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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_________________
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 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
_________________
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
--- ---
As of June 15, 1996, there were 4,284,985 common shares outstanding 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 $22.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 Proxy Statement to Shareholders are incorporated by
reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
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ERLY INDUSTRIES INC.
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED MARCH 31, 1996
TABLE OF CONTENTS
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Part I
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Item 1: Business See pages 3-14
Item 2: Properties See pages 15-16
Item 3: Legal Proceedings See page 16 and "Commitments and
Contingencies" on page 54
Item 4: Submission of Matters See page 16
to a Vote of Security
Holders
Part II
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Item 5: Market for the Company's See page 17 and "Quarterly Results
Common Stock and Related of Operations" on pages 57 and 58
Stockholder Matters
Item 6: Selected Financial Data See pages 23-24
Item 7: Management's Discussion See pages 25-30
and Analysis of Financial
Condition and Results of
Operations
Item 8: Consolidated Financial See pages 31-59
Statements
Item 9: Changes in and See page 17
Disagreements with
Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See pages 18-19
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 21-67
Statement Schedules and
Reports on Form 8-K
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PART I
Item 1. Business
ERLY Industries Inc. (the "Company" or "ERLY") was incorporated in California
in March 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 1133 20th Street, N.W., Suite 600, Washington, D.C.
20036.
Recent Events
In June 1996, the Company's subsidiary, ARI, entered into an agreement to
acquire a domestic and foreign olive business from Campbell Soup Company.
Assets to be acquired include domestic inventories and fixed assets and all of
the outstanding stock of a Spanish company which comprises the foreign olive
business. The purchase price is expected to be approximately $38 million,
which will be funded primarily from ARI's credit facilities. The acquisition,
which is expected to close in July 1996, will be accounted for as a purchase
and the results of operations of the acquired business will be included in
the Company's consolidated financial statements after that date. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and Note 18 of Notes to
Consolidated Financial Statements for further discussion of the olive
acquisition.
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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 rice processing 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.
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 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.
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 20% of the total U.S.
rice crop and is the only marketer of rice in the world with significant
sources of rough rice and milling facilities in the two major rice producing
regions of the United States as well as certain strategic locations overseas.
This allows ARI to moderate the impact of regional trade imbalances caused by
climate and geopolitical factors on operating performance. ARI is able to
maximize its margins by purchasing rice grown domestically and abroad to take
advantage of regional cost and supply availabilities.
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Approximately 60% of ARI's sales consist 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 and abroad, 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, Comet, Adolphus, AA, Cinta Azul,
Wonder, Colusa Rose and Chopstick. 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 brand, known locally as Abu Bint, has been the
number one brand of U.S. grown rice sold in that country since 1973, 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.
In 1994 ARI 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 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. 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 150 pounds per person on a worldwide basis, with Asia
having the highest per capita annual consumption at approximately 225 pounds
and the United States having one of the lowest at 28 pounds.
International Trade -- While over 95% of the rice grown worldwide is consumed
in the country in which it is grown, international trade in rice has expanded
steadily over the last decade from approximately 11 million metric tons to
approximately 15 million metric tons. The demand for rice over time has
increased proportionately with population increases, coupled with expansion in
per capita consumption, and has exceeded agricultural productive capacity in
some countries. In addition, due to the economic collapse of the former Soviet
bloc nations, certain foreign government agricultural support programs have
been reduced. This has reduced supply and increased international trade
demand.
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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 17%, 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 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.
estimates that the United States exported 2.7 million metric tons of rice in
1995.
International trade has been favorably impacted by the effects of the General
Agreement on Tariff and Trade ("GATT"). Signatory countries, including the
United States, the European Union, Japan and South Korea began implementation
of their GATT commitments on January 1, 1995, which required, with some
exceptions, the elimination of all import bans, and the reduction of all
import tariffs. In the case of Japan and South Korea, which were not required
to eliminate rice import bans, highly beneficial quotas were established
through bilateral negotiations. Japan imported approximately 400,000 metric
tons of rice in 1995, and its imports are scheduled to increase 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 six 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 medium grain rice production
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 38% of the U.S.
population by 2020. For example, the Hispanic communities in the Southwest,
and the Asian communities in California, each of which have grown significantly
since 1985, consume over three times the average per capita amount of rice
consumed in the United States. To a lesser extent, the growth in average per
capita consumption of rice has also been caused by increased awareness of the
impact of diet on health.
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Approximately 50% to 60% of rice produced in the United States is consumed
domestically. Approximately 70% of U.S. consumption is for food use or direct
consumption. Rice used in food processing accounts for approximately 19% of
total U.S. rice consumption while the remainder is used in the production of
beer.
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.
Brands and Markets
ARI is one of the largest competitors in the global market for rice. 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.
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):
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Years ended March 31,
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1996 1995 1994
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United States and Canada $ 141,868 $ 129,271 $ 102,624
Export sales:
Middle East 117,359 91,449 89,782
Caribbean, Mexico and South America 64,654 84,806 38,935
Asia 49,453 49,963 42,838
Europe 18,111 13,632 6,260
Africa 2,275 3,864 4,012
Other 55 65 13
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Total export sales 251,907 243,779 181,840
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Total sales $ 393,775 $ 373,050 $ 284,464
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See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for discussion concerning export sales for ARI.
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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 36% of
net sales in fiscal 1996. 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%.
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 in North
Carolina, Blue Ribbon in South Carolina, Adolphus in Texas, Comet in
California, Texas and the Southeast and AA in California.
Certain ethnic groups represent some of the fastest growing segments of the
rice business in the United States. Management believes that ARI's AA 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 and Cinta Azul 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 five 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 30% of net sales in fiscal 1996.
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 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 the last 15 years. Overall, Abu Bint
is the number one brand with a market share of approximately 16% of the total
Saudi Arabian market, three times larger than that of its closest competitor.
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Historically, the rice ARI sold in Saudi Arabia was processed and packed in the
United States and shipped to Saudi Arabia. In 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 on an exclusive basis and
under strict ARI quality supervision. By shipping rice in bulk to RMT, ARI has
reduced vessel loading and freight costs while providing market
competitiveness, better customer service and product freshness. Rice products
exported to Saudi Arabia by ARI are marketed to various wholesalers and
retailers through a number of major distributors.
Historically, ARI has also had significant sales in Turkey and Iran.
Caribbean, Mexico and South America -- This region accounted for 16% of net
sales in fiscal 1996. The Caribbean is one of the highest per capita rice
consumption markets in the world. ARI sells branded products such as Comet,
Blue Ribbon and 4 Star 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 in excess of 125,000
metric tons for each of 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 and Comet 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.
Asia -- Asia accounted for 13% of net sales in fiscal 1996. For the twelve-
month period ended July 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.
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 imported approximately 400,000 metric tons of rice
in 1995, and its imports are expected to increase each year to 758,000 metric
tons 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
Japanese imports.
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In 1994, ARI formed ARI-Vinafood, a Vietnamese limited liability company on a
joint venture basis with a company owned by the government of the Socialist
Republic of Vietnam (the "Vietnam Partner") for the purpose of producing rice
and related products at rice processing facilities in the Can Tho province of
Vietnam. ARI owns 55% of ARI-Vinafood also earns a royalty of 3.5% on all
export sales from Vietnam by ARI-Vinafood. 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's participation in ARI-Vinafood has allowed 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 gives it a freight cost advantage over any
Western or European grown rice in those markets.
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 agreements. Pre-harvest
agreements generally provide for delivery of rough rice from specified acreage
at a price per hundredweight determined by the terms of the agreements.
Generally, the price per hundredweight is determined based on local market
conditions occurring between the time of harvest and on or after delivery to
the buyers. ARI also obtains domestic rough rice through competitive bidding
in all rice producing states. In addition to purchasing domestic rough rice,
ARI obtains milled rice from other U.S. and foreign rice suppliers as needed.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI buys and sells futures and options contracts as a mechanism to manage
a portion of its rough rice requirements.
ARI procures rice from a variety of locations, including five of the six
significant U.S. rice growing states (Texas, Louisiana, Mississippi, Arkansas
and California).
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Southern Facilities -- ARI's principal 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. 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 substantially improved yields, thereby reducing
ARI's production cost per hundredweight.
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 first leased by Comet in 1991 and recently extended, 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.
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
operates an ocean-going vessel to service the Caribbean area facilities. These
facilities provide ARI with competitive advantages in loading, transportation
and labor costs as well as in customer service and product freshness.
Competition
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, ARI competes
with approximately 15 entities that together trade or market over 50% of world
trade in rice. These competitors are from the United States and other exporting
countries such as Thailand, Pakistan and Vietnam. 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).
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Within the United States, competition exists both for procuring and processing
rough rice, and for marketing milled rice products. Competitors in the rice
milling business include both private commercial mills, such as ARI, and mills
operated by agricultural cooperatives. ARI's principal competitors in milling
are Riceland Foods, Inc., Farmers Rice Cooperative and Cargill Inc. with
estimated shares of operating domestic milling capacity of 19%, 8% and 7%,
respectively. ARI's share of estimated operating domestic milling capacity is
20%.
Domestic competitors of ARI in the marketing of retail branded milled rice on
a national basis principally consist of Riviana Foods Inc. and Riceland Foods,
Inc., and, in the food service markets, Farmers Rice Cooperative. According to
syndicated market data, no company currently controls more than 25% of the
domestic branded markets. There are a number of small regional competitors in
the branded segment of the rice industry and approximately 15 to 20 rice
millers who compete in the commodity rice markets.
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 a significant impact on ARI's cost and
availability of ARI's principal raw material, rough rice. Substantially all
U.S. rice is grown under the influence of U.S. government programs.
In April 1996, the Federal Agriculture Improvement and Reform Act ("1996 Farm
Bill") was enacted to replace its 1990 predecessor, the Food, Agriculture,
Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill
provides marketing loans and agricultural market transition payments to
qualifying farmers for seven years beginning with the 1996 crop. The
agricultural market transition payments range on a declining scale from $2.75
per cwt. for the 1996 crop to $2.03 per cwt. in 2002 and replace similar
payments of the 1990 Farm Bill. Unlike the predecessor bill payments, the
agricultural market transition payments are fixed without reference to price
levels. Other key provisions of the new law include the elimination of acreage
reduction incentives and increased flexibility of farmers to change among
different commodities as market conditions warrant.
<PAGE>
<PAGE> 13
The changes introduced by the 1996 Farm Bill may have a significant impact on
the supply and price levels of U.S. grown rice. Surveys of rice farmers by the
U.S.D.A. indicate total planted acreage in the U.S. may decline somewhat in
1996. Prices of rough rice have trended somewhat higher in anticipation of a
shorter supply. Management believes any possible adverse effect of these
developments will be of limited duration because over the longer term:
(i) domestic prices should adjust to a point of economic equilibrium with
imports, which will 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 as a result of the 1996 Farm Bill may 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 management and technical assistance
services to developing countries worldwide under contracts with the U.S. Agency
for International Development (AID), the World Bank, development banks,
municipalities and other government 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 over 30 long-term contracts which are regional or
worldwide in scope and maintains offices in more than 30 countries. 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, 1996, Chemonics International has a funded contract backlog of
approximately $166 million covering 1997 through 2000. Of this amount, $65
million relates to services expected to be provided in fiscal year 1997.
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 1996 were $77,754,000, a 22% increase over
the prior year. Revenues were $63,546,000 in 1995, up 52% from 1994 revenues
of $41,944,000. 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, Washington State
and Western Canada from which forest fire retardant chemicals are manufactured
and sold.
<PAGE>
<PAGE> 14
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; Pasco, Washington; 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, Spain,
South Africa and South America.
Chemonics holds significant patents for Fire-Trol (which expire in various
years through the year 2012), 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 1996 were $14,034,000 as compared to
$23,003,000 for 1995 and $8,416,000 in 1994. This volume variation, based upon
weather and fire conditions, is an important aspect of Chemonics' overall sales
and profitability.
EMPLOYEES
The Company employs approximately 1,364 people full-time, 999 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.
<PAGE>
<PAGE> 15
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 2001
Houston, Texas 46,400 sq. ft. Leased 1997
Phoenix, Arizona 10,300 sq. ft. Leased 1997
Washington, D.C. 68,475 sq. ft. Leased 2006
Washington, D.C. 27,270 sq. ft. Leased 1998
Washington, D.C. 11,314 sq. ft. Leased 1996
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 2001
Laffiteau, Haiti 30,024 sq. ft. Leased 2001
Spanish Town, Jamaica 29,000 sq. ft. Leased 1998
Can Tho, Vietnam (2) 250,000 sq. ft. Leased 2014
Processing, warehousing and
shipping of fire retardants:
Phoenix, Arizona 20,600 sq. ft. Leased 1997
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 (3) 49,000 sq. ft. Owned
Delano, California (4) 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, with an option to buy.
(4) Leased to a third party.
<PAGE>
<PAGE> 16
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
included in other assets 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 and
International) are pledged as collateral on notes payable and certain other
long-term debt obligations.
Item 3. Legal Proceedings
The Company and ARI have been named as codefendants in a lawsuit filed in the
district court of Harris County, Texas. This is a dispute between the general
partner of a proposed real estate development and G.D. Murphy and D.A. Murphy,
Chairman and President, respectively, of the Company and ARI. Damages sought
are in the range of $10 million, plus attorneys' fees and punitive damages.
The Company and ARI were named as defendants in the lawsuit because of their
actions to obtain restraining orders to prevent threatened foreclosures on ERLY
common stock pledged as collateral by G.D. Murphy and to stop interference by
the plaintiff in the lawsuit, with ARI's mortgage note financing (see Note 9),
as well as certain other alleged activities. The Company and ARI believe they
have valid defenses in this case and that damages, if any, will not have a
material effect on the Company's financial condition; however, as with any
litigation, the ultimate outcome is unknown. Accordingly, no provision for
any liability that might result has been made in the accompanying consolidated
financial statements.
The Company is involved in other legal proceedings that arise in the ordinary
course of its business, all of which are routine in nature. Management
believes that the resolution of such legal proceedings will not have a material
adverse affect on the consolidated financial position or consolidated results
of operations of the Company.
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 6, 1995.
<PAGE>
<PAGE> 17
PART II
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
High Low
----- -----
Fiscal Year 1996*
1st Quarter $ 9-7/8 $ 8-3/4
2nd Quarter 9-5/8 7-7/8
3rd Quarter 9 6-5/8
4th Quarter 10-1/4 5-7/8
Fiscal Year 1995*
1st Quarter $ 7-7/8 $ 3-5/8
2nd Quarter 8-7/8 7-1/8
3rd Quarter 10-1/4 7-1/4
4th Quarter 10-1/2 6-1/8
* Restated for a 15% stock dividend in September 1995.
(b) Holders
There were approximately 1,011 shareholders of record as of March 31, 1996.
(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.
<PAGE>
<PAGE> 18
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 June 15, 1996:
DATE ELECTED
AS DIRECTOR
NAME OF DIRECTOR AGE OF COMPANY
Gerald D. Murphy 68 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 40 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 advisor of Compass Bank Houston.
William H. Burgess 79 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. (since 1988).
From 1978 to 1986 Mr. Burgess was Chairman of International Controls Corp.,
an internationally diversified manufacturing company.
Bill J. McFarland 59 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 58 March 1995
Mr. Wiener has served as a Director of the Company since 1995. He was
President of Impulse Designs, Inc. from 1974 to 1995 and is presently serving
as Chairman of the Board of that company. He is also a Director of FloTool
International, Inc. He previously served as a Director of Cal Fame Citrus
Products, Inc. and Leisure Technology, Inc.
<PAGE>
<PAGE> 19
The following is a list of the executive officers of ERLY Industries Inc.,
their ages and their positions as of June 15, 1996:
Gerald D. Murphy 68 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 40 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 59 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 50 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; Managing Director of the
ARI-Vinafood joint venture since 1994;
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 55 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 62 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 46 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.
Douglas A. Murphy, President of ERLY Industries Inc. and American Rice, 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.
<PAGE>
<PAGE> 20
Item 11. Executive Compensation
Pursuant to General Instruction G(3), information concerning executive
compensation is incorporated by reference to the Company's 1996 Proxy
Statement.
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 1996 Proxy Statement.
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 1996 Proxy Statement.
<PAGE>
<PAGE> 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page
Number
(a) 1. Financial Statements
Selected Financial Data 23-24
Management's Discussion and Analysis of
Financial Condition and Results of Operations 25-30
Consolidated Statements of Operations 31-32
Consolidated Balance Sheets 33
Consolidated Statements of Cash Flows 34-35
Consolidated Statements of Stockholders' Equity 36
Notes to Consolidated Financial Statements 37-58
Independent Auditors' Report 59
2. Financial Statement Schedules
Schedule I - Condensed Financial
Information of ERLY Industries Inc.
(Parent Only) 60-62
Schedule II - Valuation and Qualifying
Accounts 63
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.
<PAGE>
<PAGE> 22
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
3. Exhibits
Exhibit Exhibit
Number Description Reference
(3) Articles of Incorporation (as
amended September 6, 1995). Exhibit 3
(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).
(4) Trust Indenture dated August 24, 1995 by and
among American Rice, Inc. and U. S. Trust Company
of Texas for $100,000,000 13% Mortgage Notes
due 2002 (incorporated by reference to Exhibit
4.1 of ARI's Form S-1, file No. 33-60539).
(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 (electronic filing) 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. 1996 Annual Report and Form
10-K (incorporated by reference to ARI's 1996
Form 10-K, filed June 27, 1996, file No. 0-17039).
(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, 1996.
<PAGE>
<PAGE> 23
ERLY INDUSTRIES INC. AND SUBSIDIARIES
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years ended March 31: 1992 1993 1994 1995 1996
(In thousands except ------- ------- ------- ------- -------
per share data)
<S> <C> <C> <C> <C> <C>
Net sales
Rice (1) $ 214,090 $ 169,617 $ 284,464 $ 373,050 $ 394,838
Consulting 31,035 37,185 41,944 63,546 77,754
Fire-Trol 10,163 12,629 8,416 23,003 14,034
- ------------------------------------------------------------------------------------------------
Total net sales $ 255,288 $ 219,431 $ 334,824 $ 459,599 $ 486,626
Operating profit (loss) (2)
Rice $ 5,190 ($ 316) $ 16,002 $ 18,501 $ 14,338
Consulting 1,657 1,539 1,508 4,920 4,157
Fire-Trol 632 1,507 (173) 5,348 1,329
- ------------------------------------------------------------------------------------------------
Total operating profit $ 7,479 $ 2,730 $ 17,337 $ 28,769 $ 19,824
Income (loss) from
continuing operations
before minority interest ($ 6,361) ($ 10,989) $ 14,765 $ 8,653 ($ 8,439)
Net income (loss) ($ 12,539) ($ 8,673) $ 17,669 $ 9,275 ($ 1,149)
Income (loss) from
continuing operations
per share*
Primary ($ 1.77) ($ 2.77) $ 3.19 $ 1.85 ($ .27)
Fully diluted ($ 1.77) ($ 2.77) $ 2.99 $ 1.74 ($ .27)
Net income (loss)
per share*
Primary ($ 3.49) ($ 2.19) $ 4.20 $ 1.85 ($ .27)
Fully diluted ($ 3.49) ($ 2.19) $ 3.94 $ 1.74 ($ .27)
Average common and
common equivalent
shares outstanding*
Primary 3,596,000 3,961,000 4,203,000 5,020,000 4,280,000
Fully diluted 3,596,000 3,961,000 4,510,000 5,402,000 4,280,000
Cash dividends per
common share $ - $ - $ - $ - $ -
Stock dividend issued - - - - 15%
At year-end:
Total assets $ 196,726 $ 135,100 $ 199,150 $ 207,058 $ 235,135
Long-term debt** $ 64,080 $ 40,565 $ 67,971 $ 68,321 $ 100,276
Subordinated debt** $ 11,139 $ 9,941 $ 8,880 $ 7,670 $ 6,665
Stockholders' equity
(deficiency) $ 21 ($ 9,194) $ 8,394 $ 16,799 $ 17,534
Shares outstanding 3,429,513 3,486,956 3,674,765 3,718,272 4,284,985
</TABLE>
<PAGE>
<PAGE> 24
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 ($3,784,000), ($645,000) and $2.6 million in 1996, 1995 and
1994, respectively. ERLY also earned Series B Preferred dividends of $5.2
million in 1996 and 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 15% stock dividend in
September 1995.
** Including current portion.
<PAGE>
<PAGE> 25
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, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Consolidated Results
For the year ended March 31, 1996, ERLY Industries recorded a net loss of $1.1
million or $.27 per fully diluted share of common stock on sales of $487
million. This compares with net income in 1995 of $9.3 million or $1.74 per
fully diluted share on sales of $460 million.
Results for fiscal year 1996 include a $7.2 million provision for loss on
disposal of property held for sale (see Note 5). Excluding this non-recurring
charge (and the related effect on taxes and minority interest), ERLY would have
recorded net income of $2.9 million for fiscal 1996. The declince in operating
results from last year is primarily due to decreases recorded by the Company's
subsidiaries, ARI and Fire-Trol.
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 have accounted for approximately 70% of the Company's net
sales over the last two fiscal years, is relatively constant and margins are
typically higher than those for commodity rice products. Demand for commodity
rice products is relatively constant globally, but demand for U.S. grown
commodity rice is dependent upon supply and 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.
<PAGE>
<PAGE> 26
Net Sales -- ARI's net sales increased $20.7 million, or 5.5%, from $373.1
million in fiscal 1995 to $393.8 million in fiscal 1996. Export sales
increased by $8.1 million while domestic sales increased by $12.6 million.
Export sales increased due to higher average prices partially offset by lower
volume. Average export prices increased approximately 23.2%, accounting for
$47.5 million in sales increases. Total export sales volume declined
approximately 4.1 million equivalent rough rice hundredweight's or 16%,
accounting for a $39.4 million sales decline. Export volume was lower
primarily due to lower sales to the Caribbean partially offset by higher sales
to the Middle East. Sales to Asia were approximately the same as the prior
year. Domestic sales were higher primarily due to higher volume.
Gross Profit -- Gross profit decreased $2.7 million, or 6.8%, from $40.8
million in fiscal 1995 to $38.1 million in fiscal 1996, primarily due to lower
sales to Japan partially offset by increases in gross profit on U.S. sales.
As a percentage of net sales, gross profit decreased from 10.9% in fiscal 1995
to 9.7% in fiscal 1996.
Selling, General and Administrative Expenses -- Selling, general and
administrative expenses increased $1.5 million, or 6.6%, from $23.2 million
in fiscal 1995 to $24.8 million in fiscal 1996. As a percentage of net sales,
selling, general and administrative expenses were approximately the same as the
prior year.
Provision for Loss on Disposal of Properties -- ARI has entered into an
agreement to sell its principal property held for sale, which is located two
miles west of downtown Houston. The terms of the agreement require that
certain conditions be met prior to consummation of the sale including
demolition of structures and updated environmental studies. ARI expects to
receive net proceeds of approximately $11.2 million from the sale.
Accordingly, the previous carrying value of the property of $18.8 million was
reduced to its approximate net realizable value (after accrual of certain
costs) by a non-recurring charge of $7.2 million in the quarter ended
December 31, 1995. The transaction is expected to be consummated in calendar
1996 after the completion of demolition of existing structures on the property
and updated environmental studies.
Management believes it is in the best interest of ARI to proceed with
disposition of the property in an expeditious manner due to the improvement in
liquidity it will provide and to the provision in the indenture for ARI's $100
million bonds requiring sale of the property within eighteen months of the date
of issuance of the notes to avoid certain penalties. Management expects to
invest the sales proceeds in other projects.
Chemonics International - Consulting
Revenues for International increased by $14.2 million, or 22.4%, to $77.7
million for fiscal 1996 from $63.5 million in the prior fiscal year. This
increase was primarily due to increased revenues from projects in the former
Soviet Union in addition to revenues from new clients, principally national
and regional development banks. Gross profit for fiscal 1996, as a percentage
of revenues, was 27.4% compared to 29.3% for the prior fiscal year. Operating
income was $4.2 million, or 5.3% of revenues in fiscal 1996 compared to $4.9
million or 7.7% of revenues in fiscal 1995.
<PAGE>
<PAGE> 27
Chemonics Industries - Fire-Trol
Fire-Trol reported net sales of $14.0 million in fiscal 1996 compared to net
sales of $23.0 million in fiscal 1995, a decrease of $9.0 million, or 39%.
Fiscal 1995 represented a record sales year for Fire-Trol due to the
significant amount of forest fire activity experienced in the United States and
Canada in the summer of 1994. Fiscal year 1996 reflected a more normal sales
year. Gross profit for fiscal year 1996 as a percentage of sales decreased to
26.9% from 31.6% in fiscal 1995 due to the decrease in sales. Operating income
for fiscal 1996 was $1.3 million, compared to $5.3 million in 1995, a decrease
of $4.0 million due to the reduction in sales.
Corporate
Consolidated interest expense was $19.8 million in 1996 compared to $15.9
million in 1995, an increase of $3.9 million. ARI had a $5.1 million increase
in interest expense due to higher average balances outstanding and higher
average interest rates. Interest expense in both periods includes amortization
of capitalized debt issuance costs. Interest expense for 1996 also includes
accretion of the $6 million original issue discount on the $100 million notes
issued in August 1995.
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 $1.74 per fully diluted share of common stock on sales of $460
million. This compares with net income in 1994 of $17.7 million or $3.94 per
fully diluted share on sales of $335 million.
Net income for 1994 included extraordinary income of $16.8 million relating to
discounts on extinguishments of debt. See Note 17 to the Consolidated
Financial Statements. Net results for 1994 also reflect a loss from
discontinued operations of $8.8 million. See Note 16 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
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.
<PAGE>
<PAGE> 28
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, 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 revenues, was 29.3% compared to
29.7% for the prior fiscal year. Operating income was $4.9 million, or 7.7%
of revenues in fiscal 1995 compared to $1.5 million or 3.6% of revenues in
fiscal 1994. The increase in operating income as a percent of revenues
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 other assets.
<PAGE>
<PAGE> 29
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 17
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 16 to the
Consolidated Financial Statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
In a public offering completed in August 1995, ARI issued $100 million
principal amount of 13.0% mortgage notes due 2002 (the "Notes"). Portions of
the net proceeds of $94 million were used to repay the balance of ARI's
existing term loans, to make a $10.5 million 15% loan to ERLY due 2001, and to
reduce borrowings outstanding under ARI's revolving credit loan. The $10.5
million loan to ERLY was used to repay $9.5 million of remaining ERLY Juice
Inc. debt (including interest), which ERLY had guaranteed (see Note 11).
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 of credit and $7.3 million in short-term notes from foreign banks
to finance Vietnam inventory. Chemonics is funded by a $16 million line for
its international consulting activities and a $3.5 million line for Fire-Trol.
Advances under the lines of credit are made as needed assuming required
collateral, consisting primarily of accounts receivable and inventory, is
available. At March 31, 1996, borrowing availability under ARI's line of
credit was $13.4 million and borrowing availability under Chemonics' lines was
$9.8 million.
For fiscal year 1996, ARI had a $47.5 million revolving credit loan with
interest at the prime rate of interest plus .5%. In June 1996, this loan was
refinanced with a new lender. The new loan bears interest at ARI's option at
either the prime rate or the London Interbank Offered Rate plus an applicable
margin based upon ARI's adjusted funded debt ratio.
<PAGE>
<PAGE> 30
Cash flow used in operations totaled $2.5 million for 1996 compared to cash
flow provided by operations of $13.2 million in 1995. The decrease was
primarily attributable to increased inventory levels, increased receivables and
the loss for 1996, partially offset by higher payable levels. Inventories
were up $22 million over last year with ARI accounting for $21 million of the
increase. Rice inventories increased primarily due to higher price levels and
higher inventories in Vietnam and for Saudi Arabia business.
Cash provided by financing activities totaled $8.8 million in 1996 compared to
cash used of $8.0 million in 1995. Cash provided by financing activities in
1996 primarily reflected the $100 million ARI bond offering, partially offset
by repayments of $64 million on long-term and subordinated debt, and $14.5
million on notes payable.
Cash outlays for capital expenditures in 1996 totaled $6.3 million of which
$3.7 million was invested in the Company's rice operations for infrastructure,
development and modernization of new and existing facilities.
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 which was increased to
$16 million in fiscal 1996. Chemonics Industries has a $2.5 million line of
credit to support its United States Fire-Trol operations and a $1 million line
of credit for its Canadian Fire-Trol operations.
ARI intends to satisfy its obligations under the Notes as well as future
capital expenditure and working capital requirements primarily with cash flow
from operations and from funds available under existing and new revolving lines
of credit. Management believes that cash flow from operations and the line of
credit will provide sufficient liquidity to enable ARI to meet its currently
foreseeable working capital and capital expenditure requirements.
ARI anticipates funding the acquisition of the olive business and meeting its
additional working capital requirements primarily through expanding the
existing revolving credit facility.
The parent company's operating cash requirements for corporate overhead are
expected to be met from management fees received from subsidiaries, payments
under tax sharing agreements with 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.
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, 1996, ARI Series B Preferred dividends accumulated, but not declared,
total $14.7 million.
<PAGE>
<PAGE> 31
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $486,626,000 $459,599,000 $334,824,000
Cost of sales 422,434,000 392,902,000 284,090,000
- ----------------------------------------------------------------------------------
Gross profit 64,192,000 66,697,000 50,734,000
Selling, general and
administrative expenses 46,003,000 40,418,000 35,582,000
Interest expense 19,849,000 15,868,000 12,090,000
Interest income (486,000) (451,000) (381,000)
Other (income) expense (499,000) (196,000) 556,000
Provision for loss on
disposal of property 7,200,000 1,000,000
Investment income (426,000)
Gain on sale of partial
interest in subsidiary (11,768,000)
- ----------------------------------------------------------------------------------
72,067,000 56,639,000 35,653,000
- ----------------------------------------------------------------------------------
Income (loss) before
taxes on income,
discontinued operations,
extraordinary items and
minority interest (7,875,000) 10,058,000 15,081,000
Taxes on income 564,000 1,405,000 316,000
- ----------------------------------------------------------------------------------
Income (loss) from
continuing operations
before discontinued
operations, extraordinary
items and minority interest (8,439,000) 8,653,000 14,765,000
Discontinued operations:
Loss on discontinued operations (5,248,000)
Loss on disposal (3,562,000)
- ----------------------------------------------------------------------------------
Income (loss) before
extraordinary items and
minority interest (8,439,000) 8,653,000 5,955,000
Extraordinary items 16,792,000
- ----------------------------------------------------------------------------------
Income (loss) before
minority interest (8,439,000) 8,653,000 22,747,000
Minority interest* 7,290,000 622,000 (5,078,000)
- ----------------------------------------------------------------------------------
Net income (loss) ($ 1,149,000) $9,275,000 $17,669,000
==================================================================================
</TABLE> (Continued)
<PAGE>
<PAGE> 32
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
Years ended March 31 1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) per common
and common stock equivalents:
Primary**:
Continuing operations*** ($ .27) $ 1.85 $ 3.19
Discontinued operations (2.10)
Extraordinary items*** 3.11
- ----------------------------------------------------------------------------------
($ .27) $ 1.85 $ 4.20
==================================================================================
Fully diluted**:
Continuing operations*** ($ .27) $ 1.74 $ 2.99
Discontinued operations (1.95)
Extraordinary items*** 2.90
- ----------------------------------------------------------------------------------
($ .27) $ 1.74 $ 3.94
==================================================================================
Weighted average common and
common stock equivalents:
Primary 4,280,000 5,020,000 4,203,000
Fully diluted 4,280,000 5,402,000 4,510,000
</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).
** Retroactively adjusted to give effect to 15% stock dividend in September
1995.
*** Net of applicable minority interest.
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 33
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,819,000 $ 3,718,000
Notes and accounts receivable,
less allowance for doubtful
accounts of $1,715,000 (1996)
and $1,831,000 (1995) 56,665,000 53,432,000
Inventories 78,004,000 56,022,000
Properties held for sale, net 13,535,000
Prepaid expenses and other
current assets 2,020,000 1,382,000
- --------------------------------------------------------------------------------
Total current assets 154,043,000 114,554,000
Long-term notes receivable, net 1,574,000 1,668,000
Property, plant and equipment, net 56,360,000 54,520,000
Properties held for sale 18,767,000
Other assets 23,158,000 17,549,000
- --------------------------------------------------------------------------------
$ 235,135,000 $ 207,058,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, collateralized $ 27,413,000 $ 41,883,000
Accounts payable 48,670,000 31,172,000
Accrued payroll and other
current liabilities 16,497,000 13,739,000
Income taxes payable 3,757,000 4,058,000
Current portion of long-term and
subordinated debt 1,163,000 7,810,000
- --------------------------------------------------------------------------------
Total current liabilities 97,500,000 98,662,000
Long-term debt 100,113,000 61,511,000
Subordinated debt 5,665,000 6,670,000
Minority interest 11,811,000 19,104,000
Commitments and contingencies
Redeemable common stock
and common stock warrants 2,512,000 4,312,000
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 15,000,000 shares (1996)
and 5,000,000 shares (1995)
Issued and outstanding:
4,284,985 shares (1996) and
3,418,272 shares (1995) 43,000 34,000
Additional paid-in capital 23,879,000 16,407,000
Retained earnings (deficit) (5,046,000) 1,750,000
Cumulative foreign currency
adjustments (1,342,000) (1,392,000)
- --------------------------------------------------------------------------------
Total stockholders' equity 17,534,000 16,799,000
- --------------------------------------------------------------------------------
$ 235,135,000 $ 207,058,000
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 34
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31 1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($1,149,000) $9,275,000 $17,669,000
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 7,247,000 7,627,000 6,497,000
Minority interest (7,290,000) (622,000) 5,078,000
Investment income (426,000)
Provision for loss on disposal
of property 7,200,000 1,000,000 1,230,000
Gain on sale of partial
interest in subsidiary (11,768,000)
Extraordinary income (16,792,000)
Loss on disposition of
juice business 3,562,000
Provision for loss on receivables 320,000 437,000 3,247,000
Change in assets and liabilities,
net of effects of acquisition
and sale of businesses:
(Increase) decrease in receivables (3,553,000) (18,851,000) 2,679,000
(Increase) decrease in inventories (21,982,000) 7,274,000 (15,950,000)
Increase (decrease) in accounts
payable, other current
liabilities and taxes payable 17,987,000 7,343,000 (3,265,000)
Other, net (1,241,000) (245,000) (488,000)
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,461,000) 13,238,000 (8,727,000)
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (6,306,000) (4,601,000) (3,303,000)
Disposition of property, plant
and equipment 50,000 16,000 1,035,000
Acquisition of American Rice, Inc. 12,608,000
Sale of juice assets 14,499,000
Disposition of rice subsidiary 2,923,000
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (6,256,000) (4,585,000) 27,762,000
</TABLE>
(Continued)
<PAGE>
<PAGE> 35
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended March 31 1996 1995 1994
-------------- ----------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in
notes payable ($ 14,470,000) $ 1,188,000 ($ 21,231,000)
Principal payments on
long-term debt (63,118,000) (8,237,000) (6,888,000)
Principal reduction on
subordinated debt (1,000,000) (1,201,000) (1,094,000)
Proceeds from notes and
long-term debt 94,000,000 79,300,000
Mortgage notes issuance cost (6,631,000)
Repayment on notes and term
debt on rice refinancing (69,955,000)
Proceeds from sale of stock 37,000 250,000 26,000
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 8,818,000 (8,000,000) (19,842,000)
- -------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
DURING THE YEAR 101,000 653,000 (807,000)
CASH, BEGINNING OF YEAR 3,718,000 3,065,000 3,872,000
- -------------------------------------------------------------------------------------
CASH, END OF YEAR $ 3,819,000 $ 3,718,000 $ 3,065,000
=====================================================================================
Supplemental cash flow information -
Net cash paid during the year for:
Interest expense $ 15,964,000 $11,583,000 $ 11,032,000
Income taxes $ 953,000 $ 686,000 $ 599,000
</TABLE>
Non-cash financing activities:
In fiscal year 1994, 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 fiscal year 1994, 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 17).
In fiscal year 1996, the Company acquired $1,054,000 of property, plant and
equipment through capital leases.
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 36
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, 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
Net income (loss) (1,149,000) (1,149,000)
Foreign currency
adjustments 50,000 50,000
15% stock
dividend 512,314 5,000 5,639,000 (5,644,000) --
Cash payments
in lieu of
fractional shares (3,000) (3,000)
Reclassification
from redeemable
common stock 345,000 4,000 1,796,000 1,800,000
Common stock
issued 9,399 37,000 37,000
--------- -----------------------------------------------------------------------------
Balance
March 31, 1996 4,284,985 $ 43,000 $23,879,000 ($5,046,000) ($1,342,000) $17,534,000
========= =============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 37
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%.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 on
rice as an operational tool to manage its inventory position. Gains and losses
on contracts that meet defined criteria are recognized upon completion of the
transaction, while gains and losses from all other contracts are recognized in
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.
<PAGE>
<PAGE> 38
Note 1 - Summary of Significant Accounting Policies (continued)
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 from the functional currency to the reporting
currency at the foreign exchange rates in effect at year end. Revenues and
expenses for the year are translated at average exchange rates during the year.
Such translation gains and losses are not included in determining net income
but are accumulated and reported as a separate component of stockholders'
equity. Net realized and unrealized gains or losses resulting from foreign
currency transactions, including translations of local currencies to the
functional currency, are credited or charged to income.
Fair value of financial instruments--The Company's financial instruments
consist primarily of cash, trade accounts and notes receivable, accounts
and notes payable, and debt instruments. The book values of cash, trade
receivables and accounts payable are representative of their respective fair
values due to the short-term maturity of these instruments. The book value of
short-term debt instruments is considered to approximate the fair value as the
interest rates of such instruments are based on the prime rate. The fair
value of ARI's $100 million principal amount of 13% mortgage notes was
approximately $92 million as of March 31, 1996, based on a dealer quote.
Stock-based compensation--In October 1995, the Financial Accounting Standards
Board issued Statement No. 123, "Accounting for Stock-Based Compensation,"
which is effective in fiscal 1997 for ERLY. As permitted by the new standard,
the Company will continue applying accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and include additional footnote
disclosures, as necessary.
Impairment of long-lived assets--In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
provides guidance on the carrying value of long-lived assets, and is effective
in fiscal 1997 for ERLY. Management believes that adopting the new standard
will not have a material effect on the consolidated financial statements.
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.
<PAGE>
<PAGE> 39
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 to Comet of $426,000 for the year ended March 31, 1994.
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, $575,000 and $479,000 for the years
ended March 31, 1996, 1995 and 1994, respectively.
<PAGE>
<PAGE> 40
Note 3 - Inventories
A summary of inventories at March 31, 1996 and 1995 follows:
1996 1995
----------- -----------
Raw materials $47,883,000 $35,615,000
Finished goods 30,121,000 20,407,000
- ----------------------------------------------------------------------
$78,004,000 $56,022,000
======================================================================
Note 4 - Property, Plant and Equipment
A summary of property, plant and equipment at March 31, 1996 and 1995 follows:
1996 1995
-------------- --------------
Land $ 596,000 $ 594,000
Buildings and improvements 30,931,000 30,095,000
Machinery and equipment 54,813,000 48,706,000
- ----------------------------------------------------------------------
86,340,000 79,395,000
Less accumulated depreciation
and amortization (29,980,000) (24,875,000)
- ----------------------------------------------------------------------
$ 56,360,000 $ 54,520,000
======================================================================
Depreciation expense was $5,484,000 (1996), $5,099,000 (1995) and
$4,768,000 (1994).
Note 5 - Properties Held for Sale
Properties held for sale primarily consists of 39 acres of land in Houston,
Texas held for sale by ARI. In fiscal 1996, ARI entered into an agreement to
sell this property and reduced the carrying value of the property to its
approximate net realizable value (after the accrual of certain costs) by a
non-recurring charge of $7.2 million in the quarter ended December 31, 1995.
The transaction is expected to be consummated in calendar 1996 after the
completion of demolition of existing structures on the property and updated
environmental studies.
<PAGE>
<PAGE> 41
Note 6 - Other Assets
Other assets at March 31, 1996 and 1995 consist of the following:
1996 1995
-------------- --------------
Trademarks and tradenames $ 14,360,000 $ 14,361,000
Deferred debt issue costs 12,022,000 5,274,000
Winery assets held for sale 3,148,000 2,515,000
Other 778,000 916,000
- ----------------------------------------------------------------------
30,308,000 23,066,000
Less accumulated amortization:
Trademarks and tradenames (2,149,000) (1,799,000)
Deferred debt issue costs (5,001,000) (3,718,000)
- ----------------------------------------------------------------------
$ 23,158,000 $ 17,549,000
======================================================================
Other assets includes the remaining net assets of the Company's discontinued
winery operations which management intends to dispose of in an orderly manner.
In fiscal 1995, a $1.0 million reserve for impairment was provided on these
assets.
<PAGE>
<PAGE> 42
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
$5,386,000 (1996), $4,980,000 (1995) and $3,237,000 (1994).
A comparison of information relating to the Company's lines of credit for the
years ended March 31, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Average during the year:
Short-term borrowings $35,391,000 $31,739,000 $53,494,000
Weighted average interest
rate* 10.68% 9.50% 7.87%
Average bank prime rate 8.71% 7.84% 6.00%
At March 31:
Lines of credit and short-term loans,
subject to collateral availability $74,364,000 $62,438,000 $66,003,000
Short-term borrowings $27,413,000 $41,883,000 $49,273,000
Average interest rate 8.50% 10.89% 8.29%
Bank prime rate 8.25% 9.00% 6.00%
Unused short-term
borrowing capacity $23,278,000 $14,989,000 $ 4,904,000
Maximum month-end
short-term borrowings
during the year $46,418,000 $43,964,000 $62,236,000
</TABLE>
*Based on outstanding borrowings
Substantially all receivables, inventories, property, plant and equipment and
the capital stock of American Rice, Inc., Chemonics Industries, Inc. and
Chemonics International, Inc. are pledged as collateral on notes payable and
certain other long-term debt obligations.
For fiscal year 1996, ARI had a $47.5 million revolving credit loan with
interest at the prime rate of interest plus .5%. In June 1996, this loan was
refinanced with a new lender. The new loan bears interest at ARI's option at
either the prime rate or the London Interbank Offered Rate plus an applicable
margin based upon ARI's adjusted funded debt ratio.
<PAGE>
<PAGE> 43
Note 8 - Income Taxes
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
Years ended March 31,
------------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Currently payable
Federal $ -- $ 183,000 $ --
State 802,000 206,000
Foreign 564,000 420,000 110,000
- ---------------------------------------------------------------------------
Total provision $ 564,000 $ 1,405,000 $ 316,000
===========================================================================
</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:
Years ended March 31,
-----------------------------------------
1996 1995 1994
---------- ------------ -------------
Domestic ($8,948,000) $ 8,937,000 $14,790,000
Foreign 1,073,000 1,121,000 291,000
- ---------------------------------------------------------------------------
Total ($7,875,000) $10,058,000 $15,081,000
===========================================================================
The reconciliation of the Company's effective tax rate on continuing
operations to the statutory federal tax rate is as follows:
Years ended March 31,
--------------------------------
1996 1995 1994
---- ---- ----
Federal rate (35%) 35% 35%
State taxes 8 1
Foreign taxes 2 4
Other 1 7
Change in valuation allowance 40 (34) (41)
- -----------------------------------------------------------------------
Effective tax rate 7% 14% 2%
=======================================================================
<PAGE>
<PAGE> 44
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, 1996 and 1995 are as
follows:
1996 1995
------------ -------------
Deferred tax assets:
Allowance for doubtful accounts
and other reserves $ 2,270,000 $ 2,212,000
Net operating loss carryforwards 16,001,000 14,922,000
Other 836,000 1,712,000
Deferred tax liabilities:
Difference in basis of property (13,837,000) (16,281,000)
Other 381,000 (38,000)
- --------------------------------------------------------------------------
Subtotal 5,651,000 2,527,000
Valuation allowance (5,651,000) (2,527,000)
- --------------------------------------------------------------------------
Net deferred tax asset (liability) $ - $ -
==========================================================================
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, 1996, the Company has net operating
loss carryforwards for federal tax reporting purposes of approximately $47
million, which expire at various dates, primarily in years 2002 through 2011.
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.
<PAGE>
<PAGE> 45
Note 9 - Long-term and Subordinated Debt
A schedule of outstanding long-term and subordinated debt at March 31, 1996
and 1995 follows:
1996 1995
----------- -----------
Long-term debt:
ARI mortgage notes due 2002,
interest at 13%, net of
unamortized discount of $5,678,000 $94,322,000 $ --
ARI term loans (See below) -- 54,352,000
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 1997, interest
at bank prime rate plus 2% 1,000,000 1,000,000
(See Note 12)
Various obligations with maturities
to 2005, interest rates ranging from
9% to 12% 1,954,000 1,391,000
Less current portion of
long-term debt (163,000) (6,810,000)
- ---------------------------------------------------------------------------
$100,113,000 $61,511,000
===========================================================================
Subordinated debt:
12-1/2% subordinated sinking
fund debentures $6,665,000 $7,670,000
Less current portion of
subordinated debt (1,000,000) (1,000,000)
- ---------------------------------------------------------------------------
$5,665,000 $6,670,000
===========================================================================
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.
<PAGE>
<PAGE> 46
Note 9 - Long-term and Subordinated Debt (continued)
In a public offering completed in August 1995, ARI issued $100 million
principal amount of 13.0% mortgage notes due 2002 (the "Notes"). Portions of
the net proceeds of $94 million were used to repay the balance of ARI's
existing term loans, to make a $10.5 million 15% loan to ERLY due 2001, and to
reduce borrowings outstanding under ARI's revolving credit loan. ERLY utilized
a portion of the proceeds to repay the remaining $9.5 million ERLY Juice Inc.
debt, including accrued interest, which ERLY had guaranteed (see Note 11).
The Notes provide for interest payments semiannually, mature on July 31, 2002
and are non-callable by ARI prior to July 31, 1999, after which date the Notes
are callable at the option of ARI, in whole or in part, at any time upon not
less than 30 nor more than 60 days notice, at 107.0% of the principal amount,
declining ratably to par on or after July 31, 2001. Except under certain
changes of control, upon remarketing of industrial revenue bonds, or asset
sales, as defined in the related indenture, ARI is not required to make
mandatory redemption payments on the Notes. The Notes accrue fixed interest
at an annual rate of 13.0%, an effective yield of 14.4%.
In addition to fixed interest, the Notes bear contingent interest of 4.0% of
consolidated cash flow (as defined) up to a limit of $40 million of
consolidated cash flow during the fiscal year in which such interest accrues.
Contingent interest accrues in each semiannual period (as defined) in which
consolidated cash flow in such period and the immediately preceding semiannual
period is equal to or greater than $20 million. Contingent interest is payable
semiannually, but ARI may elect to defer all or a portion of any such payment
to the extent that (a) the payment of such portion of contingent interest will
cause ARI's adjusted fixed charge coverage ratio (as defined) for the two
consecutive applicable semiannual periods to be less than 2.0:1 and (b) the
principal of the Notes corresponding to such contingent interest has not then
matured and become due and payable.
The Notes are secured by (a) a first or second priority security interest in
substantially all of ARI's property, plant and equipment (including related
leasehold interests), (b) a first priority security interest in 39 acres of
land in Houston, Texas held for sale, (c) a pledge agreement creating first
priority security interests in the capital stock of ARI held by ERLY (other
than 200,000 shares of ARI's Series B Preferred Stock pledged to the holders
of ARI's Series C Preferred Stock), (d) notes receivable from ERLY (as
defined), and (e) a security agreement creating a first priority security
interest in all registered U.S. trademarks and a security interest in all other
registered trademarks owned or licensed by ARI.
The Notes rank senior in right of payment to all subordinated indebtedness and
pari passu in right of payment with all existing and future senior indebtedness
of ARI, including borrowings under the revolving credit loan. The indenture
includes covenants that in certain instances restrict, among other things,
(a) the payment of dividends, (b) the redemption of equity interests of ARI,
(c) the payment on or redemption of indebtedness subordinate to the Notes,
(d) certain investments (as defined), (e) the incurrence of certain
indebtedness and issuance of preferred stock, (f) certain transactions with
affiliates, and (g) certain mergers, consolidations or sales of assets. In
addition, the indenture contains certain limitations on capital expenditures,
operating lease obligations and rice contract polices and procedures.
<PAGE>
<PAGE> 47
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 $665,000
in 2002. These debentures were issued in exchange for debentures which
matured on December 1, 1993.
Principal maturities on ERLY's long-term and subordinated debt (excluding
annual amortization of debt discount) are as follows: 1997--$1,163,000;
1998--$2,675,000; 1999--$1,294,000; 2000--$1,318,000; 2001--$1,301,000;
thereafter--$104,868,000.
Interest expense on long-term and subordinated debt amounted to $14,463,000
(1996), $10,888,000 (1995) and $8,853,000 (1994).
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:
* 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, liquidation preferences
of $5.00 per share 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.
<PAGE>
<PAGE> 48
Note 10 - Minority Interest (continued)
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. The current ARI loan agreements prohibit the payment of
any dividends. 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 ($3,784,000),
($645,000) and $2.6 million in 1996, 1995 and 1994, respectively. ERLY also
earned Series B Preferred dividends of $5.2 million in 1996 and 1995 and $4.3
million from the date of the Acquisition to the end of fiscal year 1994.
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 16), 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 in April 1994 and warrants for the other 5% became
exercisable in April 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. In conjunction with the repayment
of the ERLY Juice debt in August 1995 (as discussed in Note 9), the Company has
the right to call the warrants prior to September 30, 1996 at a total
obligation of $2,512,000. The Company intends to exercise its call option
prior to September 30, 1996 and, accordingly, the warrants are classified as
redeemable common stock warrants at March 31, 1996 and 1995. If the call
option is not exercised, the Company would have outstanding warrants to
purchase approximately 525,000 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 345,000 shares (as adjusted for a 15% stock
dividend) 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 $5.22 per share, as adjusted ($1,800,000 total
obligation), at the option of the stockholder, through December 31, 1997.
These shares were classified as redeemable common stock in the consolidated
balance sheets. In October 1995, the stockholder sold the shares which were
subject to the repurchase agreement to a third party, thereby canceling the
repurchase agreement between ERLY and the stockholder. Accordingly, these
shares and the related $1.8 million obligation were transferred to common stock
and paid-in capital.
<PAGE>
<PAGE> 49
Note 12 - Stockholders' Equity
In addition to the redeemable warrants described in Note 11, the Company has
issued additional warrants to purchase 11,500 shares at $2.94 per share (as
adjusted) which expire in September 1998.
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 $3.26 per share (as adjusted).
In September 1995, the Company declared a 15% stock dividend to shareholders
of record at the close of business on September 15, 1995. All per share
amounts have been retroactively adjusted to reflect this stock dividend.
In addition, in September 1995 ERLY's shareholders approved an amendment to
the Company's Articles of Incorporation which increased the number of
authorized shares of the Company's common stock, $.01 par value, from
5,000,000 shares to 15,000,000 shares.
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.
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.
In fiscal 1996, the Company granted stock options to a key employee for 80,500
shares at a price of $5.00 per share (as adjusted for a 15% stock dividend).
At March 31, 1996, 40,250 of the options were exercisable and the balance
becomes exercisable in fiscal 1997. The options expire in the year 2001.
<PAGE>
<PAGE> 50
Note 12 - Stockholders' Equity (continued)
The following table summarizes stock option activity for the three years
ended March 31, 1996, as adjusted for a 15% stock dividend declared in
September 1995:
Number of Exercise Price
Options Per Option
--------- -------------
Outstanding at March 31, 1993 141,661 $3.24 - $3.92
Granted -
Exercised, canceled or expired -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1994 141,661 $3.24 - $3.92
Granted -
Exercised (9,260) $3.24
Canceled or expired -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1995 132,401 $3.92
Granted 80,500 $5.00
Exercised (9,300) $3.92
Canceled or expired -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1996 203,601 $3.92 - $5.00
===========================================================================
Exercisable at March 31, 1996 163,351
========================================================
<PAGE>
<PAGE> 51
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 ARI'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 ARI'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.
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.
<PAGE>
<PAGE> 52
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, 1996 follow:
<TABLE>
<CAPTION>
Years ended March 31,
---------------------------------------------------------------
1996 1995 1994
------------------ ------------------ -----------------
$ % $ % $ %
-------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales (in thousands)
Export sales - Rice
Middle East $117,359 $ 91,449 $ 89,782
Caribbean, Mexico and South America 64,654 84,806 38,935
Asia 49,453 49,963 42,838
Europe 18,111 13,632 6,260
Africa 3,338 3,864 4,012
Other 55 65 13
- ----------------------------------------------------------------------------------------------------------
252,970 52% 243,779 53% 181,840 54%
Domestic sales
Rice 141,868 29 129,271 28 102,624 31
Consulting 77,754 16 63,546 14 41,944 13
Fire-Trol 14,034 3 23,003 5 8,416 2
- ----------------------------------------------------------------------------------------------------------
Total $486,626 100% $459,599 100% $334,824 100%
==========================================================================================================
Income (loss) from
continuing operations
before taxes on income,
extraordinary items
and minority interest
Rice $ 14,338 $ 18,501 $ 16,002
Consulting 4,157 4,920 1,508
Fire-Trol 1,329 5,348 (173)
- -------------------------------------------------------------------------------------------------
Operating profit 19,824 28,769 17,337
General corporate expense (1,635) (2,490) (2,185)
Interest expense (19,849) (15,868) (12,090)
Interest income 486 451 381
Other income (loss) 499 196 (556)
Investment income 426
Gain on sale of partial
interest in subsidiary 11,768
Write-down of plant facilities* (7,200) (1,000)
- -------------------------------------------------------------------------------------------------
($ 7,875) $ 10,058 $ 15,081
=================================================================================================
</TABLE>
* Fiscal year 1996 includes a $7.2 million write-down of ARI's Houston
properties and fiscal year 1995 includes a $1 million write-down on the
Company's remaining wine assets.
<PAGE>
<PAGE> 53
Note 13 - Nature of the Business - Segment Information (continued)
Years ended March 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
Identifiable assets
Rice $222,080 $187,994 $186,141
Consulting 25,310 21,748 14,753
Fire-Trol 10,244 8,455 6,713
Corporate 2,138 3,381 4,686
Discontinued operations:
Juice 14 134 720
Other 3,148 2,515 3,782*
Intercompany eliminations (27,799) (17,169) (17,645)
- -------------------------------------------------------------------------
Total $235,135 $207,058 $199,150
=========================================================================
* Net of reserve of $518,000 at March 31, 1994.
Depreciation and amortization
Rice $ 6,339 $ 6,981 $ 5,562
Consulting 414 236 290
Fire-Trol 471 391 447
Corporate 23 19 198
- -------------------------------------------------------------------------
Total $ 7,247 $ 7,627 $ 6,497
=========================================================================
Capital expenditures
Rice $ 4,744 $ 3,562 $ 2,844
Consulting 1,947 493 27
Fire-Trol 669 546 301
Corporate 12
Juice 119
- -------------------------------------------------------------------------
Total $ 7,360 $ 4,601 $ 3,303
=========================================================================
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 $618,000 (1996), $1,407,000 (1995) and $424,000 (1994).
<PAGE>
<PAGE> 54
Note 15 - Commitments and Contingencies
The Company and ARI have been named as codefendants in a lawsuit filed in the
district court of Harris County, Texas. This is a dispute between the general
partner of a proposed real estate development and G.D. Murphy and D.A. Murphy,
Chairman and President, respectively, of the Company and ARI. Damages sought
are in the range of $10 million, plus attorneys' fees and punitive damages.
The Company and ARI were named as defendants in the lawsuit because of their
actions to obtain restraining orders to prevent threatened foreclosures on
ERLY common stock pledged as collateral by G.D. Murphy and to stop interference
by the plaintiff in the lawsuit, with ARI's mortgage note financing (see
Note 9), as well as certain other alleged activities. The Company and ARI
believe they have valid defenses in this case and that damages, if any, will
not have a material effect on the Company's financial condition; however, as
with any litigation, the ultimate outcome is unknown. Accordingly, no
provision for any liability that might result has been made in the accompanying
consolidated financial statements.
The Company is involved in other legal proceedings that arise in the ordinary
course of its business, all of which are routine in nature. It is the opinion
of management that the resolution of such legal proceedings will not have a
material adverse effect on the consolidated financial position or consolidated
results of operations of 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.
The Company and its subsidiaries are obligated under operating leases for
offices, plant facilities and equipment. Aggregate minimum rental commitments
under operating leases with noncancellable terms of more than one year are as
follows:
Year ending March 31,
- ----------------------------------------------------------------------------
1997 $4,940,000
1998 3,754,000
1999 3,200,000
2000 3,052,000
2001 2,841,000
Thereafter 28,625,000
- ----------------------------------------------------------------------------
$46,412,000
============================================================================
Total rental expense amounted to $5,543,000 (1996), $5,589,000 (1995) and
$3,846,000 (1994). Certain leases provide for options to renew and for
payment of taxes, insurance and maintenance costs.
<PAGE>
<PAGE> 55
Note 16 - 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 (see
Note 17).
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. The net proceeds from both sales were used to pay-down 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 remaining amount of the debt was approximately
$8.6 million (which was included in long-term debt at March 31, 1995) plus
accrued interest. The remaining $8.6 million of debt (plus accrued interest)
was repaid by ERLY in August 1995 with proceeds from a $10.5 million loan
from ARI (see Note 9).
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, 1996, the consolidated balance sheet includes
remaining assets and liabilities from the juice business of $14,000 and
$675,000, respectively.
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 year ended March 31, 1994 were as
follows:
Net sales $31,337,000
Costs and expenses (34,744,000)
Interest expense (1,841,000)
- ------------------------------------------------
Loss from discontinued
operations ($ 5,248,000)
================================================
Loss on disposal ($ 3,562,000)
================================================
<PAGE>
<PAGE> 56
Note 17 - Extraordinary Items
The Company had the following extraordinary items for the year ended
March 31, 1994:
Gain on extinguishment of debt related to:
American Rice, Inc. $10,270,000
ERLY Juice Inc. 5,625,000
The State of Michigan Retirement System 897,000
- -----------------------------------------------------------
$16,792,000
===========================================================
In conjunction with 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.
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.
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.
Note 18 - Subsequent Event - Olive Business Acquisition
In June 1996, the Company's subsidiary, ARI, entered into an agreement to
acquire a domestic and foreign olive business from Campbell Soup Company.
Assets to be acquired include domestic inventories and fixed assets and all of
the outstanding stock of a Spanish company which comprises the foreign olive
business. The purchase price is expected to be approximately $38 million,
which will be funded primarily from ARI's credit facilities. The acquisition,
which is expected to close in July 1996 will be accounted for as a purchase
and the results of operations of the acquired business will be included in
the Company's consolidated financial statements after that date.
<PAGE>
<PAGE> 57
Note 19 - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Fiscal Year 1996
(In thousands, except per share data)
-------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter** Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 112,889 $ 111,641 $ 123,384 $ 138,712 $ 486,626
Gross profit $ 16,714 $ 15,655 $ 15,618 $ 16,205 $ 64,192
Income (loss) before
minority interest $ 1,699 $ 11 ($ 9,263) ($ 886) ($ 8,439)
Minority interest 565 889 4,826 1,010 7,290
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ 2,264 $ 900 ($ 4,437) $ 124 ($ 1,149)
======================================================================================================
Earnings (loss) per share*:
Primary $ .49 $ .18 ($ 1.04) $ .03 ($ .27)
Fully diluted .47 .17 ( 1.04) .02 ( .27)
Weighted average shares
outstanding*:
Primary 4,622 5,056 4,276 4,895 4,280
Fully diluted 4,889 5,363 4,276 5,201 4,280
Price range of common stock*:
High $ 9-7/8 $ 9-5/8 $ 9 $ 10-1/4
Low 8-3/4 7-7/8 6-5/8 5-7/8
</TABLE>
* Restated for 15% stock dividend in September 1995.
** Results for the quarter include a $7.2 million non-recurring pre-tax
provision for loss on disposal of property held for sale.
<PAGE>
<PAGE> 58
Note 19 - Quarterly Results of Operations (Unaudited) (continued)
<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 $ 126,397 $ 100,074 $ 459,599
Gross profit $ 15,663 $ 18,033 $ 17,353 $ 15,648 $ 66,697
Income before
minority interest $ 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 $ .49 $ .63 $ 48 $ .29 $ 1.85
Fully diluted .47 .60 .45 .27 1.74
Weighted average shares
outstanding*:
Primary 4,812 4,843 4,969 5,187 5,020
Fully diluted 5,119 5,150 5,276 5,523 5,402
Price range of common stock*:
High $ 7-7/8 $ 8-7/8 $ 10-1/4 $ 10-1/2
Low 3-5/8 7-1/8 7-1/4 6-1/8
</TABLE>
* Restated for 15% stock dividend in September 1995.
<PAGE>
<PAGE> 59
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, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended March 31, 1996.
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, 1996 and
1995, and the results of its operations and cash flows for each of the three
years in the period ended March 31, 1996 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.
/S/ DELOITTE & TOUCHE LLP
Los Angeles, California
June 17, 1996
<PAGE>
<PAGE> 60
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,
--------------------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Corporate overhead expenses ($1,635) ($2,490) ($ 2,185)
Income from subsidiaries 600 1,522 1,681
Intercompany interest (1,705) (644) (772)
Interest expense (1,294) (1,487) (1,508)
Interest income 330 186 268
Other income 1,331 27 72
Gain on sale of partial interest
in subsidiary 11,768
- ----------------------------------------------------------------------------
Income (loss) before taxes on income
and extraordinary item (2,373) (2,886) 9,324
Taxes on income (benefit) 2,185 (4,422) (3,011)
- ----------------------------------------------------------------------------
Income (loss) before
extraordinary item (4,558) 1,536 12,335
Extraordinary item - gain on
debt discount 897
- ----------------------------------------------------------------------------
Income (loss) before undistributed
earnings of subsidiaries (4,558) 1,536 13,232
Undistributed earnings
of subsidiaries 3,409 7,739 4,437
- ----------------------------------------------------------------------------
Net income (loss) ($1,149) $ 9,275 $17,669
============================================================================
</TABLE>
<PAGE>
<PAGE> 61
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED BALANCE SHEETS
(in thousands)
<TABLE> March 31,
<CAPTION> -------------------------
1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash $ 289 $ 259
Accounts receivable, net 96
Other current assets 781 332
- --------------------------------------------------------------------
Total current assets 1,166 591
Intercompany receivable from
Chemonics Industries, Inc. 1,957 1,914
Long-term notes receivable, net 819 819
Property, plant and equipment, net 10 13
Investment in subsidiaries* 51,935 46,836
Deferred income taxes 2,556 6,724
Other assets 124 141
- --------------------------------------------------------------------
$ 58,567 $ 57,038
====================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other
current liabilities $ 2,934 $ 3,388
Current portion of long-term
and subordinated debt 1,057 1,083
- --------------------------------------------------------------------
Total current liabilities 3,991 4,471
Intercompany payable to
American Rice, Inc. 24,361 11,848
Debt of subsidiary
guaranteed by parent 8,578
Long-term debt 4,504 4,360
Subordinated debt 5,665 6,670
Redeemable common stock
and common stock warrants 2,512 4,312
Stockholders' equity:
Common stock 43 34
Additional paid-in capital 23,879 16,407
Retained earnings (deficit) (5,046) 1,750
Cumulative foreign currency
adjustments (1,342) (1,392)
- --------------------------------------------------------------------
Total stockholders' equity 17,534 16,799
- --------------------------------------------------------------------
$ 58,567 $ 57,038
====================================================================
</TABLE>
* Recorded at equity in net assets of subsidiaries.
<PAGE>
<PAGE> 62
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($ 1,149) $ 9,275 $17,669
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Undistributed earnings of subsidiaries (3,409) (7,739) (4,437)
Depreciation and amortization 23 19 198
Provision for loss on receivables 200
Gain on sale of partial interest
in subsidiary (11,768)
Extraordinary income - debt discount (897)
Change in assets and liabilities, net 3,166 (3,531) (1,079)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,369) (1,776) (314)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (12)
Change in intercompany payables, net (745) 2,764 (278)
Other, net 1,072 256 602
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 327 3,020 312
FINANCING ACTIVITIES:
Intercompany loan from ARI 10,500
Additional long-term debt 200
Principal payments on long-term debt (8,665) (84)
Principal payments on subordinated debt (1,000) (1,201)
Proceeds from sale of stock 37 250 26
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,072 (1,035) 26
- -------------------------------------------------------------------------------
INCREASE IN CASH DURING THE YEAR 30 209 24
CASH, BEGINNING OF YEAR 259 50 26
- -------------------------------------------------------------------------------
CASH, END OF YEAR $ 289 $ 259 $ 50
===============================================================================
</TABLE>
<PAGE>
<PAGE> 63
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, 1996
- --------------
Allowance for
doubtful
accounts $ 1,831,000 $ 320,000 $ 22,000 ($ 458,000) $ 1,715,000
============================================================================================
Reserve for
notes
receivable $ 200,000 $ 200,000
============================================================================================
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
============================================================================================
</TABLE>
(a) Uncollectible accounts written off to allowance for doubtful accounts;
and, charges to reserve for discontinued businesses.
<PAGE>
<PAGE> 64
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 25, 1996
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:
/s/ Gerald D. Murphy /s/ Douglas A. Murphy
- -------------------------- ---------------------------
Gerald D. Murphy, Director Douglas A. Murphy, Director
June 25, 1996 June 25, 1996
/s/ Bill J. McFarland /s/ William H. Burgess
- --------------------------- ----------------------------
Bill J. McFarland, Director William H. Burgess, Director
June 25, 1996 June 25, 1996
/s/ Alan M. Wiener
- ------------------------
Alan M. Wiener, Director
June 25, 1996
<PAGE>
<PAGE> 65
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,
---------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations ($8,439) $8,653 $14,765 ($10,989) ($ 6,361)
Minority interest on
continuing operations 7,290 622 (1,376)
- ----------------------------------------------------------------------------------------------------
Continuing operations, net (1,149) 9,275 13,389 (10,989) (6,361)
Loss on discontinued operations (8,810) (4,972) (10,614)
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) ($1,149) $9,275 $17,669 ($ 8,673) ($12,539)
=====================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding*:
Average number of shares of
common stock outstanding 4,280 4,239 4,065 3,961 3,596
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method (a) 781 138 (a) (a)
- -----------------------------------------------------------------------------------------------------
Total 4,280 5,020 4,203 3,961 3,596
=====================================================================================================
Primary income (loss)
per common share*:
Income (loss) from
continuing operations (b) ($ .27) $ 1.85 $ 3.19 ($ 2.77) ($ 1.77)
Loss on discontinued operations (2.10) (1.26) (2.95)
Income from extraordinary items (b) 3.11 1.84 1.23
- -----------------------------------------------------------------------------------------------------
Primary income (loss)
per common share ($ .27) $ 1.85 $ 4.20 ($ 2.19) ($ 3.49)
=====================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 15% stock dividend in
September 1995.
(a) Exercise of stock options and warrants is not assumed as the computation
would be anti-dilutive.
(b) Net of applicable minority interest.
<PAGE>
<PAGE> 66
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,
----------------------------------------------------------
1996 1995 1994 1993 1992
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations ($8,439) $ 8,653 $14,765 ($10,989) ($ 6,361)
Minority interest 7,290 622 (1,376)
Interest adjustment (a) 98 80 (a) (a)
- -----------------------------------------------------------------------------------------------------
Continuing operations, net (1,149) 9,373 13,469 (10,989) (6,361)
Loss on discontinued operations (8,810) (4,972) (10,614)
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 ($1,149) $ 9,373 $17,749 ($ 8,673) ($12,539)
====================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding*:
Average number of shares of
common stock outstanding 4,280 4,239 4,065 3,961 3,596
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method (a) 856 138 (a) (a)
Other potentially dilutive securities:
Common stock issuable upon
conversion of note payable (a) 307 307 (a) (a)
- ----------------------------------------------------------------------------------------------------
Total 4,280 5,402 4,510 3,961 3,596
====================================================================================================
Fully diluted income (loss)
per common share*:
Income (loss) from
continuing operations (b) ($ .27) $ 1.74 $ 2.99 ($ 2.77) ($ 1.77)
Loss on discontinued operations (1.95) (1.26) (2.95)
Income from extraordinary items (b) 2.90 1.84 1.23
- -----------------------------------------------------------------------------------------------------
Fully diluted income (loss)
per common share ($ .27) $ 1.74 $ 3.94 ($ 2.19) ($ 3.49)
=====================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 15% stock dividend in
September 1995.
(a) Exercise of stock options, warrants and convertible note is not assumed as
the computation would be anti-dilutive.
(b) Net of applicable minority interest.
<PAGE>
<PAGE> 67
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)
ARI-Vinafood 55%
(Vietnam)
BargeCarib, Inc.
(Texas) 100%
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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,819,000
<SECURITIES> 0
<RECEIVABLES> 58,380,000
<ALLOWANCES> 1,715,000
<INVENTORY> 78,004,000
<CURRENT-ASSETS> 154,043,000
<PP&E> 86,340,000
<DEPRECIATION> 29,980,000
<TOTAL-ASSETS> 235,135,000
<CURRENT-LIABILITIES> 97,500,000
<BONDS> 5,665,000
<COMMON> 43,000
0
0
<OTHER-SE> 17,491,000
<TOTAL-LIABILITY-AND-EQUITY> 235,135,000
<SALES> 486,626,000
<TOTAL-REVENUES> 486,626,000
<CGS> 422,434,000
<TOTAL-COSTS> 422,434,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,200,000
<INTEREST-EXPENSE> 19,849,000
<INCOME-PRETAX> (585,000)
<INCOME-TAX> 564,000
<INCOME-CONTINUING> (1,149,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,149,000)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
<PAGE>
<PAGE> 1
EXHIBIT 3
ARTICLES OF INCORPORATION
OF
ERLY INDUSTRIES INC.
(As Amended September 6, 1995)
We, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a corporation under the laws of the
State of California, and do hereby certify as follows:
FIRST: Name. The name of the corporation is:
ERLY INDUSTRIES INC.
SECOND: Purposes. The purposes for which the corporation is formed
are:
(a) The specific business in which the corporation intends
primarily to engage in is the business of producing, purchasing,
grading, processing, canning, manufacturing, and marketing of
agriculture-related products of all kinds.
(b) To manufacture, buy, sell, deal in, and to engage in,
conduct and carry on the business of manufacturing, buying,
selling and dealing in goods, wares and merchandise of every
class and description.
(c) To purchase or otherwise acquire, own, hold, lease,
hypothecate, sell or otherwise dispose of, and exercise all
privileges of ownership over, real and personal property within
and without the state, and to take real and personal property by
will, gift or bequest.
(d) To purchase or otherwise acquire, own, hold, and exercise
all rights of ownership in, and to sell, transfer, or pledge, or
guarantee the payment of dividends or interest on, shares of the
capital stock or bonds of any corporation engaged in any related
activity or which may be necessary, convenient or desirable for
furthering the best interest of the corporation.
(e) To apply for, take out, acquire, own, use, license the use
of, and dispose of, trademarks, copyrights and patents.
(f) To borrow money without limitation as to amount of
corporate indebtedness and liability, and to secure the payment
thereof by note, mortgage, bond, deed of trust, trust receipt,
or by any other lawful means; to lend money in connection with
the corporation's other lawful activities and to take and
receive notes, mortgages, bonds, deeds of trust, trust receipts,
or any other evidence of indebtedness or security for such
loans.
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(g) To guarantee the performance of such obligations of
customers, clients, or others as may be directly or indirectly
for the benefit of the corporation.
(h) To designate and employ agents, employees, and
representatives.
(i) To do everything suitable or proper for the accomplishment
of any of the purposes or the attainment of any of the objects
herein enumerated, or necessary or desirable for the interest or
benefit of the corporation, and, in addition, to exercise and
possess all powers, rights, and privileges necessary and
incidental to the purposes for which the corporation is
organized or to the activities in which it is engaged.
(j) To participate in any transaction or to engage in any
business whatsoever related or unrelated to the purpose in
paragraph (a), in any legal capacity including, but not limited
to, principal, agent, general or limited partner, and joint
venturer, to exercise from time to time all of the rights,
powers, and privileges conferred by law upon a corporation, to
engage in any lawful activity and to conduct all of the above
activities in any part of the world.
The enumerated purposes of this corporation shall be deemed powers as
well as purposes. The foregoing statement of purposes and powers shall be
liberally construed and no general provision shall be limited by reference
to or inference from any other provision of these Articles.
THIRD: Principal Office. The County in the State of California
where the principal office for the transaction of the business of the
corporation is to be located is Los Angeles County.
FOURTH: Capital Stock. The Corporation is authorized to issue two
classes of shares of stock to be classified and designated respectively,
as Common Stock and Preferred Stock. The total number of shares of stock
which the corporation is authorized to issue is Fifteen Million and Six
Thousand (15,006,000) shares; and the aggregate par value of all of the
shares is Seven Hundred Fifty Thousand Dollars ($750,000).
The total number of shares of Common Stock which the corporation is
authorized to issue is Fifteen Million (15,000,000) shares; the aggregate
par value of all of said shares of Common Stock is One Hundred Fifty
Thousand Dollars ($150,000); and the par value of each such share is One
Cent ($.01).
The total number of shares of Preferred Stock which the corporation
is authorized to issue is Six Thousand (6,000) shares; the aggregate par
value of all such shares of Preferred Stock is Six Hundred Thousand
Dollars ($600,000); and the par value of each such share is One Hundred
Dollars ($100.00).
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The authorized shares of Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized
to fix or alter the dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and liquidation preferences of
any wholly unissued series of shares of Preferred Stock, and the number
of shares constituting any such series and the designation thereof, or any
of them; and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number
of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
FIFTH: Directors. The number of Directors of the corporation,
until changed either by amendment of the Articles or by a Bylaw duly
adopted by the shareholders, is not less than five (5) nor more than
seven (7) (as amended by an Amendment to the Company's Bylaws dated
November 17, 1989). The names and addresses of the persons who are
appointed to act as the first Directors are:
Carlisle B. Lane 225 Bush Street
San Francisco, CA
Bruce M. Mann 225 Bush Street
San Francisco, CA
John G. Clancy 225 Bush Street
San Francisco, CA
Thomas J. Harbinson 225 Bush Street
San Francisco, CA
Gary B. Christiansen 225 Bush Street
San Francisco, CA
Ronald W. Ingram 225 Bush Street
San Francisco, CA
Richard W. Johnson 225 Bush Street
San Francisco, CA
IN WITNESS, WHEREOF, the undersigned hereby certify that these are
the currently effective Articles of Incorporation of ERLY Industries Inc.
as amended on the 6th day of September, 1995.
/s/ Gerald D. Murphy
--------------------------
Gerald D. Murphy, Chairman
/s/ Thomas A. Whitlock
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Thomas A. Whitlock, Assistant Secretary
