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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED MARCH 31, 1995 COMMISSION FILE NUMBER 1-7894
ERLY INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2312900
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
10990 WILSHIRE BOULEVARD, #1800, LOS ANGELES, CALIFORNIA 90024-3955
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (213) 879-1480
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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 $.01 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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of June 15, 1995, there were 3,718,272 common shares outstanding
(including redeemable common stock), and the aggregate market value of the
common shares of ERLY Industries Inc. (based upon the closing price for these
shares on the NASDAQ National Market) held by non-affiliates was approximately
$22.5 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Proxy Statement to Shareholders are incorporated
by reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
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ERLY INDUSTRIES INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED MARCH 31, 1995
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I
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Item 1: Business See pages 2-11
Item 2: Properties See pages 12-13
Item 3: Legal Proceedings See page 13 and "Commitments and
Contingencies" on page 44
Item 4: Submission of Matters See page 13
to a Vote of Security
Holders
Part II
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Item 5: Market for the Company's See page 14 and "Quarterly Results
Common Stock and Related of Operations" on pages 48-49
Stockholder Matters
Item 6: Selected Financial Data See pages 20-21
Item 7: Management's Discussion See pages 22-26
and Analysis of Financial
Condition and Results of
Operations
Item 8: Consolidated Financial See pages 27-50
Statements
Item 9: Changes in and See page 14
Disagreements with
Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See pages 15-16
Officers of the Company
Item 11: Executive Compensation See Proxy Statement
Item 12: Security Ownership of See Proxy Statement
Certain Beneficial Owners
and Management
Item 13: Certain Relationships See Proxy Statement
and Related Transactions
Part IV
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Item 14: Exhibits, Financial See pages 18-54
Statement Schedules and
Reports on Form 8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
ERLY Industries Inc. (the "Company" or "ERLY") was incorporated in California
on March 30, 1964. The Company entered the rice business in 1970 with the
acquisition of Comet Rice Mills, Inc. ERLY expanded its rice operations in
1979 with the acquisition of United Rice Growers and Millers and again in 1988
with the purchase of 48% of American Rice, Inc. ("ARI"). In May 1993, ERLY
acquired an additional 33% voting interest in ARI and consolidated the rice
operations into a single operating company (the "Acquisition").
ARI is an international rice company currently involved in all phases of rice
processing, rice packaging and rice marketing. ARI markets white rice, instant
rice, parboiled rice, brown rice and rice mixes under proprietary, trademarked
names and is a leading marketer of U.S. rice in many of the world's major
importing countries.
The Company entered the forest fire retardant business in 1968 with the
acquisition of Arizona Agrochemical Corporation. That company was primarily
engaged in a fertilizer and pesticides business which was later sold. The
forest fire retardant business and an agricultural consulting and advisory
service business were retained and transferred to a newly incorporated company,
Chemonics Industries, Inc. ("Chemonics" or "Fire-Trol"). The consulting
business was expanded considerably in 1975 with the opening of an office in
Washington, D.C. With continually expanding consulting revenues and
operations, that business was separately incorporated in November 1994 as
Chemonics International, Inc. ("International" or "Consulting"), a wholly-owned
subsidiary of Chemonics Industries, Inc.
The Company's principal executive offices are located at 10990 Wilshire
Boulevard, Suite 1800, Los Angeles, California 90024, (213) 879-1480. ARI's
executive offices are located at 16825 Northchase Drive, Suite 1600, Houston,
Texas 77060, (713) 873-8800. Chemonic's executive offices are located at 734
E. Southern Pacific Drive, Phoenix, Arizona 85034. International's executive
offices are located at 2000 "M" Street, Washington, D.C. 20036.
AMERICAN RICE, INC.
BACKGROUND
The Company's rice business dates back to 1901 when the predecessor company to
Comet Rice, Inc. ("Comet") was formed in Beaumont, Texas. In 1952, the
predecessor company to Comet merged with Wonder Rice Mills, Inc. of Stuttgart,
Arkansas and Adolphus Rice Mills, Inc. of Houston, Texas. Comet was purchased
by ERLY in 1970. In 1979, Comet acquired United Rice Growers and Millers which
owned a facility in Maxwell, California which remains ARI's primary milling
facility in the California rice producing region.
In 1986, Comet and American Rice, Inc., a Texas agricultural cooperative
marketing association formed in 1969 comprised primarily of rice growers (the
"ARI Cooperative"), formed a joint venture known as Comet American Marketing
("CAM") for the purpose of conducting joint domestic marketing operations. In
connection with the formation of CAM, both companies contributed virtually all
of their domestic brands to CAM and Comet transferred certain processing and
packaging equipment, packaging supplies and production responsibilities to the
ARI Cooperative. ARI was incorporated in 1987 by the ARI Cooperative and in
1988, the ARI Cooperative contributed all of its assets to ARI in exchange for
52% of ARI's voting capital stock, which the ARI Cooperative distributed to its
members. Comet obtained the remaining 48% of ARI's voting capital stock in
exchange for contributing cash and Comet's 50% interest in CAM. On May 26,
1993, ERLY consolidated its ownership interests in ARI and Comet through the
Acquisition, pursuant to which ERLY transferred all of the operating assets and
liabilities of Comet to ARI in exchange for shares of voting preferred stock
that gave ERLY an additional 33% of the voting power of ARI. As a result of the
Acquisition, ERLY holds 81% of the voting power of ARI, comprised of a 32%
direct common stock equity interest and an additional 49% voting preferred
stock interest.
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As a result of the Acquisition, ARI diversified the market for its products,
expanded its share of both the domestic and export rice markets, increased its
sources of supply of rough rice and reduced its operating costs. The
Acquisition reduced manufacturing and distribution costs and increased gross
margins by allowing ARI to process and package products closer to the ultimate
customer and thereby utilize total capacity more efficiently. The Acquisition
also enabled ARI to better utilize its milling facilities due to increased
availability of bank credit lines and working capital, which in turn allowed
ARI to purchase additional raw product from a larger growing area and to sell
to additional export markets. Management believes the Acquisition has
significantly improved ARI's ability to manage short-term fluctuations in the
cost of rough rice by expanding and further diversifying its markets for milled
rice. Management also believes the Acquisition will continue to favorably
impact future operating results as additional synergies from the Acquisition
are fully realized.
COMPANY OVERVIEW
ARI is the largest U.S.-based and one of the world's leading processors and
marketers of branded rice products, with leading brand positions in many U.S.
markets as well as Saudi Arabia, Haiti, Puerto Rico and certain other rice
consuming markets. ARI annually markets approximately 15% of the total U.S.
rice crop and is the only marketer of rice in the world with significant
sources of rough rice and milling facilities in the two major rice producing
regions of the United States as well as certain strategic locations overseas.
This allows ARI to moderate the impact of regional trade imbalances caused by
climate and geopolitical factors on operating performance. ARI is able to
maximize its margins by purchasing rice grown domestically and abroad to take
advantage of regional cost and supply availabilities.
Historically, approximately 70% of ARI's gross profit has been attributable to
its sales of branded rice, which typically commands a higher price and profit
margin than commodity rice and is less susceptible to decreases in sales volume
due to increases in consumer prices. With leading brand names that sustain the
number one or two positions in many of the major rice consuming markets
domestically, ARI typically is able to achieve high margins in these branded
markets. ARI markets white rice, instant rice, parboiled rice, brown rice and
rice mixes under proprietary, trademarked brand names such as Blue Ribbon(R),
Comet(R), Adolphus(R), AA(R), Cinta Azul(R), Wonder(R), Colusa Rose(R) and
Chopstick(R). ARI is a leading marketer of U.S. rice in many of the world's
major rice importing countries, including Saudi Arabia, Haiti and Turkey. In
Saudi Arabia, the third largest import rice market in the world, the
Chopstick(R) brand, known locally as Abu Bint(R), has been the number one brand
of U.S. grown rice sold in that country since 1979, and has consistently
represented over two-thirds of the U.S. grown rice sold in that country. ARI's
leading brand names and broad product lines have facilitated its penetration of
new markets and introduction of new products in existing markets.
ARI recently entered into the ARI-Vinafood joint venture with a company owned
by the Socialist Republic of Vietnam to process and market Vietnamese grown
rice. ARI's 55% ownership in ARI-Vinafood enables it to participate in the
world market for Asian origin rice, the largest market segment in the world
rice market. Management believes that this new product source will enable it to
increase its market share in certain key regions as well as provide a
competitive product under its existing brand names to major rice consuming
markets in Asia and South America.
INDUSTRY OVERVIEW
Rice is the primary staple food consumed in most countries and is the cereal
grain with the highest level of human consumption in the world, comprising
approximately 40% of world cereal grain consumption. Primarily as a result of
population increases, world rice consumption has increased approximately 125%
during the last 30 years to approximately 350 million metric tons in 1994.
Domestic consumption of rice has more than doubled since 1984 and currently
exceeds 3.3 million metric tons annually. The increase in U.S. rice
consumption is primarily due to the substantial population growth of certain
ethnic groups and, to a lesser degree, increased awareness by the general
population of the impact of diet on health. Measured on a per capita basis,
average consumption of rice is estimated at 140 pounds per person on a
worldwide basis, with most Asian countries having per capita annual consumption
in excess of 200 pounds and the United States having one of the lowest at 23
pounds.
International Trade. While over 95% of the rice grown worldwide is consumed in
the country in which it is grown, international trade in rice has expanded
steadily over the last decade from approximately 11 million metric tons in 1984
to nearly 16 million metric tons in 1994, representing an increase of over 45%,
and it is anticipated that such trade will expand to nearly 17 million metric
tons for the year ending 1995. The demand for rice over time has increased
proportionately with population increases, coupled with expansion in per capita
consumption, and has exceeded agricultural productive capacity in some
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countries. In addition, due to the economic collapse of the former Soviet bloc
nations, certain foreign government agricultural support programs have been
reduced. This has reduced supply and increased international trade demand.
The world's major rice producing countries include China, India, Indonesia,
Bangladesh, Thailand, Vietnam and the United States, with China and India
accounting for over 50% of world rice production. Thailand is the largest
exporter of rice in the world, exporting approximately 32% of total world rice
exports, followed by the United States and Vietnam, whose exports account for
18% and 14%, respectively, of the world rice trade.
Historically, the largest rice importing nations have included Brazil, Iran and
Saudi Arabia with each nation importing in excess of 750,000 metric tons
annually. Recently, imports have begun to increase to the former Soviet bloc
nations due to reduced production levels in those countries. In addition, due
to the effects of adverse weather conditions in Japan in 1993, Japan was the
world's largest importer of rice, with imports estimated at 2.4 million metric
tons.
Rice produced in the United States is generally high quality and sells at
premium prices relative to Asian rice. Based on statistics compiled by the
U.S.D.A., exports of milled rice produced in the United States have sustained
consistent growth over the last 20 years, growing from an average of 1.8
million metric tons per year in the years from 1972 to 1974 to an average of
2.6 million metric tons per year in the years from 1993 to 1994. The U.S.D.A.
forecasts that the United States will export 2.7 million metric tons of rice in
1995.
In the future, international trade is expected to be impacted favorably by the
effects of the General Agreement on Tariff and Trade ("GATT"). The latest round
of amendments to GATT were approved on December 15, 1993 by the majority of
developed nations in the world, including the United States, the European Union
and Japan. Most signatory countries began implementation of their GATT
commitments on January 1, 1995, which required, with some exceptions, the
elimination of all import bans, and the reduction of all import tariffs. In the
case of Japan and South Korea, which were not required to eliminate rice import
bans, highly beneficial quotas were established through bilateral negotiations.
Japan has committed to import 379,000 metric tons of rice in 1995, increasing
each year to 758,000 metric tons by 2000. Commencing in the summer of 1995,
South Korea's quota is 51,000 metric tons, which they have agreed to double by
1999 and double again by 2004. In general, reductions on tariffs will make
imports more attractive to foreign buyers and consumers and more competitive
with domestic products. Under GATT, developed countries are committed to reduce
tariffs by an average of 36% over 6 years, with a minimum of a 15% reduction on
any individual item. Developing nations will reduce tariffs 24% over 10 years
and must meet a minimum 10% per item reduction. Management believes that the
net effect of GATT will be to stimulate additional rice production on
additional acreage in the United States and will increase the amount of rice
traded globally.
Domestic Trade. U.S. consumption of rice has more than doubled since 1984 and
currently exceeds 3.3 million metric tons per year. U.S. per capita
consumption of rice has more than doubled since 1978 primarily due to increases
in the population of high rice-consuming Hispanic and Asian ethnic groups
which are projected by the U.S. Census Bureau to account for 23% of the U.S.
population by 2020. To a lesser extent, the growth in average per capita
consumption of rice has also been caused by increased awareness of the impact
of diet on health.
During the past three years, approximately 50% to 60% of rice produced in the
United States has been consumed domestically.
Rice Production. Over two-thirds of total U.S. rice production is the long
grain variety, which is produced almost entirely within Arkansas, Louisiana,
Mississippi, Texas and Missouri and is marketed worldwide. Medium grain rice,
which is grown in several rice producing states but is the dominant variety
grown in California, accounts for effectively all of the remaining one-third of
all rice grown in the United States. California medium grain, generically known
as Calrose, is preferred within certain segments of the global market,
including Japan, Korea, Turkey, Jordan and Lebanon. The difference between
these rice varieties is primarily reflected in the size and shape of the kernel
as well as amylose or starch content.
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BRANDS AND MARKETS
ARI is one of the largest competitors in the global market for rice. In 1994,
ARI marketed over 4% of all rice traded worldwide and approximately 12% of all
rice marketed and consumed within the United States. ARI competes in all major
rice importing regions in the world including the Caribbean, Latin America,
Middle East and Asia as well as in domestic regions, which ARI defines as the
United States, Canada and the Bahamas. Historically, ARI's domestic and export
branded rice has accounted for approximately 70% of its gross profits.
In fiscal 1995, ARI marketed rice in 44 foreign countries with no foreign
country accounting for more than 14% of net sales. ARI plans to continue to
expand into new markets and increase its share in certain of its existing
markets. The following table summarizes the regional concentrations of net
sales of ARI during the past three years (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
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1995 1994 1993
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<S> <C> <C> <C>
United States and Canada $ 129,271 $ 102,624 $ 77,199
Export sales:
Middle East 91,449 89,782 46,209
Caribbean, Mexico and South America 84,806 38,935 32,744
Asia 49,963 42,838 670
Europe 13,632 6,260 10,593
Africa 3,864 4,012 2,114
Other 65 13 88
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Total export sales 243,779 181,840 92,418
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Total sales $ 373,050 $ 284,464 $169,617
======== ======== =======
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for discussion concerning export sales for ARI.
ARI's sales to foreign customers are priced in U.S. dollars and payable, with
the exception of a few long standing well established accounts that are not
material, by documentary letters of credit that are confirmed by major banks
before shipments are effected. Consequently, ARI's exposure to foreign
currency fluctuations are not material.
United States and Canada. ARI's domestic sales consist of branded rice
products sold to retail outlets, primarily grocery stores, branded bulk sales
to ethnic wholesale and retail outlets and sales to other industrial users and
major food processors. The United States and Canada together provided 35% and
29% of net sales and gross profits, respectively, in fiscal 1995. ARI has
targeted its domestic marketing programs to achieve regional brand prominence
with such efforts primarily being focused on the top 15 rice consumption
markets. These markets, located principally in New York, California, Texas and
Florida account for over 50% of the rice consumed in the United States. This
focused strategy allows ARI to maximize sales and achieve prominence as a
branded supplier while minimizing selling, general and administrative expenses.
ARI is the second largest seller by tonnage of retail branded long grain white
rice products in the United States with a market share of approximately 16%.
Domestic long grain white rice is the largest retail market category of rice,
representing approximately 35% of all retail rice sales, and is the fastest
growing major segment of the U.S. rice market, having grown 4% in 1994.
ARI's long grain rice brands have attained the number one or number two market
share in many of the regions in which they compete including Comet(R) in North
Carolina, Blue Ribbon(R) in South Carolina, Adolphus(R) in Texas, Comet(R) in
California, Texas and the Southeast and AA(R) in California.
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Certain ethnic groups represent some of the fastest growing segments of the
rice business in the United States. Management believes that ARI's AA(R) is the
leading brand of long grain rice among Asian-Americans and dominates sales in
the western region of the United States and certain other regions having large
Asian-American populations. Other ARI brands have strong consumer acceptance
with Hispanic-Americans in the Southwest. ARI's D'Aqui(TM) and Cinta Azul(R)
brands represent approximately 15% of the Puerto Rican retail rice market.
Puerto Rico consumes approximately 6% of the retail rice sold in the United
States and its territories and has a per capita consumption that is more than
four times the United States average.
In addition to its own branded retail products, ARI supplies long grain white
and parboiled rice, instant rice, rice mixes, brown rice and other rice
products to a full range of private label resellers including five of the top
fifteen supermarket chains in the United States and Canada as well as other
food retailers. ARI expanded its production capacity and marketing of rice
flour, bran and instant rice products to customers in the bakery and specialty
food industries in 1992. Management believes that the proportion of specialty
product sales to total sales will increase due to increased awareness by food
producers and consumers of the health benefits of rice.
Middle East. The Middle East accounted for 25% of both net sales and gross
profits in fiscal 1995. Saudi Arabia has been the largest market for U.S.
grown rice, annually importing an average of approximately 700,000 metric tons,
and is currently the largest branded parboiled rice market in the world. ARI's
Abu Bint(R) brand is considered to be one of the best recognized food products
in Saudi Arabia and dominates all U.S. grown rice imports and has accounted for
over 60% of all rice imported from the United States in each of the last 16
years. Overall, Abu Bint(R) is the number one U.S. brand with a market share of
16% of the total Saudi Arabian market.
Historically, the rice ARI sold in Saudi Arabia was processed and packed in the
United States and shipped to Saudi Arabia. In October 1994, ARI entered into an
agreement with Rice Milling and Trading, Ltd., Inc. ("RMT"), an operator of a
receiving, processing, storage and bagging facility in Jeddah, Saudi Arabia, to
receive bulk rice from ARI and pack Abu Bint(R) on a exclusive basis and under
strict ARI quality supervision. By shipping rice in bulk to RMT, ARI will
reduce vessel loading and freight costs. ARI believes that this service
agreement with RMT will reduce costs and improve gross profit and market
competitiveness, and will also provide even better customer service and product
freshness. Market shipments under this agreement will begin in June 1995.
Rice products exported to Saudi Arabia by ARI are marketed to various
wholesalers and retailers through a number of major distributors. No single
customer accounts for more than 5% of ARI's total net sales and the loss of any
one of these customers would not have a material adverse effect on ARI.
Historically, ARI has had significant sales in Turkey and Iran. Over the last
24 months, ARI's rice products accounted for 65% of Turkey's rice imports.
Caribbean, Mexico and South America. This region accounted for 23% and 10% of
net sales and gross profit, respectively, in fiscal 1995. The Caribbean is one
of the highest per capita rice consumption markets in the world. ARI sells
branded products such as Comet(R), Blue Ribbon(R) and 4 Star(R) throughout this
region, with substantial ARI-controlled or owned assets in Jamaica, Haiti and
The Netherlands Antilles.
ARI is the largest processor and marketer of rice to Haiti, one of the seven
largest importers of U.S. grown rice, with annual imports averaging in excess
of 120,000 metric tons over the last five years.
Within Aruba, Bonaire and Curacao, ARI has a long-term exclusive supply,
processing and marketing agreement with the Antillean Rice Mill, a local
marketing company. ARI ships rice on a cost efficient bulk basis as compared to
other more costly methods of shipment. The Antillean Rice Mill markets ARI's
Blue Ribbon(R) and Comet(R) labels within this region and has sustained a total
market share in excess of 75% in each of the last 10 years.
In Jamaica, ARI's subsidiary, Comet Rice of Jamaica Limited, is the second
largest processor and one of the largest branded retail and food service
marketers in the country.
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Asia. Asia accounted for 13% and 31% of net sales and gross profit,
respectively, in fiscal 1995. Japan accounted for virtually all of ARI's sales
to Asia in fiscal 1994 and fiscal 1995. For the twelve-month period ended
August 1994, Japan imported 2.4 million metric tons of rice, including
approximately 500,000 metric tons from the United States. ARI processed and
milled approximately 62% of the tonnage from the United States. These rice
imports, the first in 25 years by Japan, were necessary due to adverse weather
conditions that materially reduced Japan's 1993 rice crop. Managment believes
that the poor rice crop, combined with the fact that Japan's declining rice
production had fallen short of annual Japanese rice consumption for seven of
the last 10 harvests, had depleted Japan's rice stock-pile requiring
significant rice imports. Although this was an unusual occurrence, as a
participant in GATT, Japan is contractually obligated to import 379,000 metric
tons of rice for the twelve-month period beginning April 1, 1995 increasing to
758,000 metric tons of rice annually by the year 2000. Management believes that
the Japanese prefer California grown Calrose variety medium grain rice and that
the United States has an excellent opportunity to obtain more than half of
these projected Japanese imports. Because ARI has previously developed a
reputation for high quality rice and superior service through its prior trade
experience with Japanese importers, management believes it will have material
involvement in these anticipated Japanese imports.
In July 1994, ARI formed ARI-Vinafood, a Vietnamese limited liability company
on a joint venture basis with a company owned by the government of the
Socialist Republic of Vietnam (the "Vietnam Partner") for the purpose of
producing white and parboiled rice and related products at rice processing
facilities in the Can Tho province of Vietnam. ARI owns 55% of ARI-Vinafood and
will be paid a royalty of 3.5% on all export sales from Vietnam by
ARI-Vinafood, which has contracted for export quotas to be issued by the
Vietnamese government. The quotas will allow annual exports of up to 300,000
metric tons of white rice and 85,000 metric tons of parboiled rice. The term of
ARI-Vinafood is 20 years and may be renewed by ARI for an additional 20 years,
but ARI's participation in ARI-Vinafood is subject to a buy-out by the Vietnam
Partner after the fifth year of operation. ARI-Vinafood began milling and
processing operations in December 1994.
ARI's participation in ARI-Vinafood will allow ARI to participate in the world
market for Asian origin rice. Asian rice varieties are preferred by many
customers in different countries due to a unique taste which is attributed to
different amylose or starch content. In addition, because of Asia's geographic
proximity to such high rice consumption markets as China and Indonesia, ARI's
participation in ARI-Vinafood will give it a freight cost advantage over any
Western or European grown rice in those markets.
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COMMODITY SOURCING AND PRICING
ARI's market and source diversity enhances its ability to moderate the impact
of regional trade imbalances caused by climate and geopolitical factors. ARI
is the only marketer of rice in the world with growing sources and milling
capacity in each of the major rice producing regions of the United States as
well as overseas. As a result, ARI utilizes a variety of rice products grown
in the United States and is able to take advantage of regional cost and supply
availabilities. Each of ARI's milling facilities are strategically located to
minimize shipping costs and maximize the convenience to the customer enabling
ARI to capitalize on marketing opportunities as they develop around the world.
ARI buys rough rice from a variety of farm sources. A large portion of these
rough rice purchases are made under pre-harvest agreement. Pre-harvest
agreements generally provide for delivery of rough rice from specified acreage
at a price per hundredweight determined by the terms of the agreements.
Generally, the price per hundredweight is determined based on local market
conditions occurring between the time of harvest and on or after delivery to
the buyers. For crop year 1993, ARI had pre-harvest agreements to purchase
approximately 5.0 million hundredweight of rough rice in the Southern rice
states and approximately 3.6 million hundredweight from growers in California,
which represented 37% and 58% of ARI purchases, respectively, for the crop year
in each such region. ARI also obtains domestic rough rice through competitive
bidding in all rice producing states, with California and the Southern rice
states purchasing competitively approximately 13% and 43%, respectively, of
ARI's total rough rice purchased in crop year 1993. No single supplier of rough
rice provides more than 8% of ARI's rough rice purchases. In addition to
purchasing domestic rough rice, ARI obtains milled rice from other U.S. and
foreign rice suppliers on an as needed basis.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI from time to time buys and sells futures and options contracts as a
means to manage a portion of its rough rice requirements. Gains or losses, if
any, are recognized in the period that the market value of the futures contract
changes. Rice futures transactions represent a volume of less than 2% of ARI's
1994 sales tonnage.
ARI sources rice from a variety of locations, including five of the six
significant U.S. rice growing states (Texas, Louisiana, Mississippi, Arkansas
and California).
Southern Facilities. ARI operates two rice processing facilities in the
Southern rice growing region of the United States. ARI's rice processing
facility located in Freeport, Texas (the "Freeport Facility") is a 20-acre
integrated processing complex with an annual milling capacity of over 600,000
metric tons located directly on a deep water port in the Gulf of Mexico. The
facility is the only rice facility in the United States capable of handling
large ocean-going vessels directly at the facility. The facility has a
parboiled processing plant and separate milling facilities for both white and
parboiled rice. Unlike many rice processing facilities, the Freeport Facility
adds water polishing and electro-optical sorting to ensure that ARI's exacting
quality standards are consistently met. The facility also has a rice flour
mill that markets and meets the stringent quality standards of baby food
processors and Japanese food ingredient purchasers. ARI also processes instant
rice for retail and industrial markets.
During fiscal 1994 and fiscal 1995, ARI invested approximately $1.5 million to
upgrade the Freeport Facility. ARI installed state-of-the-art equipment which
increased the production capacity of the mill by approximately 1.2 million
hundredweight per year and also substantially reduced ARI's production cost per
hundredweight.
ARI also operates a rice processing facility in Stuttgart, Arkansas (the
"Stuttgart Facility") that has an annual rough rice milling capacity of over
200,000 metric tons. The Stuttgart Facility is conveniently located in the
largest rice producing region in the United States and provides flexibility in
scheduling rice shipments from the larger Freeport Facility by absorbing
capacity overflow. The facility also generates drying and storage revenues and
is a delivery point for rice sold on the Chicago Board of Trade.
California Facilities. ARI operates two rice processing facilities in Maxwell
and Biggs, California and has one of the state's largest single rice drying
operations. The Maxwell Facility is the largest capacity single rice mill
operating in California. The Biggs, California facility (the "Biggs Facility"),
which was leased by Comet in 1991, is an older milling facility which provides
additional milling capacity to supplement ARI's domestic milling requirements.
The combined capacity of the Maxwell Facility and the Biggs Facility exceeds
the multi-mill capacities of ARI's largest California competitors.
8
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Other Facilities. ARI also operates packaging facilities in Kingston, Jamaica
and Port-au-Prince, Haiti that receive bulk rice from ARI's Southern facilities
and process and package the bulk rice into local retail branded rice products.
ARI's Haitian facility is located on a self-contained deep water port 25
kilometers outside the capital city and principal market, Port-au-Prince. ARI
recently formed BargeCaribe, Inc. to acquire an ocean-going barge to service
the Caribbean area facilities primarily from the Freeport facility. The barge
acquisition is scheduled to be completed on June 30, 1995. These facilities
provide ARI with competitive advantages in loading, transportation and labor
costs as well as in customer service and product freshness.
COMPETITION
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, management
believes that ARI competes with approximately 14 entities that together trade
or market over 50% of world trade in rice. These competitors are from the
United States and other exporting countries such as Thailand, Pakistan and
Vietnam. ARI's U.S. competitors in the domestic and export milled rice
markets include Riviana Foods Inc., Riceland Foods, Inc., Producers Rice Mills,
Inc., Continental Grain Company, Cargill Inc. and Farmers Rice Cooperative.
There are other competitors in certain specialized marketing areas, such as
Mars, Inc. (Uncle Ben's), Philip Morris Companies, Inc. (Minute) and the Quaker
Oats Company (Rice-a-Roni) who typically have greater financial and other
resources than ARI and may devote substantially greater resources to increase
the amount of direct competition with ARI. Management estimates that no single
competitor has more than 6.0% global market share while ARI's estimated share
of the global market is 3.8%.
Within the United States, competition exists both for procuring and processing
rough rice, and for marketing milled rice products. Competitors in the rice
milling business include both private commercial mills, such as ARI, and mills
operated by agricultural cooperatives. Management believes that ARI's
principal competitors in milling are Riceland Foods, Inc., Farmers Rice
Cooperative and Cargill Inc. with estimated shares of operating domestic
milling capacity of 19%, 8% and 7%, respectively. ARI's share of estimated
operating domestic milling capacity is 20%.
Domestic competitors of ARI in the marketing of retail branded milled rice on a
national basis principally consist of Riviana Foods Inc. and Riceland Foods,
Inc., and, in the food service markets, Farmers Rice Cooperative. According to
syndicated market data, no company currently controls more than 25% of the
domestic branded markets. There are a number of small regional competitors in
the branded segment of the rice industry and approximately 15 to 20 rice
millers who compete in the commodity rice markets.
BRAND NAMES AND TRADEMARKS
Because consumer recognition of branded products adds significant value to
basic commodities such as rice, ARI's trademarks, copyrights and brand names
are important to its business. The trademarks, copyrights and brand names used
by ARI are registered in the countries in which they are used and have varying
renewal dates. ARI believes that such registrations are currently adequate to
protect the rights to use of the trademarks, copyrights and brand names
significant to the business of ARI.
REGULATION
Although ARI is not involved in rice farming, certain government regulations
affecting U.S. rice farmers have an impact on ARI's cost of rough rice.
Approximately 98% of U.S. rice is grown under a U.S.D.A. price support and
acreage control program under the Food, Agriculture, Conservation and Trade Act
of 1990 ("Farm Bill"), which provides price support and production adjustments
for rice producers.
The minimum target price for rice is currently set by the U.S.D.A. at $10.71
per hundredweight. When the world market price of rice declines below the
minimum target price, rice growers participating in the program are entitled to
receive deficiency payments from the U.S.D.A. To participate in the program,
producers must comply with any acreage reduction program announced by the
Secretary of Agriculture. The amount of acreage controlled or restricted is
reviewed annually by the U.S.D.A. and is determined by projecting ending rice
inventories as a percentage of historical domestic and export usage.
The United States Congress is currently considering legislation to extend,
amend or replace the Farm Bill, which is effective through the crop year ending
July 31, 1996. There can be no assurance that the currently favorable
provisions of such legislation will be extended into future periods or will not
be amended due to budgeting or other governmental constraints. Proposals to
significantly limit or eliminate altogether federal farm price support programs
have been introduced in the United States Congress and if such legislation is
enacted, there could be a significant impact on the supply and price of U.S.
grown rice.
9
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Management believes that, should such a change occur, any adverse effect would
be of limited duration because (i) domestic prices would adjust to a point of
economic equilibrium with imports, which would justify adequate production by
U.S. growers using alternate or fallow acreage and employing additional
economies of scale and (ii) any shortage of U.S. grown rice due to termination
of price supports could be offset by imports from other countries using ARI's
cost efficient bulk handling equipment at the Freeport Facility located on a
deep water port and ARI's strategically located packaging facilities.
CHEMONICS INTERNATIONAL, INC. - CONSULTING
Chemonics International, Inc. offers technical assistance and related services
to developing countries worldwide under contracts with the Agency for
International Development (AID), the World Bank, and other international
development agencies as well as private firms. Services are provided in a
range of areas including agriculture, agribusiness, natural resources and the
environment, and rural development. A major focus is aiding the development of
private enterprise, especially in countries where government controlled
enterprise once dominated, and privatization of state farms and land in these
countries.
Chemonics International has 35 long-term contracts which are regional or
worldwide in scope. The countries or regions with the largest amount of
business include Egypt, Oman, Central and South America, Philippines, Guinea,
Indonesia, Nepal, South Africa, Botswana, Swaziland and the newly independent
states of the former Soviet Union.
At March 31, 1995, Chemonics International has a funded contract backlog of
approximately $200 million covering 1996 through 2000. Of this amount, $81
million relates to services expected to be provided in fiscal year 1996.
Contracts are subject to cancellation in the event of severe political turmoil
in the country or region, subject to appropriate compensation for winding down
the contract involved. Revenues for 1995 were $63,546,000, a 52% increase over
the prior year. Revenues were $41,944,000 in 1994, up 13% from 1993 revenues
of $37,185,000. Chemonics International is one of the largest for-profit AID
contractors, in terms of volume of service to AID, in an industry dominated by
non-profit entities including universities. The Company is one of the leaders
in trying to enhance the role of profit-making firms in providing consulting
services to AID.
CHEMONICS INDUSTRIES, INC. - FIRE-TROL
Chemonics Industries, Inc. is headquartered in Phoenix, Arizona. Chemonics
Fire-Trol also maintains facilities in Northern California and Western Canada
from which forest fire retardant chemicals are manufactured and sold.
Chemonics Fire-Trol's primary products are forest fire retardants. These
products are patented, United States Forest Service tested and qualified
materials designed to combat forest, brush and grass fires through
dissemination from air tankers and helicopters. These products are sold under
contract to the U.S. and Canadian Forest Services through competitive bidding,
on contracts ranging in length from one to ten years. The chemical components
are generally available throughout the year and are combined in a manufacturing
process at Orland, California; Kamloops, British Columbia; and Edmonton,
Alberta. Fire-Trol is available throughout all major forest fire areas in
North America. It is distributed in Canada through Chemonics' Canadian
subsidiary, Chemonics Industries (Canada) Ltd. Fire-Trol is also developing
overseas with established operations in France, Portugal, Italy, South Africa
and South America.
Chemonics holds significant patents for Fire-Trol (which expire in various
years through the year 2000), but it faces substantial competition in its fire
retardant business from Monsanto Chemical Company, a corporation with far
greater resources than the Company. Annual sales fluctuate according to the
number and severity of forest fires in the geographical areas serviced by
Chemonics Fire-Trol. Sales for 1995 were $23,003,000 as compared to $8,416,000
for 1994 and $12,629,000 in 1993. This volume variation, based upon weather
and fire conditions, is an important aspect of Chemonics' overall sales and
profitability.
10
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
ERLY JUICE INC.
In July 1993, ERLY Juice Inc., a wholly owned subsidiary of ERLY Industries,
sold its primary orange juice processing plant in Lakeland, Florida for $11.9
million. This transaction resulted in a loss of $2.7 million. ERLY Juice had
access to the facility for processing and packaging its retail and food service
business through December 1993 under a co-pack agreement. This sale was
intended in part to reduce operating losses.
In December 1993, Eau Claire Packing Company, a wholly owned subsidiary of ERLY
operating in the juice business, sold its manufacturing facility located in Eau
Claire, Michigan, together with the inventory, accounts receivable and certain
trademarks associated with the plant facility. The Company received
approximately $5.1 million for the plant facility and the related assets. ERLY
Juice also sold trademarks, inventory and accounts receivable for approximately
$3.3 million. The purchase price was paid in cash at the closing.
As a result of the sale of the above assets, 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 BEVERAGE SOURCE
The Beverage Source ("TBS"), a subsidiary of ERLY formerly in the wine
business, was classified as a discontinued operation for financial reporting
purposes in fiscal year 1990, when all of its wine brands and labels were sold.
The remaining assets (classified as assets held for sale in the consolidated
balance sheets) primarily consist of a winery in Tulare, California which is
used to process bulk wines. Management will continue to consider and evaluate
opportunities to dispose of the remaining assets of TBS in an orderly manner.
EMPLOYEES
The Company employs approximately 1,478 people full-time, 1,146 of which are in
the rice business. None of the Company's operations are covered by collective
bargaining agreements.
All eligible employees of the Company are covered by a profit sharing
retirement plan and a group insurance plan providing life insurance, medical,
dental and hospitalization benefits. The Company makes a mandatory 1% matching
contribution to the profit sharing retirement plan on a monthly basis and an
annual contribution solely at the discretion of the Board of Directors of the
Company.
11
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
The following table summarizes the principal properties owned and/or occupied
by the Company and its subsidiaries:
<TABLE>
<CAPTION>
APPROXIMATE OWNED OR LEASED-
SQUARE FOOTAGE OF EXPIRATION DATE OF
LOCATION BUILDINGS LEASE
<S> <C> <C>
CONTINUING OPERATIONS
Administrative offices:
Los Angeles, California 11,086 sq. ft. Leased 1996
Houston, Texas 46,400 sq. ft. Leased 1997
Phoenix, Arizona 10,300 sq. ft. Leased 2002
Washington, D.C. 27,270 sq. ft. Leased 1998
Washington, D.C. 11,314 sq. ft. Leased 1996
Washington, D.C. 6,830 sq. ft. Leased 1998
Washington, D.C. 4,190 sq. ft. Leased 1998
Warehousing, processing and shipping of
rice and rice products:
Freeport, Texas 272,400 sq. ft. Leased 2022
Stuttgart, Arkansas 142,900 sq. ft. Owned
Maxwell, California (1) 261,000 sq. ft. Owned and
Leased 2034
Biggs, California 95,000 sq. ft. Leased 1996
Laffiteau, Haiti 30,024 sq. ft. Leased 2001
Spanish Town, Jamaica 29,000 sq. ft. Leased 1998
Can Tho, Vietnam (2) 1,300,000 sq. ft. Leased 2014
Processing, warehousing and
shipping of fire retardants:
Phoenix, Arizona 20,600 sq. ft. Leased 2002
Orland, California 20,000 sq. ft. Owned
Kamloops, British Columbia,
Canada 10,000 sq. ft. Leased 2016
Edmonton, Alberta, Canada 4,800 sq. ft. Leased 1998
DISCONTINUED OPERATIONS
Grape crushing, fermenting,
processing, and warehousing
of wine:
Tulare, California 49,000 sq. ft. Owned
Delano, California (3) 121,000 sq. ft. Owned
</TABLE>
(1) Most of the storage facilities and approximately half of the land is
leased.
(2) Subject to an option to purchase by the joint venture partner commencing
1999.
(3) Leased to a third party.
12
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
All properties owned or leased by the Company are maintained in good repair,
and management believes them to be adequate for their respective purposes. All
machinery and equipment are considered to be in sound and efficient operating
condition. Facilities reflected as discontinued operations above are
classified as assets held for sale in the consolidated balance sheets.
Substantially all property, plant and equipment detailed above (in addition to
all receivables, inventories and the capital stock of ARI, Chemonics,
International, and ERLY Juice Inc.) are pledged as collateral on notes payable
and certain other long-term obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings that arise in the ordinary course
of its business, all of which are routine in nature except for the matter noted
below. Management believes that the resolution of such legal proceedings,
including the matter noted below, will not have a material adverse affect on
the consolidated financial position or consolidated results of operations of
the Company.
The U.S.D.A. has conducted a series of investigations of several companies,
including Comet, concerning alleged abuses of federal regulations governing
U.S. government guarantees of payments on shipments of agricultural products to
Iraq. The current investigation, which began in February 1994, is continuing
as a joint investigation with the Department of Justice. In connection with
its sales of rice to Iraq prior to the August 1990 embargo, Comet is alleged to
have failed to adequately apprise the U.S.D.A. that Comet included foreign
bagging of rice as a contract cost in certain financing guaranteed by the U.S.
government. A regulation specifying that foreign bagging may not be included
as a financed contract cost in such financing was not passed until June 1991, a
year after Comet's last shipment to Iraq. The Company is cooperating with the
investigation; there have been no civil enforcement actions and no indictments
or charges have been filed against ARI or any of its affiliates or agents
concerning such allegations. Management does not believe that any laws were
violated or that ARI or any of its affiliates or agents will be subject to
liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through a solicitation
of proxies or otherwise, since the last Annual Meeting of Shareholders held on
September 22, 1994.
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's common stock is listed in the National Market Issue Section of
the Over-the-Counter Market as ERLY Industries Inc. - NASDAQ Symbol "ERLY."
PRICE RANGE OF ERLY COMMON STOCK
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal Year 1995
High $9-1/8 $10-1/4 $11-3/4 $12-1/8
Low 4-1/8 8-1/4 8-3/8 7
Fiscal Year 1994
High $5-1/4 $4-1/2 $4-1/2 $5-1/2
Low 2-3/4 2-3/4 2 4-1/2
</TABLE>
(b) HOLDERS
There were approximately 1,048 shareholders of record as of March 31, 1995.
(c) DIVIDENDS
The Company has never paid cash dividends on ERLY Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting or financial disclosures to
report.
14
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of the directors of ERLY Industries Inc. with
information provided as of March 31, 1995:
DATE ELECTED
AS DIRECTOR
NAME OF DIRECTOR AGE OF COMPANY
GERALD D. MURPHY 67 APRIL 1964
Mr. Murphy is Chairman of the Board and Chief Executive Officer (since 1964) of
the Company, and is Chairman of the Board (since 1993) and Director (since
1988) of American Rice, Inc. (which is 81% owned by ERLY effective May 1993).
He also serves as a Director of Pinkerton's, Inc., a security and investigation
services firm, and High Resolution Sciences, Inc., a technological corporation.
DOUGLAS A. MURPHY 39 JANUARY 1988
Mr. Murphy is President (since 1990) and Chief Operating Officer (since 1992)
of ERLY Industries Inc., President, Chief Executive Officer (since 1993) and
Director (since 1990) of American Rice, Inc. and President of ERLY Juice Inc.
(since 1988), a subsidiary of the Company. He was President of Comet American
Marketing, a division of American Rice, Inc. from 1986 to 1990. He is also a
Director of Compass Bank Houston.
WILLIAM H. BURGESS 78 SEPTEMBER 1975
Mr. Burgess is a private business consultant, Chairman of CMS Digital, Inc., a
privately held company, and a Director of American Rice, Inc. From 1978 to
1986 Mr. Burgess was Chairman of International Controls Corp., an
internationally diversified manufacturing company.
BILL J. MCFARLAND 58 AUGUST 1986
Mr. McFarland has served as Vice President of the Company since 1975 and as
Director since 1986. He has served as President of Comet American Marketing
since 1993 and Senior Vice President of American Rice, Inc. since 1993. He was
President of ERLY Food Group from 1990 to 1993, President of The Beverage
Source from 1979 to 1990 and President of Early California Foods from 1975
until its sale in 1985 (all subsidiaries of the Company).
ALAN M. WIENER 57 MARCH 1995
Alan M. Wiener was appointed as Director of the Company in 1995. He has served
as President of Impulse Designs, Inc. since 1974. Prior to that time he held
positions with Ravine Foods Inc. and Borden, Inc. He previously served as
director of Cal Fame Citrus Products, Inc. and Leisure Technology, Inc.
15
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The following is a list of the executive officers of ERLY Industries Inc.,
their ages and their positions as of June 30, 1994:
<TABLE>
<S> <C> <C>
GERALD D. MURPHY 67 Chairman of the Board and Chief Executive Officer of ERLY Industries since
formation of the Company in 1964 and President of the Company from 1964 to
1990; and Chairman of the Board of American Rice, Inc. (since 1993).
DOUGLAS A. MURPHY 39 President since 1990 and Chief Operating Officer since 1992 of ERLY Industries;
President and Chief Executive Officer since 1993 and Director since 1990 of
American Rice, Inc.; President of ERLY Juice Inc. since 1988; and President of
Comet American Marketing from 1986 to 1990.
BILL J. MCFARLAND 58 Vice President of the Company since 1975; President of Comet American
Marketing since 1993; Senior Vice President of American Rice, Inc. since 1993;
President of ERLY Food Group from 1990; President of The Beverage Source from
1979 to 1990; and President of Early California Foods from 1975 until its sale
in 1985.
RICHARD N. MCCOMBS 49 Vice President and Chief Financial Officer of the Company since 1990; Executive
Vice President of Finance and Administration, Secretary, Treasurer and Director
of American Rice, Inc. since 1993; President of ISC Wines of California from
1984 to 1986; and Executive Vice President of The Beverage Source from 1986 to
1990 and President since 1990.
KURT A. GREY 54 Vice President of the Company since 1982; President, Cicero Industries from
1981 to 1982; and Vice President, Union Bank, from 1976 to 1981.
LOLAN M. PULLEN 61 Vice President of the Company since 1986; Vice President of Comet Rice, Inc.
from 1986 to 1993; and Vice President - Finance of Early California Foods from
1976 until its sale in 1985.
THOMAS A. WHITLOCK 45 Vice President and Corporate Controller of the Company since 1991, Vice
President and Controller of The Beverage Source (a subsidiary of the Company)
from 1987 to 1990 and Corporate Controller of the Company from 1981 to 1987.
</TABLE>
Douglas A. Murphy, President of ERLY Industries Inc., American Rice, Inc. and
ERLY Juice Inc., is the son of Gerald D. Murphy, Chairman of the Board of the
Company. There are no other family relationships among the directors or
executive officers of the Company.
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information concerning executive
compensation is incorporated by reference to the Company's Proxy Statement to
be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information concerning security ownership
of certain beneficial owners and management is incorporated by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information concerning certain
relationships and related transactions is incorporated by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A.
17
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
(a) 1. FINANCIAL STATEMENTS
Selected Financial Data 20-21
Management's Discussion and Analysis of
Financial Condition and Results of Operations 22-26
Consolidated Statements of Operations 27-28
Consolidated Balance Sheets 29
Consolidated Statements of Cash Flows 30-31
Consolidated Statements of Stockholders' Equity 32
Notes to Consolidated Financial Statements 33-49
Independent Auditors' Report 50
2. FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial
Information of ERLY Industries Inc.
(Parent Only) 51-53
Schedule II - Valuation and Qualifying
Accounts 54
</TABLE>
All other schedules are omitted because they are inapplicable, not
required under the instructions or the information is included in
the financial statements and schedules of the registrant.
18
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION REFERENCE
<S> <C> <C>
(3) Articles of Incorporation and By-Laws (as amended
November 22, 1993) (incorporated by reference to
Exhibit 3 to the Company's 1994 Form 10-K).
(4) The Indenture dated as of December 1, 1993 for
$8,880,000 12 1/2% Subordinated Sinking Fund
Debentures due 2002 (incorporated by reference
to Exhibit 4 to the Company's 1994 Form 10-K).
(11) Calculation of Primary Income (Loss) Per Share. Exhibit 11.1
(11) Calculation of Fully Diluted Income (Loss) Per Share. Exhibit 11.2
(21) Subsidiaries of ERLY Industries Inc. Exhibit 21
(27) Financial Data Schedule Exhibit 27
(28) Asset Purchase Agreement dated March 23, 1993, between
and among American Rice, Inc., Comet Rice, Inc. and ERLY
Industries Inc. (incorporated by reference to Exhibit 1 to the
Company's Form 8-K, filed June 16, 1993, File No. 1-7894).
(28) Amendment to Asset Purchase Agreement dated May 25, 1993,
between and among American Rice, Inc., Comet Rice, Inc. and
ERLY Industries Inc. (incorporated by reference to Exhibit 2 to
the Company's Form 8-K, filed June 16, 1993, File No. 1-7894).
(28) American Rice, Inc. 1995 Annual Report and Form 10-K
(incorporated by reference to ARI's 1995 Form 10-K, filed
June 26, 1995, file No. 0-17039).
</TABLE>
(b) 1. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended March 31, 1995.
19
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31: 1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- -----------
(In thousands except
per share data)
<S> <C> <C> <C> <C> <C>
Net sales
American Rice (1) $ 218,919 $ 214,090 $ 169,617 $ 284,464 $ 373,050
Consulting 20,414 31,035 37,185 41,944 63,546
Fire-Trol 13,445 10,163 12,629 8,416 23,003
Other 8,697
- ---------------------------------------------------------------------------------------------------------------
Total net sales $ 261,475 $ 255,288 $ 219,431 $ 334,824 $ 459,599
Operating profit (loss) (2)
American Rice $ 12,046 $ 5,190 ($ 316) $ 16,002 $ 18,501
Consulting 386 1,657 1,539 1,508 4,920
Fire-Trol 2,322 632 1,507 (173) 5,348
Other 139
- ----------------------------------------------------------------------------------------------------------------
Total operating profit $ 14,893 $ 7,479 $ 2,730 $ 17,337 $ 28,769
Income (loss) from
continuing operations $ 5,626 ($ 6,361) ($ 10,989) $ 14,765 $ 8,653
Net income (loss) $ 3,260 ($ 12,539) ($ 8,673) $ 17,669 $ 9,275
Income (loss) from
continuing operations
per share
Primary $ 1.82 ($ 2.03) ($ 3.19) $ 3.66 $ 2.12
Fully diluted $ 1.73 ($ 2.03) ($ 3.19) $ 3.43 $ 2.00
Net income (loss)
per share
Primary $ 1.06 ($ 4.01) ($ 2.52) $ 4.83 $ 2.12
Fully diluted $ 1.01 ($ 4.01) ($ 2.52) $ 4.53 $ 2.00
Average common and
common equivalent
shares outstanding*
Primary 3,089,000 3,127,000 3,444,000 3,655,000 4,365,000
Fully diluted 3,301,000 3,127,000 3,444,000 3,922,000 4,697,000
Cash dividends per
common share $ - $ - $ - $ - $ -
Stock dividend issued 10% - - - -
At year-end:
Total assets $ 225,059 $ 196,726 $ 135,100 $ 199,150 $ 207,058
Long-term debt** $ 73,274 $ 64,080 $ 40,565 $ 67,971 $ 68,321
Subordinated debt** $ 12,634 $ 11,139 $ 9,941 $ 8,880 $ 7,670
Stockholders' equity
(deficiency) $ 13,141 $ 21 ($ 9,194) $ 8,394 $ 16,799
Shares outstanding 3,088,731 3,429,513 3,486,956 3,674,765 3,718,272
</TABLE>
20
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ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- --------------------------------------------------------------------------------
On May 26, 1993, ERLY consummated the Acquisition in which it acquired an
additional 33% voting interest in ARI in exchange for the net assets of Comet,
other than the ARI capital stock already owned by Comet. Comet was a wholly
owned subsidiary of ERLY. The Acquisition was accounted for as a reverse step
acquisition of ARI by ERLY through its subsidiary, Comet.
Because Comet was the acquirer for accounting purposes, the selected financial
data presented herein for periods prior to the Acquisition includes the
accounts of Comet, not ARI. In addition, the fiscal year 1994 operating
results for the period April 1, 1993 through the date of the Acquisition, May
26, 1993, include those of Comet, not ARI. Operating results thereafter
reflect the consolidated operations of Comet and ARI.
Because ERLY holds both common and convertible preferred stock in ARI, ERLY's
share of ARI's net income since the Acquisition consists of ERLY's
proportionate share (32%) of ARI's earnings applicable to common stock plus
dividends earned on ARI Series B Preferred Stock. ERLY's share of ARI's net
earnings (loss) applicable to common stock after preferred dividend
requirements was ($645,000) and $2.6 million in 1995 and 1994, respectively.
ERLY also earned Series B Preferred dividends of $5.2 million in 1995 and $4.3
million from the date of the Acquisition to the end of fiscal year 1994 (See
Note 10 of Notes to the Consolidated Financial Statements).
This information should be read in conjunction with the Consolidated Financial
Statements and related notes included in Item 8 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in Item
7 of this Form 10-K.
NOTES TO SELECTED FINANCIAL DATA:
(1) Rice sales decreased in 1993 compared to 1992 due to the disposition of
Comet's Greenville, Mississippi facility. Rice sales increased in 1994
due to the combination of Comet and ARI.
(2) Operating profit represents gross profit less selling, general and
administrative expenses, excluding corporate overhead.
* Retroactively adjusted to give effect to a 10% stock dividend in
September 1990.
** Including current portion.
21
<PAGE> 23
ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF CONTINUING OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
CONSOLIDATED RESULTS
For the year ended March 31, 1995, ERLY Industries recorded net income of $9.3
million or $2.00 per fully diluted share of common stock on sales of $460
million. This compares with net income in 1994 of $17.7 million or $4.53 per
fully diluted share on sales of $335 million.
Net income for 1994 included extraordinary income of $16.8 million relating to
discounts on extinguishment of debt. See Note 18 to the Consolidated Financial
Statements. Net results for 1994 also reflect a loss from discontinued
operations of $8.8 million. See Note 17 to the Consolidated Financial
Statements.
Fiscal year 1995 income from continuing operations, after minority interest,
was $9.3 million compared to income from continuing operations, after minority
interest, in fiscal 1994 of $13.4 million (which included a gain on sale of
partial interest in subsidiary of $11.8 million). Each of the Company's
operating subsidiaries, ARI, Consulting and Fire-Trol, reported increases in
pre-tax income in fiscal 1995 from fiscal 1994.
AMERICAN RICE
Overview. ARI purchases and processes rough rice into branded and commodity
rice for sale in both international and domestic markets. Demand for branded
rice products, which historically have accounted for approximately 70% of the
Company's gross profit and 60% of net sales, is relatively constant and margins
are typically higher than those for commodity rice products. Demand for
commodity rice products, which historically have accounted for approximately
30% of the Company's gross profit and 40% of net sales is relatively constant
globally, but demand for U.S. grown commodity rice is dependent upon supply and
its cost relative to other sources of supply. Supply and costs for both branded
and commodity products depend on many factors including governmental actions,
crop yields and weather, and such factors can persist through one or more
fiscal years. An example of this occurred in late 1993 when rough rice prices
approximately doubled as a result of shortages caused by poor weather
conditions in Japan and the entry of Japan into the world market as a net
importer of rice. Following this significant price increase, prices then fell
from January 1994 to July 1994 by approximately 50% to September 1993 levels as
supplies of rice in that country improved and world markets stabilized.
The Company generally benefited from the price variability experienced in the
1993 to 1994 period because the Company was able to increase sales prices in
some markets, the Company was able to sell rice inventories acquired at lower
prices at increased sales prices, and the Company participated in the Japanese
business through its California facilities. In general, management believes
that it is insulated from many of the effects of rough rice price fluctuations
for the following reasons: (i) the Company's net sales are proportionately
weighted towards relatively higher margin branded products, (ii) approximately
one-half of the Company's rough rice purchases, excluding rough rice milled
under contract for others, are made as spot market purchases and matched
against commodity orders at prices providing a favorable margin to costs, (iii)
the Company's high rice inventory turnover rate of approximately five times per
year reduces the Company's exposure to seasonal price fluctuations, and (iv)
the Company's diversity of rice sources and rice customers increases the
ability of the Company to take advantage of supply and demand imbalances.
Net Sales. ARI's net sales increased $88.6 million, or 31.1%, from $284.5
million in fiscal 1994 to $373.1 million in fiscal 1995. Export sales
increased by $61.9 million while domestic sales increased by $26.7 million.
Export sales improved primarily due to higher volume which increased by
approximately eight million equivalent rough rice hundredweight. Approximately
74% of this increase resulted from sales to the Caribbean, Mexico and South
America with the remaining improvements coming from the Asian and European
markets. Domestic sales benefited from higher average sales prices which
increased 14.5% primarily due to higher value-added retail sales from ARI's
existing customer base.
Gross Profit. Gross profit increased $4.4 million, or 12.1%, from $36.4
million in fiscal 1994 to $40.8 million in fiscal 1995,
22
<PAGE> 24
ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
primarily due to higher sales volume, partially offset by lower gross profit
per hundredweight sold. As a percentage of net sales, gross profit decreased
from 12.8% in fiscal 1994 to 10.9% in fiscal 1995 as a result of reduced prices
when Japanese demand abated while the average cost of rough rice milled for
markets in the United States, the Caribbean, Mexico and South America
increased.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 8.1%, from $21.5 million in
fiscal 1994 to $23.2 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses declined from 7.6% in fiscal 1994
to 6.2% in fiscal 1995 due to greater net sales without corresponding increases
in fixed selling and administrative expenses.
CHEMONICS INTERNATIONAL - CONSULTING
Revenues for International increased by $21.6 million, or 51.5%, to $63.5
million for fiscal 1995 from $41.9 million in the prior fiscal year. This
increase was primarily due to an increased number and/or size of contracts,
mainly with the newly independent states of the former Soviet Union. Gross
profit for fiscal 1995, as a percentage of sales, was 29.3% compared to 29.7%
for the prior fiscal year. Operating income was $4.9 million, or 7.7% of net
sales in fiscal 1995 compared to $1.5 million or 3.6% of net sales in fiscal
1994. The increase in operating income as a percent of sales resulted
primarily from an increase in contract activity on a relatively fixed corporate
overhead base.
CHEMONICS INDUSTRIES - FIRE-TROL
Fire-Trol reported net sales of $23.0 million in fiscal 1995 compared to net
sales of $8.4 million in fiscal 1994, an increase of $14.6 million, or 173%.
The large increase was due to the significant amount of forest fire activity
experienced in the United States and Canada in the summer of 1994, which
followed a below average level of forest fire activity in the previous summer.
Gross profit for fiscal year 1995 as a percentage of sales increased to 31.6%
from 22.0% in fiscal 1994 due to increased volume with relatively fixed
manufacturing overhead expenses. Operating income increased to $5.3 million in
fiscal 1995 from an operating loss of $173,000 in fiscal 1994 due to the
significantly higher than normal sales in the current year compared to lower
than normal sales in the prior year, on a relatively fixed corporate overhead
base.
CORPORATE
Consolidated interest expense was $15.9 million in 1995 compared to $12.1
million in 1994, an increase of $3.8 million. Most of this increase relates to
ARI, which had a $2.5 million increase in interest expense, despite lower
average balances outstanding, due to higher average effective interest rates.
Interest expense in both periods includes amortization of capitalized debt
issuance costs and other expenses directly associated with ARI's debt.
In 1995 the Company recorded a $1.0 million write-down of plant facilities to
provide a reserve for impairment on the Company's remaining assets of its wine
operations included in assets held for sale.
FISCAL YEAR ENDED MARCH 31, 1994 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1993
AMERICAN RICE
Net Sales. Net sales improved $114.9 million, or 67.7%, from $169.6 million in
fiscal 1993 to $284.5 million in fiscal 1994. Of this increase, $89.4 million
resulted from increased export sales and $25.5 million from increased domestic
sales. As a result of the Acquisition, 10 months of ARI sales were combined
with Comet in fiscal 1994 while fiscal 1993 included only Comet sales. Export
sales increased due to higher volume and higher average prices. Total export
sales volume in hundredweight in fiscal 1994 increased approximately 58.6% and
accounted for $54.1 million of the increase while increases in average prices
of 24.1% accounted for $35.3 million. Average price increases were caused by
increases in the proportion of branded products as a result of the Acquisition
and volume increases resulted from exports by CVI and exports to Japan and
Haiti. CVI's total net sales more than tripled in fiscal 1994 to $10.1 million
due to increases in customer demand for rice products with more exacting
specifications. Domestic sales increased primarily due to increases in rough
rice sales of $2.0 million and an increase
23
<PAGE> 25
ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
in the average price of domestic milled rice of 28.0% due to higher margin
sales to an expanded customer base resulting from the Acquisition.
Gross Profit. Gross profit improved $28.0 million, or 335.5%, from $8.4
million in fiscal 1993 to $36.4 million in fiscal 1994. As a percentage of net
sales, gross profit increased from 4.9% in fiscal 1993 to 12.8% in fiscal 1994.
This increase in gross profit was primarily a result of additional sales to
customers acquired in the Acquisition, and additional domestic and export
sales. Exports to Japan from ARI's California facilities contributed to
significant gross profit increases, and the CVI, Haiti and Puerto Rico
subsidiaries also reported significant improvements in gross profits. The
increase in gross profit as a percentage of net sales was primarily due to
higher value-added sales in the U.S. and Middle East markets resulting from an
expanded customer base due to the Acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.7 million, or 99.4%, from $10.8 million
in fiscal 1993 to $21.5 million in fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses increased from 6.4% in fiscal 1993
to 7.6% in fiscal 1994. This increase was primarily due to advertising and
selling expenses associated with greater sales of higher margin branded
products.
CHEMONICS INTERNATIONAL - CONSULTING
Revenues for International increased by $4.7 million, or 12.8%, to $41.9
million for fiscal 1994 from $37.2 million in the prior fiscal year. This
increase was primarily due to an increased number and/or size of contracts.
Gross profit for fiscal 1994, as a percentage of sales, decreased to 29.7% from
32.3% for the prior fiscal year due to a change in the average contract terms
mix to allow a smaller proportion of home office expense recovery as a direct
contract cost. Operating income was $1.5 million or 3.6% of net sales in
fiscal 1994 compared to $1.5 million or 4.1% of net sales in the comparable
prior year period. The decrease in operating income as a percent of sales
resulted primarily from the decrease in gross profit discussed above and the
concerted redirection of a greater proportion of resources toward the
procurement of new business.
CHEMONICS INDUSTRIES - FIRE-TROL
Net sales for Fire-Trol decreased by $4.2 million, or 33%, to $8.4 million in
fiscal 1994 from $12.6 million in the prior fiscal year. This decrease was due
to a decline in forest fire activity experienced in the United States and
Canada in the summer of 1993. Gross profit for fiscal 1994, as a percentage of
sales, decreased to 22.0% from 25.6% for the comparable prior year period due
to decreased volume on a relatively fixed manufacturing overhead base. The
division had an operating loss of $173,000 in fiscal 1994 compared to operating
income of $1.5 million for the prior fiscal year. This decrease was due to
lower than normal sales on a relatively fixed corporate overhead base.
CORPORATE
Consolidated interest expense was $12.1 million in 1994 compared to $7.5
million in 1993, an increase of $4.6 million. The increase in interest expense
is related to ARI, which had a $4.7 million increase in interest expense from
fiscal 1993 to fiscal 1994 due to higher average rates and balances. ARI
interest expense in 1994 includes amortization of capitalized debt issuance
costs and other expenses directly associated with its debt.
The $11.8 million gain on sale of partial interest in subsidiary in 1994
reflects the sale of 19% of Comet Rice in the May 1993 Acquisition (See Note 2
to the Consolidated Financial Statements).
INVESTMENT INCOME
In fiscal 1994, ERLY reported investment income of $426,000 representing ERLY's
equity interest in ARI's net income for April and May 1993. In fiscal 1993,
ERLY reported an investment loss of $1.6 million representing: (1) a $3.2
million write-down on the portion of its investment in ARI attributed to ARI's
Houston property, partially offset by (2) income of $1,560,000 from ERLY's
equity interest in ARI's net income for fiscal year 1993.
24
<PAGE> 26
ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF DISCONTINUED OPERATIONS
In July 1993, ERLY Juice sold its primary orange juice processing plant in
Lakeland, Florida for $11.9 million. This transaction resulted in a loss of
$2.7 million. ERLY Juice had access to the facility for processing and
packaging its retail and food service business through December 1993 under a
co-pack agreement. This sale was intended in part to reduce operating losses.
One of ERLY Juice's primary creditors agreed to discount term debt and accounts
payable obligations in exchange for cash. This resulted in a gain of $5.6
million which is reflected as extraordinary income as described in Note 18 to
the consolidated financial statements.
In December 1993, Eau Claire Packing Company, a wholly owned subsidiary of ERLY
operating in the juice business, sold its manufacturing facility located in Eau
Claire, Michigan, together with the inventory, accounts receivable and certain
trademarks associated with the plant facility. The Company received
approximately $5.1 million for the plant facility and the related assets. ERLY
Juice also sold trademarks, inventory and accounts receivable for approximately
$3.3 million. The purchase price was paid in cash at the closing.
As a result of the sale of the above assets, 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 Juice have been reported separately as discontinued
operations in the consolidated statements of operations. See Note 17 to the
Consolidated Financial Statements.
25
<PAGE> 27
ERLY INDUSTRIES INC. AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's normal working capital and operational requirements are currently
provided by a combination of internally generated funds and external borrowings
under three revolving lines of credit. ARI operations are funded by a $47.5
million line and Chemonics is funded by an $11.0 million line for its
international consulting activities and a $1.0 million line for Fire-Trol.
Advances under the lines are made as needed assuming required collateral,
consisting primarily of accounts receivable and inventory, is available. At
March 31, 1995, borrowing availability under ARI's line of credit was $10.9
million and borrowing availability under Chemonics' lines was $4.1 million.
Cash flow provided by operations totaled $13.2 million for 1995 compared to
cash flow used in operations of $8.7 million in 1994. The increase was
primarily attributable to decreased inventory levels, increased payable levels
and increased income (excluding non- recurring non-cash income items in 1994),
partially offset by higher receivable levels.
Cash used in financing activities was $8 million in 1995 compared to $19.8
million in 1994. Cash used in financing activities in 1994 primarily reflected
the $70 million paydown of ARI and Comet term loans and notes payable at the
time of the Acquisition, paydown on notes payable of $21.2 million and $6.9
million principal payments on long-term debt, partially offset by the $79.3
million in notes and term debt proceeds from refinancing of the Comet and ARI
term loans.
Capital expenditures for 1995 totaled $4.6 million of which $3.6 million was
invested in the Company's rice operations for infrastructure, development and
modernization of new and existing facilities.
Chemonics' operations for 1996 are expected to provide positive cash flows.
Chemonics International and Chemonics Fire-Trol were split into separate
corporations in 1995. The significant growth in International's revenue
necessitated an increased revolving credit line for its working capital
requirements. In November 1994, International obtained an $11 million line of
credit with a new lender. Chemonics Industries has a $1 million line of credit
to support its Canadian Fire-Trol operations and is currently attempting to
arrange similar financing for its United States Fire-Trol operations.
The parent company's operating cash requirements for corporate overhead are
expected to be met from management fees received from subsidiaries and through
positive cash flows from investments. Lines of credit have been arranged
through subsidiary companies, with the result that cash distributions are
either not permitted to the parent company or limited to certain amounts under
management agreements. The current ARI lending agreements include restrictions
on dividend payments, tax payments and management fees. ARI is considering
refinancing its revolving line of credit and term debt in 1996.
As a result of the discontinuation of the juice operations, there still remains
$8.6 million (plus accrued interest of $600,000) of ERLY Juice's obligation to
ING Capital which the Company guaranteed in conjunction with a $6 million
write-down of ERLY Juice obligations. Under the terms of the guarantee, ERLY
is required to pay down the remaining $8.6 million (plus accrued interest) of
debt by April 1996 or ING Capital may declare a default with the right to
foreclose on ERLY's subsidiary, Chemonics Industries, Inc. The Company expects
to paydown the remaining obligations through a proposed ARI financing or sale
of assets.
The combined rice operations are expected to provide sufficient cash flow to
make payments to ERLY under its management agreement. Under the terms of the
ARI Series B Preferred Stock issued to ERLY in exchange for the assets and
liabilities of Comet, ERLY is entitled to an aggregate dividend of
approximately $5.2 million per year. The current loan agreements with the ARI
lenders prohibit the payment of any dividends and do not provide any basis on
which the lenders would approve a dividend payment. As of March 31, 1995, ARI
Series B Preferred dividends accumulated, but not declared, total $9.5 million.
26
<PAGE> 28
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales $459,599,000 $334,824,000 $219,431,000
Cost of sales 392,902,000 284,090,000 195,803,000
- -------------------------------------------------------------------------------------------------------------
Gross profit 66,697,000 50,734,000 23,628,000
Selling, general and
administrative expenses 40,418,000 35,582,000 21,989,000
Interest expense 15,868,000 12,090,000 7,518,000
Interest income (451,000) (381,000) (610,000)
Other (income) expense (196,000) 556,000 (291,000)
Investment (income) loss (426,000) 1,630,000
Gain on sale of partial
interest in subsidiary (11,768,000)
Write-down of plant facilities 1,000,000 4,000,000
- -------------------------------------------------------------------------------------------------------------
56,639,000 35,653,000 34,236,000
- -------------------------------------------------------------------------------------------------------------
Income (loss) before
taxes on income,
discontinued operations,
extraordinary items and
minority interest 10,058,000 15,081,000 (10,608,000)
Taxes on income 1,405,000 316,000 381,000
- -------------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations
before discontinued
operations, extraordinary
items and minority interest 8,653,000 14,765,000 (10,989,000)
Discontinued operations:
Loss on discontinued operations (5,248,000) (4,972,000)
Loss on disposal (3,562,000)
- -------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary items and
minority interest 8,653,000 5,955,000 (15,961,000)
Extraordinary items 16,792,000 7,288,000
- -------------------------------------------------------------------------------------------------------------
Income (loss) before
minority interest 8,653,000 22,747,000 (8,673,000)
Minority interest* 622,000 (5,078,000)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $9,275,000 $17,669,000 ($ 8,673,000)
=============================================================================================================
</TABLE>
(Continued)
27
<PAGE> 29
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Net income (loss) per common
and common stock equivalents:
Primary:
Continuing operations** $ 2.12 $ 3.66 ($ 3.19)
Discontinued operations (2.41) (1.44)
Extraordinary items** 3.58 2.11
- ------------------------------------------------------------------------------------------------------------
$ 2.12 $ 4.83 ($ 2.52)
============================================================================================================
Fully diluted:
Continuing operations** $ 2.00 $ 3.43 ($ 3.19)
Discontinued operations (2.24) (1.44)
Extraordinary items** 3.34 2.11
- ------------------------------------------------------------------------------------------------------------
$ 2.00 $ 4.53 ($ 2.52)
============================================================================================================
Weighted average common and
common stock equivalents:
Primary 4,365,000 3,655,000 3,444,000
Fully diluted 4,697,000 3,922,000 3,444,000
</TABLE>
* Represents minority interest in net earnings or loss of American Rice, Inc.
applicable to common stock, after preferred stock dividend requirements
(See Note 10).
** Net of applicable minority interest in 1995 and 1994.
See Notes to Consolidated Financial Statements.
28
<PAGE> 30
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31 1995 1994
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,718,000 $ 3,065,000
Notes and accounts receivable,
less allowance for doubtful
accounts of $1,831,000 (1995)
and $1,865,000 (1994) 53,432,000 34,894,000
Inventories 56,022,000 63,296,000
Prepaid expenses and other
current assets 1,382,000 1,522,000
- -----------------------------------------------------------------------------------
Total current assets 114,554,000 102,777,000
Long-term notes receivable, net 1,668,000 1,792,000
Property, plant and equipment, net 54,520,000 55,034,000
Assets held for sale, net 21,282,000 22,546,000
Other assets 15,034,000 17,001,000
- -----------------------------------------------------------------------------------
$207,058,000 $199,150,000
===================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, collateralized $ 41,883,000 $ 49,273,000
Accounts payable 31,172,000 29,442,000
Accrued payroll and other
current liabilities 13,739,000 8,845,000
Income taxes payable 4,058,000 3,339,000
Current portion of long-term and
subordinated debt 7,810,000 8,946,000
- -----------------------------------------------------------------------------------
Total current liabilities 98,662,000 99,845,000
Long-term debt 61,511,000 60,592,000
Subordinated debt 6,670,000 7,313,000
Minority interest 19,104,000 19,769,000
Commitments and contingencies
Redeemable common stock
and common stock warrants 4,312,000 3,237,000
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 5,000,000 shares
Issued and outstanding:
3,418,272 shares (1995) and
3,374,765 shares (1994) 34,000 34,000
Additional paid-in capital 16,407,000 16,157,000
Retained earnings (deficit) 1,750,000 (6,450,000)
Cumulative foreign currency
adjustments (1,392,000) (1,347,000)
- -----------------------------------------------------------------------------------
Total stockholders' equity 16,799,000 8,394,000
- -----------------------------------------------------------------------------------
$207,058,000 $199,150,000
===================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 31
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 1995 1994 1993
-------------- --------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $9,275,000 $17,669,000 ($8,673,000)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 7,627,000 6,497,000 2,816,000
Minority interest (622,000) 5,078,000
Investment (income) loss (426,000) 1,630,000
Write-down of plant facilities 1,000,000 4,000,000
Loss on sale of property 1,230,000
Gain on sale of partial
interest in subsidiary (11,768,000)
Extraordinary income (16,792,000) (7,288,000)
Loss on disposition of
juice business 3,562,000
Provision for loss on receivables 437,000 3,247,000 2,474,000
Change in assets and liabilities,
net of effects of acquisition
and sale of businesses:
(Increase) decrease in receivables (18,851,000) 2,679,000 8,561,000
(Increase) decrease in inventories 7,274,000 (15,950,000) 22,757,000
Increase (decrease) in accounts
payable, other current
liabilities and taxes payable 7,343,000 (3,265,000) (11,038,000)
Other, net (245,000) (488,000) 1,497,000
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 13,238,000 (8,727,000) 16,736,000
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (4,601,000) (3,303,000) (5,200,000)
Disposition of property, plant
and equipment 16,000 1,035,000 2,531,000
Acquisition of American Rice, Inc. 12,608,000
Sale of juice assets 14,499,000 3,460,000
Disposition of rice subsidiary 2,923,000
Collection on note receivable 5,200,000
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,585,000) 27,762,000 5,991,000
</TABLE>
(Continued)
30
<PAGE> 32
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in
notes payable $ 1,188,000 ($21,231,000) ($16,337,000)
Principal payments on
long-term debt (8,237,000) (6,888,000) (5,304,000)
Principal reduction on
subordinated debt (1,201,000) (1,094,000) (1,360,000)
Proceeds from notes and
long-term debt 79,300,000 159,000
Repayment on notes and term
debt on rice refinancing (69,955,000)
Proceeds from sale of stock 250,000 26,000 145,000
- --------------------------------------------------------------------------------------------
NET CASH (USED IN)
FINANCING ACTIVITIES (8,000,000) (19,842,000) (22,697,000)
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
DURING THE YEAR 653,000 (807,000) 30,000
CASH, BEGINNING OF YEAR 3,065,000 3,872,000 3,842,000
- --------------------------------------------------------------------------------------------
CASH, END OF YEAR $3,718,000 $ 3,065,000 $ 3,872,000
============================================================================================
Supplemental cash flow information -
Net cash paid during the year for:
Interest expense $11,583,000 $11,032,000 $10,346,000
Income taxes $ 686,000 $ 599,000 $ 392,000
</TABLE>
Non-cash financing activities:
In October 1993, the Company issued warrants to purchase ERLY common stock
and agreed to guarantee a portion of the debt of a subsidiary in exchange for
forgiveness of debt (See Note 11).
In December 1993, the Company exchanged various debt obligations to the State
of Michigan Retirement System for a note receivable with a net book value of
$3.8 million, 60,000 shares of ERLY common stock, $100,000 cash and a new
note for approximately $800,000, resulting in an extraordinary gain of
$897,000 (See Note 18).
See Notes to Consolidated Financial Statements.
31
<PAGE> 33
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Additional Retained Foreign Total
Common Stock Paid-in Earnings Currency Stockholders'
Shares Dollars Capital (Deficit) Adjustments Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
April 1, 1992 3,129,513 $ 3,130,000 $12,993,000 ($15,446,000) ($ 656,000) $ 21,000
Net income (loss) (8,673,000) (8,673,000)
Foreign currency
adjustments (293,000) (293,000)
Common stock
issued 57,443 57,000 88,000 145,000
Accretion of
redeemable
common stock (394,000) (394,000)
---------- ----------------------------------------------------------------------------------
BALANCE
March 31, 1993 3,186,956 3,187,000 12,687,000 (24,119,000) (949,000) (9,194,000)
Net income 17,669,000 17,669,000
Foreign currency
adjustments (398,000) (398,000)
Common stock
issued 187,809 60,000 651,000 711,000
Accretion of
redeemable
common stock (394,000) (394,000)
Reclassification
to reflect
reduction in
par value
of ERLY
common stock (3,213,000) 3,213,000
---------- ----------------------------------------------------------------------------------
BALANCE
March 31, 1994 3,374,765 34,000 16,157,000 (6,450,000) (1,347,000) 8,394,000
Net income 9,275,000 9,275,000
Foreign currency
adjustments (45,000) (45,000)
Common stock
issued 43,507 250,000 250,000
Accretion of
redeemable
common stock
warrants (1,075,000) (1,075,000)
---------- ----------------------------------------------------------------------------------
BALANCE
March 31, 1995 3,418,272 $ 34,000 $16,407,000 $1,750,000 ($1,392,000) $16,799,000
========== ====================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE> 34
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation--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 Note 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 its 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 or loss 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 of 19%.
Cash and cash equivalents--Cash and cash equivalents include cash on hand and
highly liquid debt instruments purchased with a maturity of three months or
less.
Inventories--Inventories are accounted for by the first-in, first-out (FIFO)
method or market, if lower. Inventory cost includes direct materials, direct
labor and manufacturing overhead. Market value is determined by deducting the
costs of disposition from estimated selling prices.
The Company, from time to time, buys and sells futures and options contracts as
an operational tool to manage its inventory position. Gains and losses on
contracts that meet defined criteria are recognized upon completion of the
transaction, while gains and losses from all other current contracts are
recognized in the period in which the market value of the contracts change.
Property, plant and equipment--Property, plant and equipment are stated at cost
and are depreciated, using the straight-line method of depreciation over the
estimated useful lives of the related assets as follows: buildings and
improvements--10 to 45 years; machinery and equipment--3 to 25 years; and,
leasehold improvements--the lesser of useful life or lease term.
Other assets--Included in other assets are trademarks and tradenames which are
being amortized on a straight line basis over 40 years and deferred costs
related to long-term debt and subordinated debentures which are being amortized
over the respective terms of the related debt. The Company utilizes estimated
future undiscounted cash flows to evaluate any possible impairment of trademarks
and tradenames.
Federal and state income taxes--Deferred income tax assets and liabilities are
computed annually 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. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Foreign currency translation--All assets and liabilities of operations outside
the United States are translated at the foreign exchange rates in effect at year
end. Revenues and expenses for the year are translated at average exchange
rates during the year. Translation gains and losses are not included in
determining net income but are accumulated and reported as a separate component
of stockholders' equity. Net realized and unrealized gains or losses resulting
from foreign currency transactions are credited or charged to income.
Fair value of financial instruments--The Company's financial instruments consist
primarily of cash, trade accounts and notes receivable, accounts payable and
debt instruments. The book values of cash, trade receivables and accounts
payable are representative of their respective fair values due to the short-term
maturity of these instruments. The book value of debt instruments is considered
to approximate the fair value as the interest rates of such instruments are
based on the prime rate.
Earnings per share--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 year. Fully
diluted earnings per share assumes conversion of a convertible note payable,
unless conversion would be antidilutive.
Reclassifications--Certain reclassifications have been made to prior year
consolidated financial statements to conform to current year presentation.
33
<PAGE> 35
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - ACQUISITION OF COMET RICE, INC. BY AMERICAN RICE, INC.
American Rice, Inc. is a public company involved in all phases of rice
processing, packaging and marketing. Pursuant to a reorganization, which was
consummated in April 1988, ARI acquired all of the assets of an agricultural
cooperative in exchange for approximately 52% of ARI's outstanding voting stock.
The remaining 48% of ARI's voting stock was acquired by ERLY's wholly owned
subsidiary, Comet Rice, Inc., at a cost of $20 million cash. The cost was
allocated first to 48% of ARI's equity ($11,610,000) and the remainder to ARI's
Houston, Texas property.
The investment in ARI was accounted for under the equity method and was adjusted
by Comet's equity interest in the results of ARI's operations, which resulted in
income (loss) to Comet of $426,000 and ($1,630,000) for the years ended March
31, 1994 and 1993, respectively. Included in 1993 is a $3,190,000 write-down of
the portion of Comet's investment in ARI attributed to the Houston property.
On May 26, 1993, ARI consummated a transaction (the "Acquisition") to acquire
substantially all of the assets of Comet (except the ARI capital stock owned by
Comet) and assume all of Comet's liabilities. In connection with the
Acquisition, ERLY succeeded to the ARI stock held by Comet upon the liquidation
of Comet.
Pursuant to the Acquisition, in exchange for the assets acquired from Comet, ARI
issued to Comet 2.8 million shares (as adjusted for a one-for-five reverse stock
split for all issues of common and preferred stock effective September 1994) of
a newly created Series B $1 par value preferred stock. Each share of Series B
Preferred Stock provides for annual cumulative, non-participating dividends of
$1.85, is convertible into two shares of ARI common stock, is entitled to two
votes, and has a liquidation preference of $5.00 per share. The Series B
Preferred Stock carries an aggregate dividend of approximately $5.2 million per
year. The current ARI loan agreements prohibit the payment of any dividends and
do not provide any basis on which the lenders would approve a dividend payment.
As a result of the Acquisition, ERLY holds 81% of the combined voting power of
ARI stock outstanding after the Acquisition.
Since ERLY, the sole shareholder of Comet at the time of the Acquisition, owned
the larger portion of the voting rights in the surviving corporation, the
Acquisition was accounted for as a reverse step acquisition of ARI by ERLY
through its subsidiary, Comet, reflecting the change of control from 48% to 81%.
The fair value of ARI was estimated to be approximately $35 million based upon a
valuation study by an investment banker. 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 a gain of $11.8 million
and 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). Depreciation expense relating to this step-up
was $575,000 and $479,000 for the years ended March 31, 1995 and 1994,
respectively.
NOTE 3 - INVENTORIES
A summary of inventories at March 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Raw materials $35,615,000 $28,182,000
Finished goods 20,407,000 35,114,000
- ------------------------------------------------------------------------
$56,022,000 $63,296,000
========================================================================
</TABLE>
34
<PAGE> 36
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at March 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Land $ 594,000 $ 506,000
Buildings and improvements 30,095,000 29,380,000
Machinery and equipment 48,706,000 45,382,000
- ---------------------------------------------------------------------
79,395,000 75,268,000
Less accumulated depreciation
and amortization (24,875,000) (20,234,000)
- ---------------------------------------------------------------------
$54,520,000 $55,034,000
=====================================================================
</TABLE>
Depreciation expense was $5,099,000 (1995), $4,768,000 (1994) and $2,501,000
(1993).
NOTE 5 - ASSETS HELD FOR SALE - LONG-TERM
The consolidated balance sheets include assets held for sale classified as
long-term of $21 million at March 31, 1995. This includes 39 acres of land in
Houston, Texas, held for sale by ARI ($19 million) and the remaining net assets
of the Company's discontinued winery operations ($2 million) which management
intends to dispose of in an orderly manner. In 1995 the Company provided a $1.0
million reserve for impairment on the Company's remaining assets of its wine
operations included in assets held for sale.
ARI's Board of Directors previously adopted a resolution authorizing its
management to sell the Houston property. 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 it occurs, are required by the terms of ARI's debt agreements to be used
to reduce debt.
NOTE 6 - OTHER ASSETS
Other assets at March 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Trademarks and tradenames $14,361,000 $14,360,000
Deferred debt issue costs 5,274,000 4,966,000
Other 916,000 662,000
- ---------------------------------------------------------------------
20,551,000 19,988,000
Less accumulated amortization:
Trademarks and tradenames (1,799,000) (1,389,000)
Deferred debt issue costs (3,718,000) (1,598,000)
- ---------------------------------------------------------------------
$15,034,000 $17,001,000
=====================================================================
</TABLE>
35
<PAGE> 37
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - NOTES PAYABLE
The Company and its subsidiaries have utilized short-term lines of credit with
commercial banks in addition to other short-term loans. Interest expense on
notes payable to banks and on other short-term borrowings amounted to $4,980,000
(1995), $3,237,000 (1994) and $3,501,000 (1993).
A comparison of information relating to the Company's lines of credit for the
years ended March 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average during the year:
Short-term borrowings $31,739,000 $53,494,000 $69,238,000
Weighted average interest
rate* 9.50% 7.87% 8.10%
Average bank prime rate 7.84% 6.00% 6.13%
At March 31:
Lines of credit and short-term loans,
subject to collateral availability $62,438,000* $66,003,000 $82,850,000
Short-term borrowings $41,883,000* $49,273,000 $62,359,000
Average interest rate 10.89% 8.29% 7.52%
Bank prime rate 9.00% 6.00% 6.00%
Unused short-term
borrowing capacity $14,989,000 $ 4,904,000 $ 800,000
Maximum month-end
short-term borrowings
during the year $43,964,000 $62,236,000 $76,454,000
</TABLE>
*Based on outstanding borrowings
Substantially all receivables, inventories, property, plant and equipment and
the capital stock of American Rice, Inc., Chemonics Industries, Inc., Chemonics
International, Inc. and ERLY Juice Inc. are pledged as collateral on notes
payable and certain other long-term obligations.
36
<PAGE> 38
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Currently payable
Federal $ 183,000 $ -- $ --
State 802,000 206,000 2,000
Foreign 420,000 110,000 379,000
- ------------------------------------------------------------------------
Total provision $1,405,000 $316,000 $381,000
========================================================================
</TABLE>
The pre-tax income (loss) from continuing operations (before discontinued
operations, extraordinary items and minority interest) related to domestic and
foreign operations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $ 8,937,000 $14,790,000 ($11,293,000)
Foreign 1,121,000 291,000 685,000
- ------------------------------------------------------------------------
Total $10,058,000 $15,081,000 ($10,608,000)
========================================================================
</TABLE>
The reconciliation of the Company's effective tax rate on continuing operations
to the statutory federal tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal rate 35% 35% (34%)
State taxes 8 1
Foreign taxes 4 1
Other 1 7
Change in valuation allowance (34) (41) 38
- ------------------------------------------------------------------------
Effective tax rate 14% 2% 5%
========================================================================
</TABLE>
37
<PAGE> 39
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effect of the temporary differences and carryforwards which give rise to
deferred tax assets and liabilities at March 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts
and other reserves $ 2,212,000 $ 3,637,000
Net operating loss carryforwards 14,922,000 16,873,000
Other 1,712,000 2,588,000
Deferred tax liabilities:
Difference in basis of property (16,281,000) (16,980,000)
Other (38,000) (178,000)
- ----------------------------------------------------------------------------
Subtotal 2,527,000 5,940,000
Valuation allowance (2,527,000) (5,940,000)
- ----------------------------------------------------------------------------
Net deferred tax asset (liability) $ -- $ --
============================================================================
</TABLE>
Subsequent to the Acquisition, ARI's current taxable income or loss is included
in ERLY's consolidated federal income tax return. Under the terms of the tax
sharing agreement between ARI and ERLY, ARI will pay to or receive from ERLY the
amount of income taxes currently payable or refundable computed as if ARI filed
its annual tax return on a separate company basis. The tax sharing agreement
provides that ERLY will receive the benefit of any pre-Acquisition tax net
operating loss carryforwards generated by Comet.
The Company and certain subsidiaries file consolidated federal income and
combined state franchise tax returns. The Company has provided a valuation
allowance for the benefits of operating loss carryforwards in excess of net
deferred tax liabilities. At March 31, 1995, the Company has net operating loss
carryforwards for federal tax reporting purposes of approximately $44 million,
which expire at various dates, primarily in years 2002 through 2008.
The Company's California franchise tax returns for fiscal years 1979 through
1989 are currently under examination by the California Franchise Tax Board (FTB)
which has issued notices of proposed assessments for certain of those years. The
Company has formally protested various positions taken by the FTB and believes
that a majority of the Company's positions will be upheld. Management believes
that adequate provisions for income taxes have been made and that the ultimate
outcome of this matter will not have a material adverse effect on the Company.
38
<PAGE> 40
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - LONG-TERM AND SUBORDINATED DEBT
A schedule of outstanding long-term and subordinated debt at March 31, 1995 and
1994 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Long-term debt:
ARI term loans (See below) $54,352,000 $61,100,000
ERLY Juice Inc. term debt due 1996,
interest at bank prime rate
plus 2% (See below) 8,578,000
Term loans due 2008, interest
at 6% 3,000,000 3,000,000
Convertible note payable to
officer, due 1996, interest
at bank prime rate plus 2% 1,000,000 1,000,000
(See Note 12)
Term debt, interest
at 12% 1,000,000
Various obligations with maturities
to 2001, interest rates ranging from
10% to 12% 1,391,000 1,871,000
Less current portion of
long-term debt (6,810,000) (7,379,000)
- --------------------------------------------------------------------------
$61,511,000 $60,592,000
==========================================================================
Subordinated debt:
12-1/2% subordinated sinking
fund debentures $7,670,000 $ 8,880,000
Less current portion of
subordinated debt (1,000,000) (1,567,000)
- --------------------------------------------------------------------------
$6,670,000 $ 7,313,000
==========================================================================
</TABLE>
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.
As a result of the discontinuation of the juice operations (See Note 17), there
remains at March 31, 1995 $8.6 million principal (plus accrued interest of $.6
million) of ERLY Juice's obligation to ING Capital which the Company guaranteed.
Under the terms of the guarantee, ERLY was required to paydown the remaining
debt within one year (by December 21, 1994) or ING Capital could declare a
default with the right to foreclose on ERLY's subsidiary, Chemonics Industries,
Inc. At March 31, 1994, this debt was included in notes payable. In February
1995, the Company completed an agreement with ING Capital which extended the due
date to April 1996 in order to complete the sale of assets or other refinancings
in an orderly manner, and accordingly, the debt is classified as long- term at
March 31, 1995.
The term loans at ARI mature on December 31, 1997 and require annual principal
repayments of $6.6 million, $17.7 million and $30.1 million in fiscal years
ending March 31, 1996, 1997 and 1998, respectively. Interest rates on the loans
range from prime plus 3% to prime plus 5% through May 31, 1995, increasing to a
range of prime plus 6% to prime plus 8% by June 1997. Terms of the loans
preclude dividend payments, restrict investments and capital expenditures and
require the maintenance of certain financial covenants. These loans are
collateralized by substantially all of ARI's property, plant and equipment and
trademarks and have junior liens on collateral for the revolving credit line.
ARI is required to maintain a minimum net book value, working capital and
certain financial ratios by its lenders. ERLY is a guarantor for all of the ARI
debt and the loan agreements contain certain restrictive covenants applicable to
ERLY. Consequently, the ARI debt contains cross default provisions with the
debt of ERLY. In addition, 2.6 million shares of ARI Series B preferred stock
were pledged by ERLY as collateral for the loans.
39
<PAGE> 41
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - LONG-TERM AND SUBORDINATED DEBT (CONTINUED)
The Company's 12-1/2% Subordinated Sinking Fund Debentures due in 2002 require
sinking fund payments of $1 million annually through 2001 and $670,000 in 2002.
These debentures were issued in fiscal years 1994 and 1995 in exchange for
debentures which matured on December 1, 1993.
Principal maturities on ERLY's long-term and subordinated debt are as follows:
1996--$7,810,000; 1997--$28,480,000; 1998-- $31,324,000; 1999--$1,231,000;
2000--$1,239,000; thereafter--$5,907,000.
Interest expense on long-term and subordinated debt amounted to $10,888,000
(1995), $8,853,000 (1994) and $4,017,000 (1993).
NOTE 10 - MINORITY INTEREST
ERLY owns 81% of ARI's voting interests through ownership of ARI's 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 common and preferred 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.
ARI also issued a Series C Preferred Stock to third parties which 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, for a total of 19% of the voting interest in ARI on a
fully converted basis.
The earnings or losses of ARI are allocated between ERLY 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 ERLY.
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 or loss 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. These dividends are allocated even if not declared as the
dividends are cumulative. 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%). ERLY's share of ARI's net earnings (loss) applicable
to common stock after preferred stock dividend requirements was ($645,000) and
$2.6 million in 1995 and 1994, respectively. ERLY also earned Series B
Preferred dividends of $5.2 million in 1995 and $4.3 million from the date of
the Acquisition to the end of fiscal year 1994.
40
<PAGE> 42
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - MINORITY INTEREST - (CONTINUED)
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 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
actual 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 11 - REDEEMABLE COMMON STOCK AND COMMON STOCK WARRANTS
In connection with the discontinuation of the Company's juice business in
December 1993 (see Note 17), the Company issued warrants to acquire up to 10% of
ERLY's common stock at $.01 per share. Warrants for 5% of ERLY's stock became
exercisable on April 30, 1994 and warrants for the other 5% become exercisable
on April 30, 1995. All of these warrants expire on April 30, 1998. The warrants
are subject to a redemption provision at the option of the holder at the current
market value of ERLY's stock. When issued, the warrants were valued at $1.4
million ($3.50 per share) and included in accrued liabilities. The warrants have
been reclassified in the accompanying balance sheets and reflected as redeemable
common stock warrants, resulting in a reclassification from current liabilities
of $1.4 million at March 31, 1994.
In conjunction with the extension of the ERLY Juice debt in February 1995 (see
Note 9), the Company issued additional warrants to purchase 5% of ERLY's common
stock at $.01 per share. These warrants become exercisable on April 1, 1996,
expire in 2004 and will be canceled if the ERLY Juice debt plus accrued interest
is repaid by April 1, 1996. At the same time, the warrants issued in 1993 were
amended to include a call feature, under which the Company could repurchase the
warrants at a price of $8.75 per share, assuming the ERLY Juice debt is repaid
before April 1, 1996, the expiration date of the call feature. The call feature
also eliminates the redemption provision, until the call period expires.
In June 1995, the February extension was amended to reduce the $8.75 call price
per share to $5.50 per share if the ERLY Juice debt is repaid before September
30, 1995. In such event, the call feature will be extended through September
30, 1996. The Company intends to repay the ERLY Juice debt by September 30,
1995 and exercise its call option prior to September 30, 1996 and, accordingly,
at March 31, 1995 has recorded the warrants at the net obligation of
$2,512,000. If the ERLY Juice debt is not repaid in accordance with the
agreements discussed above, or the call option is not exercised, the Company
would have outstanding warrants to purchase approximately 771,000 shares of
common stock at $.01 per share, all of which would be subject to redemption at
the current market price of ERLY's stock.
In fiscal 1992, ERLY issued 300,000 shares of ERLY common stock in exchange for
$5.4 million of debt. In conjunction with this transaction, ERLY entered into
an agreement to repurchase all of such stock at a price of $6 per share, at the
option of the stockholder, over a four-year period beginning January 1, 1994.
These shares are classified as redeemable common stock in the consolidated
balance sheets. At issuance, the shares were recorded at their fair market
value of $1,012,000. The difference between the fair value of the common stock
at issuance and its redemption value was accreted through charges to paid-in
capital of $394,000 in 1994 and 1993.
NOTE 12 - STOCKHOLDERS' EQUITY
In addition to the redeemable warrants issued to ING Capital described in Note
11, the Company has issued warrants to purchase 10,000 shares at $3.38 per share
which expire in September 1998 and warrants to purchase 258,000 shares at $5.85
per share which expired in May 1995.
Included in long-term debt is a $1 million note payable to D.A. Murphy,
President of the Company. The note is convertible into ERLY common stock at a
conversion price of $3.75 per share.
In November 1993, ERLY shareholders approved an amendment to the Articles of
Incorporation which reduced the par value of ERLY common stock from $1.00 per
share to $.01 per share. A reclassification of $3.2 million was made from
common stock to paid-in capital to reflect this change.
41
<PAGE> 43
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
Six thousand shares of $100 par value preferred stock are presently authorized
but unissued.
In 1982, the Company adopted an Incentive Stock Option Plan (the "Plan"), under
which 250,000 shares of ERLY common stock were reserved for the granting of
options to key employees. The Plan had a term of 10 years and expired in 1992.
The expiration of the Plan has no effect on outstanding options. The purchase
price for shares could not be less than the market value of the shares at the
date of grant. The options were exercisable 25% a year over a four-year period
beginning one year after the date of issuance. Options generally expire ten
years from the date of grant.
The following table summarizes the activity in stock options under the Plan for
the three years ended March 31, 1995:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
---------- --------------
<S> <C> <C>
Outstanding at March 31, 1992 147,342 $3.73 - $4.51
Granted -
Exercised -
Canceled or expired (24,158) $4.35
- --------------------------------------------------------------------------
Outstanding at March 31, 1993 123,184 $3.73 - $4.51
Granted -
Exercised, canceled or expired -
- --------------------------------------------------------------------------
Outstanding at March 31, 1994 123,184 $3.73 - $4.51
Granted -
Exercised (8,053) $3.73
Canceled or expired -
- --------------------------------------------------------------------------
Outstanding at March 31, 1995 115,131 $4.51
==========================================================================
Exercisable at March 31, 1995 115,131
===================================================
</TABLE>
NOTE 13 - NATURE OF THE BUSINESS - SEGMENT INFORMATION
The Company operates principally in three industries - rice processing,
packaging and marketing; international consulting; and, the manufacture and sale
of forest fire retardant chemicals.
The Company purchases and processes rough rice into branded and commodity rice
for sale in both international and domestic markets. Demand for branded rice
products, which accounts for approximately 60% of the Company's net sales, is
relatively constant and margins are typically higher than those for commodity
rice sales. Demand for commodity rice products, which accounts for
approximately 40% of the Company's net sales, is relatively constant globally,
but demand for U.S. grown commodity rice is dependent upon supply and its cost
relative to other sources of supply. Supply and costs for both branded and
commodity products depend on many factors including governmental actions, crop
yields and weather, and such factors can persist through one or more fiscal
years.
ARI's exposure to foreign currency fluctuations is not material. This is
because ARI requires most sales to foreign customers, with the exception of a
few well established accounts which are not material, to be priced in U.S.
dollars, payable by irrevocable letters of credit and confirmed by a major bank
prior to shipment.
The Company's international consulting activities ("Consulting") include
technical assistance and related services to a variety of countries worldwide,
principally under contracts with the Agency for International Development. The
forest fire retardant chemical business ("Fire-Trol") primarily consists of
sales to the U.S. and Canadian forest services and the volume of its activities
can vary significantly from year to year based upon fire and weather conditions.
42
<PAGE> 44
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - NATURE OF THE BUSINESS - SEGMENT INFORMATION (CONTINUED)
The Company's sales, operating profit and other financial data by industry
segment for the three years ended March 31, 1995 follow:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------------------
1995 1994 1993
---- ---- ----
$ % $ % $ %
- - - - - -
Net sales (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Export sales - Rice
Middle East $91,449 $ 89,782 $ 46,209
Caribbean, Mexico and South America 84,806 38,935 32,744
Asia 49,963 42,838 670
Europe 13,632 6,260 10,593
Africa 3,864 4,012 2,114
Other 65 13 88
- ------------------------------------------------------------------------------------------------------------------
243,779 53% 181,840 54% 92,418 42%
Domestic sales
Rice 129,271 28 102,624 31 77,199 35
Consulting 63,546 14 41,944 13 37,185 17
Fire-Trol 23,003 5 8,416 2 12,629 6
- ------------------------------------------------------------------------------------------------------------------
Total $459,599 100% $334,824 100% $219,431 100%
==================================================================================================================
Income (loss) from
continuing operations
before taxes on income,
extraordinary items
and minority interest
Rice $18,501 $ 16,002 ($ 316)
Consulting 4,920 1,508 1,539
Fire-Trol 5,348 (173) 1,507
- ------------------------------------------------------------------------------------------------------------------
Operating profit 28,769 17,337 2,730
General corporate expense (2,490) (2,185) (1,091)
Interest expense (15,868) (12,090) (7,518)
Interest income 451 381 610
Other income (loss) 196 (556) 291
Investment income (loss) 426 (1,630)
Gain on sale of partial
interest in subsidiary 11,768
Write-down of plant facilities* (1,000) (4,000)
- ------------------------------------------------------------------------------------------------------------------
$10,058 $15,081 ($10,608)
==================================================================================================================
</TABLE>
* Fiscal year 1993 includes a $4 million loss on write-down of rice facility
(See Note 18). Fiscal year 1995 includes a $1 million write-down on the
Company's remaining wine assets.
43
<PAGE> 45
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - NATURE OF THE BUSINESS - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets
Rice $187,994 $186,141 $ 74,325
Consulting 21,748 14,753 13,282
Fire-Trol 8,455 6,713 8,413
Corporate 3,381 4,686 4,386
Discontinued operations:
Juice 134 720 45,897
Other 2,515 3,782* 4,210*
Intercompany eliminations (17,169) (17,645) (15,413)
- -------------------------------------------------------------------------------------
Total $207,058 $199,150 $135,100
=====================================================================================
</TABLE>
* Net of reserve of $518,000 and $1.6 million at March 31, 1994 and 1993,
respectively.
<TABLE>
<S> <C> <C> <C>
Depreciation and amortization
Rice $ 6,981 $5,562 $1,991
Consulting 236 290 202
Fire-Trol 391 447 510
Corporate 19 198 113
- -------------------------------------------------------------------------------------
Total $ 7,627 $6,497 $ 2,816
=====================================================================================
Capital expenditures
Rice $ 3,562 $2,844 $ 2,651
Consulting 493 27 455
Fire-Trol 546 301 273
Corporate 12
Juice 119 1,821
- -------------------------------------------------------------------------------------
Total $ 4,601 $3,303 $ 5,200
=====================================================================================
</TABLE>
NOTE 14 - PROFIT-SHARING PLAN
The Company has a defined contribution profit-sharing plan covering
substantially all of its employees. The Company makes a mandatory 1% matching
contribution to the plan on a monthly basis and an annual contribution solely at
the discretion of the Board of Directors. Total profit-sharing plan expense was
$1,407,000 (1995), $424,000 (1994) and $410,000 (1993).
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation in the ordinary course of business. It is
the opinion of management that resolution of such litigation will not have a
material adverse effect on the Company.
The Company's subsidiary, Chemonics Industries, Inc., has operated in the
chemical and pesticide business and has potential liability for the correction
of environmental contamination relating to certain of its property. Chemonics
has contracted with an independent laboratory to perform sample testing and
provide consultation to assess various cleanup options available. The estimated
costs of such remedies are not presently determinable because the extent and
scope of the cleanup required is unknown and the method by which such cleanup
can be accomplished is under investigation. Management does not believe,
however, that the costs associated with this matter will have a material adverse
effect on the financial condition of the Company.
44
<PAGE> 46
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and its subsidiaries are obligated under operating leases for plant
facilities and equipment. Aggregate minimum rental commitments under operating
leases with noncancellable terms of more than one year are as follows:
<TABLE>
<CAPTION>
Year ending March 31,
- ------------------------------------------------------------------
<S> <C>
1996 $4,325,000
1997 3,668,000
1998 2,573,000
1999 2,093,000
2000 750,000
Thereafter 16,643,000
- ------------------------------------------------------------------
$30,052,000
==================================================================
</TABLE>
Total rental expense amounted to $5,589,000 (1995), $3,846,000 (1994) and
$2,515,000 (1993). Certain leases provide for options to renew and for payment
of taxes, insurance and maintenance costs.
NOTE 16 - LIQUIDITY
A plan to improve liquidity, reduce term debt and overcome financial limitations
was initiated by ERLY in 1989. This plan has resulted in a substantial
restructuring of the Company over the past several years. A summary of the more
significant events are as follows:
- - In May 1993, ERLY increased its ownership in ARI from 48% to 81% and
simultaneously refinanced its term debt and revolving credit lines (See Note
2).
- - During fiscal years 1992 through 1994, the Company entered into a number of
agreements and settlement arrangements with creditors of ERLY Juice which
extinguished debt and resulted in extraordinary income (See Note 18).
During fiscal 1994, ERLY sold the assets and discontinued the operations of
its juice business (See Note 17). After discontinuation of the juice
business, there remains an $8.6 million (plus accrued interest) obligation
to ING Capital which the Company guaranteed in conjunction with a $6 million
reduction in ERLY Juice obligations (See Note 9).
- - In July 1992, Comet's Greenville, Mississippi rice facility was sold through
foreclosure sale and in conjunction therewith, the Company eliminated the
related non-recourse debt of $16 million and the related property (See Note
18).
- - During fiscal 1990, the Company discontinued its operations in the wine
business. During fiscal 1993, one of the remaining three winery facilities
was sold, and the remaining facilities are currently held for sale (See Note
5).
At March 31, 1994, the Company was in default on certain of the bank debt
covenants at its Chemonics subsidiary and the Company had the obligation to ING
Capital related to ERLY Juice due in fiscal 1995 which it was unable to meet
without selling assets or refinancing such indebtedness. Since that time, the
Company has refinanced the debt at its Chemonics subsidiary and is currently in
compliance with all debt covenants. The Company has also extended the maturity
of the ING Capital obligation to April 1996 in order to provide adequate time to
arrange alternative financing. The Company is currently in negotiations with
various lending sources to refinance its term debt, including the ING Capital
obligation, and its revolving credit arrangements on more favorable terms. There
can be no assurance that such refinancing will be available on terms
satisfactory to the Company.
NOTE 17 - DISCONTINUED OPERATIONS - DISPOSITION OF JUICE BUSINESS
In July 1993, ERLY Juice sold its primary orange juice processing plant in
Lakeland, Florida for $11.9 million. This transaction resulted in a loss of
$2.7 million. One of ERLY Juice's primary creditors agreed to discount term
debt and accounts payable obligations in exchange for cash. This resulted in a
gain of $5.6 million which is reflected as extraordinary income.
In December 1993, Eau Claire Packing Company, a wholly owned subsidiary of ERLY
operating in the juice business, sold its manufacturing facility located in Eau
Claire, Michigan, together with the inventory, accounts receivable and certain
trademarks associated with the plant facility. The Company received
approximately $5.1 million for the plant facility and the related assets.
45
<PAGE> 47
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - DISCONTINUED OPERATIONS - DISPOSITION OF JUICE BUSINESS (CONTINUED)
ERLY Juice, also sold trademarks, inventory and accounts receivable for
approximately $3.3 million. The purchase price was paid in cash at the closing.
The net proceeds from both sales were used to paydown debt to the State of
Michigan Retirement System and ING Capital as required by each Company's
respective secured loan agreements.
In connection with the payment on the ING debt and the issue of stock purchase
warrants to obtain up to 10% of ERLY's stock at $.01 per share, ING agreed to a
$6 million write-down in the amount of total debt. In exchange, ERLY also
guaranteed the remaining balance of the obligations owed by ERLY Juice to ING.
The amount of the ERLY Juice obligation to ING immediately prior to the
transaction was approximately $17.1 million and, after application of the write
down and amounts paid, the current amount of the debt is approximately $8.6
million (which is included in long-term debt at March 31, 1995) plus accrued
interest. Under the terms of the guarantee, ERLY is required to pay down the
remaining $8.6 million of debt (plus accrued interest) by April 1996 or ING may
declare a default with the right to foreclose on ERLY's subsidiary, Chemonics
Industries, Inc.
As a result of the sales of the above assets, 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. At March 31, 1995, the consolidated balance sheet includes
remaining assets from the juice business of $134,000, remaining liabilities of
$1.7 million and the ING Capital debt and related accrued interest of $9.2
million.
The results of ERLY's juice business have been reported separately as
discontinued operations in the consolidated statements of operations. Summarized
results of ERLY Juice for the years ended March 31, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net sales $31,337,000 $82,213,000
Costs and expenses (34,744,000) (83,652,000)
Interest expense (1,841,000) (3,533,000)
- -----------------------------------------------------------------
Loss from discontinued
operations ($ 5,248,000) ($ 4,972,000)
=================================================================
Loss on disposal ($ 3,562,000) $ --
=================================================================
</TABLE>
46
<PAGE> 48
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - EXTRAORDINARY ITEMS
The Company had the following extraordinary items for the years ended March 31,
1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Gain on extinguishment of debt related to:
American Rice, Inc. $10,270,000 $ --
ERLY Juice Inc. 5,625,000 2,562,000
The State of Michigan Retirement System 897,000
Rice facility 4,726,000
- -------------------------------------------------------------------------------
$16,792,000 $7,288,000
===============================================================================
</TABLE>
Fiscal year 1994 results include a gain on debt restructuring arising from the
May 1993 refinancing of the combined indebtedness of ARI and Comet. ARI's
former lenders agreed to a debt discount in the amount of $10,270,000. As
additional consideration for the satisfaction of the existing indebtedness of
ARI, 200,000 shares of the ARI Series B preferred stock were pledged by ERLY and
ERLY issued $3 million of notes for the benefit of the former ARI lenders.
In December 1993, the Company exchanged various debt obligations to the State of
Michigan Retirement System for a note receivable with a net book value of $3.8
million, 60,000 shares of ERLY common stock, $100,000 cash and a new note for
approximately $800,000. This resulted in a gain of $897,000.
Due to continuing operating losses resulting from low margins, Comet ceased
payments in January 1992 on a $16 million non-recourse obligation secured by its
rice plant in Greenville, Mississippi. In July 1992, the facility was sold
through foreclosure sale and in conjunction therewith, the Company eliminated
the related non-recourse debt of $16 million and the related property, plant and
equipment. Prior to the disposition, the plant was written-down by $4,000,000
to its estimated fair market value. This write-down is included in results of
continuing operations in fiscal 1993. The difference between the estimated fair
market value of the facility and the amount of debt extinguished (net of
estimated shut-down and relocation expenses) resulted in a gain of $4,726,000.
In fiscal year 1993, the Company entered into settlement arrangements with two
creditors of ERLY Juice whereby $3.1 million of debt and accrued interest was
satisfied in exchange for payments of $569,000 resulting in a combined gain of
$2,562,000. During fiscal year 1994, ERLY Juice settled approximately $6.3
million of term debt and trade payables with a primary creditor in exchange for
$650,000, resulting in a gain of $5,625,000.
NOTE 19 - SUBSEQUENT EVENT
The Company has an option to purchase a foreign and domestic green olive
business for a purchase price of approximately $17 million. The Company is in
the process of obtaining financing for the business and has made a
non-refundable deposit of $700,000 which will be credited towards the purchase
price if the tranasaction is completed by August 18, 1995.
47
<PAGE> 49
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net sales $121,262 $111,866 $120,397 $106,074 $459,599
Gross profit $ 15,663 $ 18,033 $ 17,353 $ 15,648 $ 66,697
Income from continuing
operations $ 2,907 $ 2,463 $ 1,989 $ 1,294 $ 8,653
Minority interest (546) 595 382 191 622
-------- -------- -------- -------- --------
Net income $ 2,361 $ 3,058 $ 2,371 $ 1,485 $ 9,275
======== ======== ======== ========= ========
Earnings per share:
Primary $ .56 $ .73 $ .55 $ .33 $ 2.12
Fully diluted .53 .69 .53 .31 2.00
Weighted average shares
outstanding:
Primary 4,184 4,211 4,321 4,510 4,365
Fully diluted 4,451 4,478 4,588 4,803 4,697
Price range of common stock:
High $ 9-1/8 $ 10-1/4 $ 11-3/4 $12-1/8
Low 4-1/8 8-1/4 8-3/8 7
</TABLE>
48
<PAGE> 50
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 20 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net sales $51,150 $84,600 $99,573 $99,501 $334,824
Gross profit $ 7,154 $12,879 $11,760 $18,941 $ 50,734
Income from continuing
operations $11,189 $ 858 $ 379 $ 2,339 $ 14,765
Loss on discontinued
operations (2,016) (4,140) (2,510) (144) (8,810)
Extraordinary income 10,270 5,625 897 16,792
Minority interest (5,108) 156 291 (417) (5,078)
------- ------- ------- -------- --------
Net income (loss) $14,335 $ 2,499 $ (943) $ 1,778 $ 17,669
======= ======= ======= ======== ========
Primary income (loss)
per share:
Continuing operations* $ 2.81 $ .29 $ .19 $ .48 $ 3.66
Discontinued operations (.58) (1.19) (.70) (.04) (2.41)
Extraordinary income* 1.88 1.62 .25 3.58
------- ------- ------- -------- --------
Net income (loss) per share $ 4.11 $ .72 $ (.26) $ .44 $ 4.83
======= ======= ======= ======== ========
Fully diluted income (loss)
per share:
Continuing operations* $ 2.61 $ .27 $ .19 $ .45 $ 3.43
Discontinued operations (.54) (1.10) (.70) (.03) (2.24)
Extraordinary income* 1.75 1.50 .25 3.34
-------- ------- ------- -------- --------
Net income (loss) per share $ 3.82 $ .67 $ (.26) $ .42 $ 4.53
======== ======= ======= ======== ========
Weighted average shares
outstanding:
Primary 3,487 3,484 3,563 4,013 3,655
Fully diluted 3,754 3,751 3,563 4,280 3,922
Price range of common stock:
High $ 5-1/4 $4-1/2 $4-1/2 $5-1/2
Low 2-3/4 2-3/4 2 4-1/2
</TABLE>
* Net of applicable minority interest.
49
<PAGE> 51
INDEPENDENT AUDITORS' REPORT
Board of Directors
ERLY Industries Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of ERLY Industries
Inc. and subsidiaries (the "Company") at March 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1995. Our
audits also included the financial statement schedules listed in the Index at
Item 14. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 1995 and
1994, and the results of its operations and cash flows for each of the three
years in the period ended March 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
May 26, 1995
50
<PAGE> 52
ITEM 14(A)2. FINANCIAL STATEMENT SCHEDULES
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Corporate overhead expenses ($2,490) ($ 2,185) ($ 1,091)
Income from subsidiaries 878 909 1,092
Interest expense (1,487) (1,508) (1,517)
Interest income 186 268 165
Other income 27 72 9
Gain on sale of partial interest
in subsidiary 11,768
- ----------------------------------------------------------------------------------
Income (loss) before taxes on income
and extraordinary item (2,886) 9,324 (1,342)
Taxes on income (benefit) (4,422) (3,011) 2
- ----------------------------------------------------------------------------------
Income (loss) before
extraordinary item 1,536 12,335 (1,344)
Extraordinary item - gain on
debt discount 897
- ----------------------------------------------------------------------------------
Income (loss) before undistributed
earnings (losses) of subsidiaries 1,536 13,232 (1,344)
Undistributed earnings (losses)
of subsidiaries 7,739 4,437 (7,329)
- -----------------------------------------------------------------------------------
Net income (loss) $ 9,275 $17,669 ($ 8,673)
==================================================================================
</TABLE>
51
<PAGE> 53
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 259 $ 50
Accounts receivable, net 5
Other current assets 332 4
- --------------------------------------------------------------------------
Total current assets 591 59
Intercompany receivable from
Chemonics Industries, Inc. 1,914 3,261
Long-term notes receivable, net 819 1,019
Property, plant and equipment, net 13 14
Investment in subsidiaries* 46,836 39,399
Deferred income taxes 6,724 3,059
Other assets 141 139
- --------------------------------------------------------------------------
$57,038 $46,950
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt of subsidiary
guaranteed by parent $ -- $ 8,578
Accounts payable and other
current liabilities 3,388 2,912
Current portion of long-term
and subordinated debt 1,083 1,641
- --------------------------------------------------------------------------
Total current liabilities 4,471 13,131
Intercompany payable to
American Rice, Inc. 11,848 10,431
Debt of subsidiary
guaranteed by parent 8,578
Long-term debt 4,360 4,444
Subordinated debt 6,670 7,313
Redeemable common stock
and common stock warrants 4,312 3,237
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 16,407 16,157
Retained earnings (deficit) 1,750 (6,450)
Cumulative foreign currency
adjustments (1,392) (1,347)
- --------------------------------------------------------------------------
Total stockholders' equity 16,799 8,394
- --------------------------------------------------------------------------
$57,038 $46,950
==========================================================================
</TABLE>
* Recorded at equity in net assets of subsidiaries.
52
<PAGE> 54
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 9,275 $17,669 ($ 8,673)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Undistributed (earnings) losses
of subsidiaries (7,739) (4,437) 7,329
Depreciation and amortization 19 198 113
Provision for loss on receivables 200 (250)
Gain on sale of partial interest
in subsidiary (11,768)
Extraordinary income - debt discount (897)
Change in assets and liabilities, net (3,531) (1,079) (227)
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,776) (314) (1,708)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (12)
Collection on note receivable 5,200
Change in intercompany payables, net 2,764 (278) (1,885)
Other, net 256 602 46
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 3,020 312 3,361
FINANCING ACTIVITIES:
Principal payments on long-term debt (84) (214)
Principal payments on subordinated debt (1,201) (1,360)
Proceeds from sale of stock 250 26 145
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,035) 26 (1,429)
- -------------------------------------------------------------------------------------------
INCREASE IN CASH DURING THE YEAR 209 24 224
CASH, BEGINNING OF YEAR 50 26 (198)
- -------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 259 $ 50 $ 26
===========================================================================================
</TABLE>
53
<PAGE> 55
ERLY INDUSTRIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGES TO CHARGES DEDUCTIONS BALANCE AT
BEGINNING COSTS AND TO OTHER FROM END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES(A) PERIOD
- ----------- --------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Year ended
March 31, 1995
- --------------
Allowance for
doubtful
accounts $1,865,000 $ 237,000 $ 86,000 ($ 357,000) $ 1,831,000
===============================================================================================================
Reserve for
notes
receivable $ -- $ 200,000 $ 200,000
===============================================================================================================
Reserve for
discontinued
businesses $ 518,000 ($ 518,000) $ --
===============================================================================================================
Year ended
March 31, 1994
- --------------
Allowance for
doubtful
accounts $ 3,280,000 $3,247,000 ($ 4,662,000) $ 1,865,000
===============================================================================================================
Reserve for
notes
receivable $ 200,000 ($ 200,000) $ --
===============================================================================================================
Reserve for
discontinued
businesses $1,582,000 ($1,064,000) $ 518,000
===============================================================================================================
Year ended
March 31, 1993
- --------------
Allowance for
doubtful
accounts $ 956,000 $2,474,000 ($ 34,000) ($ 116,000) $ 3,280,000
===============================================================================================================
Reserve for
notes
receivable $2,000,000 ($1,800,000) $ 200,000
===============================================================================================================
Reserve for
discontinued
businesses $2,189,000 ($ 607,000) $ 1,582,000
===============================================================================================================
</TABLE>
(a) Uncollectible accounts written off to allowance for doubtful accounts;
reduction of reserve for notes receivable in 1993 and, charges to reserve
for discontinued businesses.
54
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, ERLY Industries Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ERLY INDUSTRIES INC.
By /s/ Gerald D. Murphy
-------------------------------------
Gerald D. Murphy, Chairman of the Board
(Chief Executive Officer)
By /s/ Thomas A. Whitlock
-------------------------------------
Thomas A. Whitlock, Vice President and
Corporate Controller
(Chief Accounting Officer)
Date: June 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of ERLY
Industries Inc. and in the capacities and on the dates indicated:
<TABLE>
<S> <C>
/s/ Gerald D. Murphy /s/ Douglas A. Murphy
- ------------------------------------- -------------------------------------
Gerald D. Murphy, Director Douglas A. Murphy, Director
June 29, 1995 June 29, 1995
/s/ Bill J. McFarland /s/ William H. Burgess
- --------------------------------------- ---------------------------------------
Bill J. McFarland, Director William H. Burgess, Director
June 29, 1995 June 29, 1995
/s/ Alan M. Wiener
- --------------------------------------
Alan M. Wiener, Director
June 29, 1995
</TABLE>
55
<PAGE> 1
EXHIBIT 11.1
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF PRIMARY INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations $8,653 $14,765 ($10,989) ($ 6,361) $ 5,626
Minority interest on
continuing operations 622 (1,376)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations, net 9,275 13,389 (10,989) (6,361) 5,626
Loss on discontinued operations (8,810) (4,972) (10,614) (2,366)
Income from extraordinary items 16,792 7,288 4,436
Minority interest on extraordinary items (3,702)
- -------------------------------------------------------------------------------------------------------------------
Extraordinary items, net 13,090 7,288 4,436
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $9,275 $17,669 ($ 8,673) ($12,539) $ 3,260
===================================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding:
Average number of shares of
common stock outstanding 3,686 3,535 3,444 3,127 3,089*
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 679 120 (a) (a) (b)
- -------------------------------------------------------------------------------------------------------------------
Total 4,365 3,655 3,444 3,127 3,089
===================================================================================================================
Primary income (loss)
per common share:
Income (loss) from
continuing operations (c) $ 2.12 $ 3.66 ($ 3.19) ($ 2.03) $ 1.82
Loss on discontinued operations (2.41) (1.44) (3.40) (.76)
Income from extraordinary items (c) 3.58 2.11 1.42
- -------------------------------------------------------------------------------------------------------------------
Primary income (loss)
per common share $ 2.12 $ 4.83 ($2.52) ($4.01) $ 1.06
===================================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 10% stock dividend in September
1990.
(a) Exercise of stock options and warrants is not assumed as the computation
would be anti-dilutive.
(b) The dilutive effect of stock options and warrants was less than 3%;
therefore none are shown above.
(c) Net of applicable minority interest.
56
<PAGE> 1
EXHIBIT 11.2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations $ 8,653 $14,765 ($10,989) ($ 6,361) $ 5,626
Minority interest 622 (1,376)
Interest adjustment 98 80 80 80 80
- ------------------------------------------------------------------------------------------------------------------
Continuing operations, net 9,373 13,469 (10,909) (6,281) 5,706
Loss on discontinued operations (8,810) (4,972) (10,614) (2,366)
Income from extraordinary items 16,792 7,288 4,436
Minority interest on extraordinary items (3,702)
- ------------------------------------------------------------------------------------------------------------------
Extraordinary items, net 13,090 7,288 4,436
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) as adjusted $ 9,373 $17,749 ($ 8,593) ($12,459) $ 3,340
==================================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding:
Average number of shares of
common stock outstanding 3,686 3,535 3,444 3,127 3,089*
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 744 120 (a) (a) (b)
Other potentially dilutive securities:
Common stock issuable upon
conversion of note payable 267 267 (a) (a) 212
- ------------------------------------------------------------------------------------------------------------------
Total 4,697 3,922 3,444 3,127 3,301
==================================================================================================================
Fully diluted income (loss)
per common share:
Income (loss) from
continuing operations (c) $ 2.00 $ 3.43 ($ 3.19) ($ 2.03) $ 1.73
Loss on discontinued operations (2.24) (1.44) (3.40) (.72)
Income from extraordinary items (c) 3.34 2.11 1.42
- ------------------------------------------------------------------------------------------------------------------
Fully diluted income (loss)
per common share $ 2.00 $ 4.53 ($ 2.52) ($ 4.01) $ 1.01
==================================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 10% stock dividend in September
1990.
(a) Exercise of stock options, warrants and convertible note is not assumed as
the computation would be anti-dilutive.
(b) The dilutive effect of stock options and warrants was less than 3%;
therefore none are shown above.
(c) Net of applicable minority interest.
57
<PAGE> 1
EXHIBIT 21
ERLY INDUSTRIES INC.
SUBSIDIARIES
The following is a list of all parents and principal subsidiaries of the
Company reflecting ownership and the state or country of incorporation:
<TABLE>
<CAPTION>
% OF VOTING
SECURITIES
PARENT SUBSIDIARIES OWNED
- ------ ------------ ---------
<S> <C> <C>
ERLY Industries Inc. American Rice, Inc. 81%
(California) (Texas)
Chemonics Industries, Inc. 100%
(Arizona)
The Beverage Source Inc. 100%
(California)
ERLY Juice Inc. 100%
(California)
American Rice, Inc. Comet Rice of Puerto Rico, Inc. 100%
(Texas) (Delaware)
Comet Ventures, Inc. 90%
(California)
Comet Rice of Jamaica Limited 100%
(Jamaica)
Rice Corporation of Haiti, S.A. 100%
(Haiti)
Chemonics Industries, Inc. Chemonics International, Inc. 100%
(Arizona) (California)
Chemonics Industries (Canada) Ltd. 100%
(Canada)
</TABLE>
All subsidiaries are included in the consolidated financial statements.
58
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,718,000
<SECURITIES> 0
<RECEIVABLES> 55,263,000
<ALLOWANCES> 1,831,000
<INVENTORY> 56,022,000
<CURRENT-ASSETS> 114,554,000
<PP&E> 79,395,000
<DEPRECIATION> 24,875,000
<TOTAL-ASSETS> 207,058,000
<CURRENT-LIABILITIES> 98,662,000
<BONDS> 6,670,000
<COMMON> 34,000
0
0
<OTHER-SE> 16,765,000
<TOTAL-LIABILITY-AND-EQUITY> 207,058,000
<SALES> 459,599,000
<TOTAL-REVENUES> 459,599,000
<CGS> 392,902,000
<TOTAL-COSTS> 392,902,000
<OTHER-EXPENSES> 39,149,000
<LOSS-PROVISION> 1,000,000
<INTEREST-EXPENSE> 15,868,000
<INCOME-PRETAX> 10,680,000
<INCOME-TAX> 1,405,000
<INCOME-CONTINUING> 9,275,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,275,000
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.00
</TABLE>
