in Eau Claire, Michigan, plus inventory, accounts receivable and
trademarks. As a result of these dispositions, ERLY has no operating
assets or continuing operations remaining in the juice business. It is
ERLY's intention to liquidate the remaining assets of ERLY Juice for the
benefit of the ERLY Juice creditors.
The results of ERLY's juice business have been reported separately as
discontinued operations in the consolidated statements of operations.
Prior period consolidated financial statements have been restated to
present the juice business as a discontinued operation. Summarized
results of ERLY Juice for the three and six months ended September 30,
1993 were as follows:
Three months Six Months
ended ended
September 30, 1993 September 30, 1993
------------------ ------------------
Net sales $11,581,000 $26,250,000
Costs and expenses (15,162,000) (31,064,000)
Interest expense (559,000) (1,342,000)
----------- -----------
Loss from discontinued
operations ($ 4,140,000) ($ 6,156,000)
=========== ===========
<PAGE>
<PAGE> 11
Note 3 - Discontinued Operations (continued)
At September 30, 1994, ERLY's remaining juice business assets of $503,000
are included in prepaid expenses and other current assets in the
consolidated balance sheet. In addition, the September 30, 1994
consolidated balance sheet includes liabilities of the juice business as
follows:
Current liabilities:
Notes payable to ING Capital $ 8,397,000
Accounts payable 4,537,000
Other current liabilities 518,000
Current portion of long-term debt 245,000
-----------
$13,697,000
===========
Note 4 - Extraordinary Items
The Company had the following extraordinary items for the three and six
months ended September 30, 1993:
<TABLE>
<CAPTION> Three months Six Months
ended ended
September 30, 1993 September 30, 1993
------------------ ------------------
<S> <C> <C>
Gain on extinguishment of
debt related to ERLY Juice $5,625,000 $ 5,625,000
Gain on extinguishment of
debt related to ARI 10,270,000
---------- -----------
$5,625,000 $15,895,000
========== ===========
</TABLE>
During the quarter ended September 30, 1993, ERLY Juice settled
approximately $6.3 million of term debt and trade payables with a primary
creditor in exchange for $650,000. This resulted in a gain of $5,625,000
which is reflected as extraordinary income.
Results for the first quarter ended June 30, 1993 included extraordinary
income of $10.3 million (before applicable minority interest) relating to
debt discounts by ARI's former lenders.
<PAGE>
<PAGE> 12
Note 5 - Minority Interest
ERLY owns 81% of ARI's voting interests. Parent companies often hold
interests in subsidiaries by ownership of the common stock of the
subsidiary. ERLY's ownership of ARI is more complex, including both
common stock and convertible preferred stock. ERLY's 81% interest in ARI
consists of the following securities of ARI (as adjusted for a one-for-
five reverse stock split for all issues of preferred and common stock
effective September 1994):
* 777,777 shares of ARI common stock which represent 32% of ARI's
total outstanding common stock and 9% of ARI's common shares on a
fully converted basis.
* 777,777 shares of ARI Series A Preferred Stock, which is convertible
one for one, has voting rights, liquidation preferences of $25.70
per share, but has no stated dividend. These shares represent 9% of
ARI's common shares on a fully converted basis.
* 2,800,000 shares of ARI Series B Preferred Stock, which is
convertible into 5,600,000 common shares, has voting rights and an
annual cumulative dividend of approximately $5.2 million. These
shares represent 63% of ARI's common shares on a fully converted
basis.
In addition to the preferred stocks issued to ERLY, ARI issued a Series C
Preferred Stock to third parties. This Series C Preferred Stock does not
have voting or conversion rights but does have an annual cumulative
dividend of $750,000. The Series A, Series B and Series C Preferred
Stocks are unique securities with preferential rights which are superior
to common stock rights.
The Minority Interest of ARI in ERLY's consolidated financial statements
represents the 68% of the common stock of ARI which ERLY does not own and
the Series C Preferred Stock.
In the situation where ownership of a subsidiary is represented entirely
by common stock, the minority interest in the earnings or losses of the
subsidiary is the percentage ownership by the minority interest in the
common stock. However, in the case where ownership of a subsidiary
involves complex securities like convertible preferred stocks in addition
to common stocks, specific rules under generally accepted accounting
principles (APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock") require that earnings or losses of the
subsidiary be allocated between the parent and the minority interest in
accordance with the underlying terms of the various securities, rather
than allocation based on voting ownership of the subsidiary. No
conversion is assumed in the case of convertible preferred stocks for
purposes of this calculation, even though conversion may occur at any time
at the option of the holder.
ARI's cumulative annual dividends of $5.2 million related to the Series B
Preferred Stock and $750,000 related to the Series C Preferred Stock are
deducted from ARI earnings to yield earnings or loss to be allocated to
common stock. The Series B Preferred Stock dividend is allocated entirely
to ERLY, while the Series C Preferred Stock dividend is allocated entirely
to Minority Interest.
<PAGE>
<PAGE> 13
Note 5 - Minority Interest (continued)
The Series B and Series C Preferred Stock dividends are allocated to ERLY
and to the Minority Interest, respectively, even if this allocation
results in a loss being attributed to the common stock as these preferred
stock dividends are based on the underlying terms of the securities.
Similarly, these dividends are allocated even if not declared as the
dividends are cumulative. However, dividends are allocated only if
determined to be ultimately recoverable. As of September 30, 1994, the
Preferred B dividends accumulated but not declared are $6.9 million and
the Preferred C dividends accumulated but not declared are $1 million.
The remaining earnings or losses to be allocated to common stock after
deduction of the preferred stock dividends is allocated in accordance with
the relative common stock ownership of ERLY (32%) and the Minority
Interest (68%).
The Minority Interest reflected on the balance sheets represents: (1)
original investment in the equity of ARI on a historical cost basis on the
part of the Minority Interest, (2) an entry to record the acquisition by
the Minority Interest of a partial interest in Comet Rice, Inc. as of May
26, 1993 in accordance with EITF 90-13 as described in Note 2, and (3) the
effects of the allocation of ARI's earnings and losses from May 26, 1993
based on the ownership terms of the various equity securities of ARI as
previously described.
Minority Interest does not represent amounts distributable to minority
shareholders. Amounts, if any, ultimately distributable to minority
shareholders will depend on the ownership interests which exist at such
time as distributions are made, including the potential conversions of
convertible securities and potential issuance or retirement of other
securities. The timing of distributions and conversions, if any, is at
the discretion of ERLY, since ERLY owns 81% of the voting interest in ARI.
Note 6 - Assets Held for Sale - Long-term
The consolidated balance sheets include assets held for sale classified as
long-term of $23 million at September 30, 1994. This includes ARI
property held for sale in Houston, Texas ($19 million) and the remaining
net assets of the Company's discontinued winery operations ($4 million)
which management intends to dispose of in an orderly manner.
ARI's Board of Directors previously adopted a resolution authorizing its
management to sell 39 acres of land in Houston. Management has had
conversations with developers interested in the property, however, no
decision has yet been made about how to market the property. Management's
intention is an orderly, outright sale to a third party rather than to
develop the property. However, ARI might consider some form of joint
venture with a developer in order to maximize the property's value. ARI
has the ability and intent to hold the property over a normal marketing
period. The proceeds of any such sale, when and if itoccurs, are
required by the terms of ARI's debt agreements to be used to
reduce debt.
<PAGE>
<PAGE> 14
Note 7 - Long-term and Subordinated Debt
Certain of the Company's and subsidiaries' long-term debt agreements
require maintenance of minimum amounts or ratios related to working
capital, long-term debt and net worth, in addition to the observance of
other covenants. These restrictions also preclude the payment of cash
dividends.
The Company's Chemonics subsidiary was in violation of certain debt
covenants to ING Capital at September 30, 1994, by not making the last
term loan payment of $1.0 million on December 31, 1993. Negotiations are
in process for a refinancing with new lenders to paydown Chemonics'
existing lender. This refinancing is expected to be completed in the
third quarter of the current fiscal year.
As a result of the discontinuation of the juice operations, there still
remains $8.4 million (plus accrued interest from December 21, 1993) of
ERLY Juice's obligation to ING Capital which the Company guaranteed.
Under the terms of the guarantee, ERLY is required to paydown the
remaining $8.4 million (plus accrued interest) of debt within one year (by
December 21, 1994) or ING Capital may declare a default with the right to
foreclose on ERLY's subsidiary, Chemonics Industries, Inc. While ING
Capital has the right to foreclose on December 21, Management believes
that the Company can obtain a forbearance in order to complete the sale of
assets or a refinancing in order to paydown the remaining obligations.
The Company's 12-1/2% Subordinated Sinking Fund Debentures (the "Old
Debentures") with an outstanding balance of $8,880,000 matured on December
1, 1993. The Company has offered to exchange $8,880,000 12-1/2%
Subordinated Sinking Fund Debentures due 2002 (the "New Debentures") for
the Old Debentures. As of September 30, 1994, holders of approximately
98% of the Old Debentures have exchanged. The Company is exploring ways
to deal with those debentureholders who have not agreed to the exchange
and believes that it can refinance the remaining amount (with a face value
of approximately $209,000).
<PAGE>
<PAGE> 15
ERLY INDUSTRIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-------------------------
For the three and six months ended September 30, 1994 and 1993
Results of Operations - Three months ended September 30, 1994 and 1993
For the quarter ended September 30, 1994, the Company reported net income
of $3.1 million on sales of $112 million, as compared to net income of
$2.5 million on sales of $85 million for the second quarter of the prior
fiscal year. Sales for the second quarter of fiscal 1995 were up $27.3
million from the second quarter of last fiscal year due to a $19.3 million
increase in sales by the Company's Chemonics subsidiary and an $8.0
million increase in sales by ARI.
Gross profit for the quarter ended September 30, 1994 was $18.0 million,
an increase of $5.2 million from the quarter ended September 30, 1993,
primarily as a result of the increase in sales by Chemonics.
Because ERLY holds both common and preferred stock in ARI, ERLY's share of
ARI's net income or loss consists of ERLY's proportionate share (32%) of
ARI's earnings (loss) applicable to common stock, plus dividends earned on
ARI Series B Preferred Stock. ERLY's share of ARI's common stock earnings
(loss) was ($368,000) and ($162,000) for the quarters ended September 30,
1994 and 1993, respectively. ERLY also earned Series B Preferred
dividends of $1,295,000 and $1,295,000 for the quarters ended
September 30, 1994 and 1993, respectively.
Results for the second quarter of the prior fiscal year included: (1)
extraordinary income of $5.6 million on the discount of debt related to
ERLY Juice, and (2) a $4.1 million loss from discontinued operations
relating to the Company's juice business which was discontinued in
December 1993.
Rice Operations
Sales for the quarter ended September 30, 1994 of $78.3 million increased
$8.0 million from the prior year due to $8.7 million in export sales
increases partially offset by $662,000 in domestic sales decreases.
Export sales increased due to higher volume. Average export prices were
at about the same level as the prior period. Total export sales volume
increased approximately 650,000 equivalent rough rice hundredweight
("cwt."). Exports to Japan from ARI's California facility and increases in
sales of foreign sourced rice to export markets were partially offset by
decreases in export sales of other U.S. rice.
Gross profit was 12% and 13% of sales for the three months ended September
30, 1994 and September 30, 1993, respectively. Gross profit decreased
$315,000 as a result of lower gross profit from ARI's Texas and Arkansas
("Southern") facilities partially offset by increased gross profit from
ARI's California facility caused by export sales to Japan. The principal
causes of the reduced Southern facilities gross profit were lower gross
profit per cwt. on export sales as a result of relatively high rice costs
in a falling market and a lower proportion of branded sales in relation to
unbranded commodity sales. ARI's branded export sales historically have
a greater gross profit per cwt. than unbranded commodity sales.
Interest expense of $3.1 million increased $763,000 due to higher
borrowings and higher average interest rates as a result of the increase
in the prime interest rate over last year. Interest expense in both
periods include legal and other expenses directly associated with the
debt.
<PAGE>
<PAGE> 16
Chemonics Industries
For the quarter ended September 30, 1994, the Company's subsidiary,
Chemonics Industries, had revenues of $33.6 million, compared to $14.3
million last year, an increase of $19.3 million. This increase is due
primarily to a $13.8 million increase in forest fire retardant sales for
the quarter by Chemonics' Fire-Trol division. This reflects the
significant forest fire activity in the United States and Canada during
the summer of 1994 compared to the relatively light forest fire activity
in the prior year.
Chemonics' international consulting division continues to expand with
sales for the quarter of $16.0 million compared to $10.5 million last
year, an increase of $5.5 million (52%).
Chemonics' gross profit was $9.0 million (27% of sales) for the quarter
compared to gross profit of $3.5 million (25% of sales) for the second
quarter of last year.
General
Consolidated interest expense totalled $4.4 million for the quarter ended
September 30, 1994, compared with $3.0 million for the same quarter of
last year. This increase reflects the increased borrowings by American
Rice and the increase in the prime interest rate over last year. The
prime rate averaged 7.5% for the quarter ended September 30, 1994 compared
to 6.0% for the comparable quarter last year.
Discontinued Operations
In December 1993, the Company discontinued its operations in the juice
business (See Note 3). For the quarter ended September 30, 1993, the
Company reported a loss from discontinued operations of $4.1 million.
Results of Operations - Six months ended September 30, 1994 and 1993
For the six months ended September 30, 1994, the Company reported net
income of $5.4 million on sales of $233 million, as compared to net income
of $16.8 million on sales of $136 million for the comparable period of the
prior fiscal year. Sales for fiscal 1995 were up $97 million from fiscal
1994 due to a $77 million increase in sales by ARI and a $20 million
increase in sales by Chemonics Industries.
Gross profit for the six months ended September 30, 1994 was $33.7
million, an increase of $13.7 million from the six months ended September
30, 1993 as a result of a $7.3 million increase at ARI and a $6.4 million
increase at Chemonics.
<PAGE>
<PAGE> 17
Because ERLY holds both common and preferred stock in ARI, ERLY's share of
ARI's net income or loss consists of ERLY's proportionate share (32%) of
ARI's earnings (loss) applicable to common stock, plus dividends earned on
ARI Series B Preferred Stock. ERLY's share of ARI's common stock earnings
(loss) was ($199,000) and $2,726,000 for the six months ended
September 30, 1994 and 1993, respectively. ERLY also earned Series B
Preferred dividends of $2,590,000 and $1,727,000 for the six months ended
September 30, 1994 and 1993, respectively.
Results for the first six months of the prior fiscal year included an
$11.8 million gain on the sale of a partial interest in Comet Rice, Inc.
in conjunction with the May 1993 combination of Comet Rice and ARI (See
Note 2). The results for the six months ended September 30, 1993, also
included: (1) extraordinary income of $6.6 million (net of minority
interest) which represents debt discounts by ARI's former lenders recorded
in conjunction with the refinancing of Comet and ARI, (2) extraordinary
income of $5.6 million relating to debt discounts by a trade creditor of
ERLY Juice, and (3) a $6.2 million loss from discontinued operations
relating to the Company's juice business which was discontinued in
December 1993.
Prior to the combination discussed in Note 1, ERLY owned 48% of the voting
rights of American Rice, Inc. and accounted for its investment using the
equity method of accounting. ERLY therefore recorded its interest in
ARI's results as investment income in the consolidated statements of
operations. Results for the first six months of last year include
investment income of $426,000 from ERLY's interest in ARI's net income for
April and May of 1993.
Subsequent to the Transaction, ARI's results of operations are
consolidated with ERLY's and are not reflected as investment income, but
are now accounted for as discussed in Note 5 - Minority Interest.
Rice Operations
Sales for 1994 of $184 million increased $76.9 million from the prior year
due to $59.9 million in export sales increases and $17 million in domestic
sales increases. As a result of the Transaction, six months of ARI sales
are included in 1994 versus four months in the corresponding period in
1993. The estimated increase in sales as a result of the Transaction was
approximately $40 million including $20 million in domestic markets and
$20 million in export markets.
Export sales increased due to higher volume and higher average prices.
Total export sales volume increased approximately 6 million equivalent
rough rice cwt. due primarily to increases in sales from ARI's California
facility as a result of exports to Japan and 2.3 million cwt. in increases
as a result of the Transaction. Total average milled rice prices
increased 8% due primarily to a higher proportion of branded export sales
as a result of the Transaction.
<PAGE>
<PAGE> 18
Domestic sales increased primarily as a result of the Transaction. In
addition to sales added by the Transaction, domestic sales increased due
to higher average prices. Average domestic milled rice sales prices
increased 59% due to the higher value-added retail sales from the ARI
customer base.
Gross profit was 11% and 12% of sales for the six months ended September
30, 1994 and September 30, 1993, respectively, increasing $7.3 million,
due primarily to export sales to Japan from ARI's California facility,
partially offset by decreases in gross profit on sales from ARI's Southern
facilities.
Selling, general and administrative expense of $10.9 million increased
$3.1 million due primarily to advertising and selling expenses associated
with the higher value-added sales from the ARI customer base.
Interest expense of $6 million increased $1.8 million due to higher
balances and higher average rates as a result of the increased prime
interest rate over last year. Interest expense in both periods include
legal and other expenses directly associated with the debt.
Chemonics Industries
For the six months ended September 30, 1994, the Company's subsidiary,
Chemonics Industries, had revenues of $49.1 million, compared to $28.6
million last year, an increase of 72%. This increase is largely due to
increased sales by Chemonics' Fire-Trol division, which had a $13.7
million increase over last year. Chemonics' international consulting
division had sales of $27.8 million for the six months compared to $21.0
million last year, an increase of $6.8 million (32%).
Chemonics' gross profit was $13.3 million (27% of sales) for the six
months ended September 30, 1994 compared to gross profit of $7.0 million
(24% of sales) for the comparable period of last year.
General
Consolidated interest expense totalled $7.8 million for the six months
ended September 30, 1994, compared with $5.4 million for the same period
last year. This increase reflects the increase in consolidated debt due
to the combination of Comet Rice and American Rice in May 1993, the higher
borrowings by ARI this year to support the increased sales and the
increase in the prime interest rate over last year. The prime rate
averaged 7.08% for the six months ended September 30, 1994 compared to
6.0% last year.
Discontinued Operations
In December 1993, the Company discontinued its operations in the juice
business (See Note 3). For the six months ended September 30, 1993, the
Company reported a loss from discontinued operations of $6.2 million.
<PAGE>
<PAGE> 19
Liquidity and Capital Resources
At September 30, 1994, consolidated working capital was $4.1 million, an
improvement of $2.6 million from March 31, 1994 as a result of the
positive operating results for the six months.
Stockholders' equity was $13,941,000 at September 30, 1994, compared to
$8,394,000 at March 31, 1994, an improvement of $5.5 million as a result
of the net income for the six months.
As a result of the discontinuation of the juice operations, there still
remains $8.4 million (plus accrued interest from December 21, 1993) of
ERLY Juice's obligation to ING Capital which the Company guaranteed.
Under the terms of the guarantee, ERLY is required to paydown the
remaining $8.4 million (plus accrued interest) of debt within one year (by
December 21, 1994) or ING Capital may declare a default with the right to
foreclose on ERLY's subsidiary, Chemonics Industries, Inc. While ING
Capital has the right to foreclose on December 21, Management believes
that the Company can obtain a forbearance in order to complete the sale of
assets or a refinancing in order to paydown the remaining obligations.
The Company's 12-1/2% Subordinated Sinking Fund Debentures (the "Old
Debentures") with an outstanding balance of $8,880,000 matured on December
1, 1993. The Company has offered to exchange $8,880,000 12-1/2%
Subordinated Sinking Fund Debentures due 2002 (the "New Debentures") for
the Old Debentures. As of September 30, 1994, holders of approximately
98% of the Old Debentures have exchanged. The Company is exploring ways
to deal with those debentureholders who have not agreed to the exchange
and believes that it can refinance the remaining amount (with a face value
of approximately $209,000).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11.1) Calculation of Primary Income Per Share
(11.2) Calculation of Fully Diluted Income Per Share
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
<PAGE>
<PAGE> 20
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ERLY INDUSTRIES INC.
Date: November 14, 1994 By /s/ Thomas A. Whitlock
-------------------------
Thomas A. Whitlock
Vice President and
Corporate Controller
<PAGE>
<PAGE> 21
EXHIBIT 11.1
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF PRIMARY INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------ -------------------
1994 1993 1994 1993
------- ------ ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income from continuing
operations $ 2,463 $ 858 $ 5,370 $12,047
Income (loss) on
discontinued operations (4,140) (6,156)
Income from extraordinary
items 5,625 15,895
Minority interest 595 156 49 (4,952)
------- ------- ------- -------
Net income $ 3,058 $ 2,499 $ 5,419 $16,834
======= ======= ======= =======
Average number of shares of
common stock and common
stock equivalents outstanding:
Average number of shares of
common stock outstanding 3,675 3,484 3,675 3,485
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 536 (a) 536 (a)
------- ------- ------- -------
Total 4,211 3,484 4,211 3,485
======= ======= ======= =======
Primary income per
common share:
Income from
continuing operations $ .73 $ .29 $ 1.29 $ 3.10 (b)
Income (loss) on
discontinued operations (1.19) (1.77)
Income from extraordinary
items 1.62 3.50 (b)
------ ------ ------- -------
Primary income per
common share $ .73 $ .72 $ 1.29 $ 4.83
====== ====== ======= =======
</TABLE>
(a) The dilutive effect of stock options and warrants was less than 3%;
therefore, none are shown.
(b) Net of applicable minority interest ($1.3 million relating to
continuing operations and $3.7 million relating to extraordinary
item).
<PAGE>
<PAGE> 22
EXHIBIT 11.2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------- -------------------
1994 1993 1994 1993
------- ------ ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income from
continuing operations $ 2,463 $ 858 $ 5,370 $12,047
Interest adjustment - convertible
note payable 20 20 40 40
------- ------- ------- -------
Income from continuing operations,
as adjusted 2,483 878 5,410 12,087
Income (loss) on
discontinued operations (4,140) (6,156)
Income from extraordinary items 5,625 15,895
Minority interest 595 156 49 (4,952)
------- ------- ------- -------
Net income, as adjusted $ 3,078 $ 2,519 $ 5,459 $16,874
======= ======= ======= =======
Average number of shares of
common stock and common
stock equivalents outstanding 4,211 3,484 4,211 3,485
Other potentially
dilutive securities:
Common stock issuable upon
conversion of note payable 267 267 267 267
------- ------- ------- -------
Total 4,478 3,751 4,478 3,752
======= ======= ======= =======
Fully diluted income
per common share:
Income from continuing operations $ .69 $ .27 $ 1.22 $ 2.88 (a)
Income (loss) on discontinued
operations (1.10) (1.64)
Income from extraordinary items 1.50 3.25 (a)
------- ------- ------- -------
Fully diluted income
per common share $ .69 $ .67 $ 1.22 $ 4.49
======= ======= ======= =======
</TABLE>
(a) Net of applicable minority interest ($1.3 million relating to
continuing operations and $3.7 million relating to extraordinary
item).
