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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, 1997 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
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As of June 15, 1997, there were 4,764,415 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 $34.7 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 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, 1997
TABLE OF CONTENTS
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Part I
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Item 1: Business See pages 3-16
Item 2: Properties See pages 17-18
Item 3: Legal Proceedings See page 19 and "Commitments and
Contingencies" on page 61
Item 4: Submission of Matters See page 20
to a Vote of Security
Holders
Part II
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Item 5: Market for the Company's See page 21 and "Quarterly Results
Common Stock and Related of Operations" on pages 63 and 64
Stockholder Matters
Item 6: Selected Financial Data See pages 28-29
Item 7: Management's Discussion See pages 30-35
and Analysis of Financial
Condition and Results of
Operations
Item 8: Consolidated Financial See pages 36-65
Statements
Item 9: Changes in and See page 21
Disagreements with
Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See pages 22-23
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 25-73
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 a processor and marketer of food products, principally rice and
olives. The company is 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.
In July 1996, ARI added olives to its product lines by acquiring the domestic
and foreign olive business of Campbell Soup Company (the "Olive Acquisition").
Assets acquired included olive inventories and processing facilities in
Visalia, California and Seville, Spain. This acquisition positions ARI among
the largest of four U.S. olive processors with the largest U.S. market share
of branded sales of both ripe and green olives.
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"). 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. In May 1996, the operations of the
U. S. forest fire retardant business were incorporated as 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 411 North Sam Houston Parkway East, Suite
600, Houston, Texas 77060, (281) 272-8800. Chemonics Industries' and
Chemonic International's executive offices are located at 1133 20th Street,
N.W., Suite 600, Washington, D.C. 20036. Chemonics Fire-Trol's executive
offices are located at 734 E. Southern Pacific Drive, Phoenix, Arizona 85034.
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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 and 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.
In July 1996, the Company added olives to its product lines by acquiring the
domestic and foreign olive business of Campbell Soup Company. Assets acquired
include olive inventories and processing facilities in Visalia, California
and Seville, Spain.
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 availability. ARI is among the largest
of four U.S. olive processors with the largest U.S. market share of branded
sales of both black and green olives. Significant synergies have been
attained through successful integration of the olive product lines with ARI's
existing marketing, logistical, and support functions allowing effective
marketing and efficient, lower cost operations for both rice and olives.
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RICE PRODUCTS
Rice 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. U.S.
consumption of rice has approximately doubled since 1984 and currently
exceeds three million metric tons per year. The increase in U.S. rice
consumption is primarily due to the substantial population growth of certain
ethnic groups and 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 18 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.
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 30% of total world
rice exports, followed by the United States, India and Vietnam, whose exports
account for 16%, 14% and 11%, respectively, of the world rice trade. 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 approximately
three million metric tons per year in 1995 to 1996.
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. In recent years, imports from Bangladesh, China and Indonesia have
increased to this level.
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In 1995, international trade was 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, which was not required to
eliminate rice import bans, highly beneficial quotas were established through
bilateral negotiations. Japan imported approximately 450,000 metric tons of
rice in the 1996 crop year, and its imports are scheduled to increase each
year to 758,000 metric tons by 2000. 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, while
developing nations will reduce tariffs 24% over 10 years. Management
believes increases in U.S. medium grain rice production in recent years is
primarily attributable to GATT and that over the longer term the agreement
will stimulate additional production increases and world rice trade.
Domestic Trade. U.S. consumption of rice has approximately doubled since
1984 and currently exceeds three million metric tons per year. U.S. per
capita consumption of rice has increased primarily due to increases in the
population of high rice-consuming Hispanic and Asian ethnic groups, which
have grown from 6% of the U.S. propulation in 1970 to 26% in 1990 and are
projected by the U.S. Census Bureau to increase to 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.
Rice Production. Approximately 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 reflected in the
size and shape of the kernel as well as amylose or starch content.
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Rice 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.
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 ARI's rice sales during the past three years (in thousands):
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Years ended March 31,
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1997 1996 1995
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United States $ 146,880 $ 131,776 $ 123,530
Export sales:
Middle East 165,666 117,359 91,449
Caribbean, Mexico and South America 64,991 64,654 84,806
Asia 31,583 49,453 49,963
Europe 13,993 18,111 13,632
Africa 14,352 2,275 3,864
Other 6,731 6,459 5,806
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Total export sales 297,316 258,311 249,520
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Total sales $ 444,196 $390,087 $373,050
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United States. ARI's domestic rice 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. 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. 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 15%.
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.
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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.
Middle East. Saudi Arabia has been the largest market for U.S. grown rice,
annually importing an average of approximately 750,000 metric tons from all
sources, 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 leading all U.S. grown rice imports with
approximately 60% of the market for this rice. Overall, Abu Bint is the
number one brand with a market share of approximately 13% of the total Saudi
Arabian market. Rice products exported to Saudi Arabia by ARI are marketed
to various wholesalers and retailers through a number of major distributors.
Historically, the rice ARI sold in Saudi Arabia was shipped from the United
States in packaged form. In 1994, ARI began shipping rice in bulk form to
the Middle East region and packing it under strict quality supervision in
order to reduce vessel loading and freight costs while providing enhanced
market competitiveness, improved customer service and product freshness.
Until January 1997, products were packed at a facility in Jeddah, Saudi
Arabia (see Item 3 - Legal Proceedings). Since January 1997 other Middle
East facilities with similar advantages have been utilized.
ARI also sells significant quantities of both branded and unbranded rice to a
number of other Middle East countries including Turkey, Iran, Jordan and
Syria.
Caribbean, Mexico and South America. The Caribbean is one of the highest per
capita rice consumption markets in the world. ARI sells branded products
such as Comet, Blue Ribbon, D'Aqui and Cinta Azul in this region, with
substantial ARI-controlled or owned assets in Haiti, Jamaica and the
Netherlands Antilles.
ARI is the largest processor and marketer of rice to Haiti. 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. 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.
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Asia. As a participant in GATT, Japan imported approximately 450,000 metric
tons of rice in the 1996 crop year, and its imports are scheduled to increase
each year to 758,000 metric tons by the year 2000. In the first two years of
the GATT agreement, the United States exported approximately half of Japan's
GATT commitment, and ARI milled in excess of 40% of the U.S. exports.
Management believes the Company will continue to have material involvement in
this business.
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 Vietnam. ARI owns 55%
of ARI-Vinafood. 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.
Rice 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 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
availability. 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 Southern rice processing facility is
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. 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.
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 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 Port-au-Prince,
Haiti and Kingston, Jamaica 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.
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OLIVE PRODUCTS
Olive Industry Overview
While rice is a primary staple food in the world, olives are typically used
as a food ingredient, supplement or garnish. Therefore, while rice has
estimated average per capita consumption of 150 pounds per year, olives are
much lower with estimated average world per capita consumption of .4 pounds
per year. Per capita consumption of olives in the U.S. is estimated to be
1.5 pounds per year.
International Trade. The principal production regions for table olives are
the Mediterranean and the valleys of California. Consumption is concentrated
in the Mediterranean region and the U.S. In the five years ending with crop
year 1996-1997, estimated world production and consumption of table olives
has averaged approximately one million tons, while world trade between
countries averaged approximately 230,000 tons. Due to favorable weather
conditions, the 1996-1997 world crop is expected to exceed the average of
the last four years by over 200,000 tons, with a consumption increase and
replenishment of unusually low beginning inventories absorbing the production
increase. Among the leaders in world trade in recent years, Morocco is the
largest exporter (with approximately 85,000 tons), while the United States
is the largest importer (with approximately 76,000 tons).
Domestic Trade. California processors dominate the production and marketing
of black olives sold domestically, accounting for about 80-85% of the market.
The remaining 15-20% are imported from Spain, Morocco and Mexico. The
California ripe olive processing industry is consolidating. The industry
entered the 1990's with six processors, down from 27 during the early 1960's.
Today only four domestic processors remain. The industry's increased
mechanization, higher fixed environmental costs, and higher capital
requirements in both production and marketing have raised breakeven volumes
leaving smaller olive companies uncompetitive. In addition, growth in food
service demand for sliced olives and price pressure from Spain and Morocco
have shrunk industry margins. Among domestic processors, ARI is the second
largest in production capacity handling approximately 30% of California's
annual production.
The green olive business, in contrast to the domestic black olive business,
is fragmented with dozens of Spanish processors and marketers and U.S.
importers. Natural industry consolidation has been delayed by Spanish laws
making plant closures and mergers prohibitively expensive. These laws,
however, are currently under review with the objective of increasing the
global competitiveness of Spanish businesses. Changes which will favor
industry consolidation are expected which will improve the economics of
efficient operations such as that of ARI.
ARI is one of a few international olive processors and marketers. The company
operates modern, low cost production facilities in Visalia, California for
ripe olives and in Seville, Spain for green olives. The Company has also
allied itself with other processors of various olive styles in key producing
regions to assure its customers a complete product line and reliable supply.
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Olive Production. Olives have been produced and consumed in the Mediterranean
region since history has been recorded. It is believed olive cultivation was
spread throughout the Mediterranean by the Greeks and Romans and was brought
to the Western Hemisphere by Spanish explorers. Olives are said to have been
among the crops grown in the Jesuit mission settlements in California.
Although there are numerous varieties of olives cultivated in the world, the
principal varieties are the Manzanillo and Sevillano.
Olives are harvested in the fall of the year and are either processed
immediately or stored in a brine solution for processing later in the year.
Regardless of variety, olives can be processed into two principal types,
green olives (also known as Spanish olives) and black olives (also known as
ripe olives), the determining factor being differences in the production
process.
Green olives are produced by fermentation under controlled temperatures in a
brine solution for a period ranging from two to seven months. Black olives
are produced by a caustic aeration process lasting about seven days. After
bulk processing, olives are made into a variety of familiar products
including pitted, unpitted, stuffed, sliced, or chopped olives or olive oil.
The olive tree is an erratic, alternate bearing fruit because the stress to
the olive tree caused by a large crop tends to depress new growth and
production in the following year. The 1996-1997 crop was the second largest
olive crop in history both in the U.S. and the world. Early indications
suggest the 1997-1998 crop will be only 50% as large, and thus carryover
inventory in the U.S. will be important to service olive customers. ARI's
relatively large inventory position is expected to be ideal to meet
anticipated demand in the next year.
Olives Brands and Markets
ARI annual sales of olive products in fiscal 1998 are expected to exceed $100
million. In the nine months from the Olive Acquisition to March 31, 1997
sales of $71.3 million included $64.2 million in the U.S. and $7.1 million in
other world markets, primarily Europe.
United States. ARI enjoys the largest market share of branded sales of both
black and green olives in U.S. markets. In dollar sales of black olives, the
company has 35.8% of the market compared to 23.4% for the nearest competitor.
The dominance of ARI's share of branded green olive sales is more pronounced,
with 25.2% compared to the nearest competitor with a 13.8% share. ARI's
principal U.S. olive brand is Early California, although the Company also
markets U.S. olives under the Franciscan and Senor brands. Through a fee
arrangement with Campbell Soup Company, ARI uses Campbell's Vlasic brand in
the Eastern United States. Sales under the Vlasic brand are being phased
out in favor of the Early California brand. The Company is also a major
private label supplier.
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Other World Markets. ARI markets green olives produced in its Spanish
facilities primarily to European and Caribbean countries in proprietary
brands such as Tapas and Loreto. Several of ARI's rice markets, particularly
the middle eastern countries, are also major olive consuming countries.
Others are key olive producing countries. ARI is uniquely positioned to
leverage its skills and relationships in international procurement, logistics
and marketing over this new line of products.
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).
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.
The California ripe olive processing industry is consolidating. The industry
entered the 1990's with six processors, down from 27 during the early 1960's.
Today only four domestic processors remain. ARI's competitors include Bell
Carter Foods, Inc., Oberti Olive Company and Musco Olive Company. Bell
Carter and Musco are privately held businesses. Oberti Olive is a subsidiary
of Tri-Valley Growers, an agricultural cooperative. The industry's increased
mechanization, higher environmental costs, and higher capital requirements in
both production and marketing have raised breakeven volumes leaving smaller
olive companies uncompetitive. In addition, growth in food service demand
for sliced olives and price pressure from Morocco and Spain have shrunk
industry margins. Among domestic processors, ARI is the second largest in
production capacity handling approximately 30% of California's annual
production.
<PAGE>
<PAGE> 14
Brand Names and Trademarks
ARI's trademarks, copyrights and brand names are protected by numerous
registrations in the U.S. and foreign jurisdictions. ARI believes that these
trademarks, copyrights and brand names have significant value and are
adequately protected.
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.
Management believes the 1996 Farm bill was primarily responsible for a
reduction of approximately eight percent of rice tonnage harvested in the
U.S. in 1996 and a general increase in price levels of rice. While price
levels have remained somewhat higher, preliminary acreage surveys indicate
production will increase in 1997.
ARI is subject to various federal, state and local environmental laws and
regulations governing, among other things, air and water quality, the
generation, use and disposal of materials related to plant operations and
the processing, storage and shipment of it's products. The Company believes
it is in substantial compliance with all existing laws and regulations and
has obtained or applied for the necessary permits to conduct its business.
To date, and in management's belief for the foreseeable future, compliance
with applicable environmental laws has not had and will not have a material
adverse effect on ARI's financial or competitive positions.
<PAGE>
<PAGE> 15
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, 1997, 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 1997 were $77,427,000, down
slightly (.4%) from record revenues of the prior year. Revenues were
$77,754,000 in 1996, up 22% from 1995 revenues of $63,546,000. 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 FIRE-TROL, INC.
Chemonics Fire-Trol 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.
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 affiliate, Chemonics Industries (Canada) Ltd.
Fire-Trol is also developing overseas with established operations in France,
Portugal, Spain, South Africa and South America.
<PAGE>
<PAGE> 16
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 1997 were $20,936,000 as compared to
$14,034,000 for 1996 and $23,003,000 in 1995. This volume variation, based
upon weather and fire conditions, is an important aspect of Chemonics'
overall sales and profitability.
EMPLOYEES
The Company employs approximately 1,788 people full-time, 1,500 of which are
in the rice and olive businesses. Approximately 600 employees in the
Company's foreign operations in Vietnam and Spain are covered by collective
bargaining agreements. There have been no significant labor disputes in the
past several years and the Company considers its employee relations to be
excellent.
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> 17
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 49,900 sq. ft. Leased 2003
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
Warehousing, processing and
shipping of rice, rice
products and olives:
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
Visalia, California 333,000 sq. ft. Owned
Seville, Spain 166,000 sq. ft. Owned
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> 18
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 and inventories of ARI and Chemonics Industries, Inc.)
are pledged as collateral on notes payable and certain other long-term debt
obligations.
<PAGE>
<PAGE> 19
Item 3. Legal Proceedings
In April 1995, a lawsuit was filed in the district court of Harris County,
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs
against G.D. Murphy and D.A. Murphy, Chairman and President of the Company
and ARI, respectively. ERLY and ARI were named as codefendants in the
lawsuit by an amendment to the original petition in September 1995. This is
a dispute between the general partner of a proposed real estate development
and G.D. Murphy and D.A. Murphy. Damages sought are in the range of $10
million, plus attorneys' fees and punitive damages. 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, as well as
certain other alleged activities, including knowing participation in breaches
of fiduciary duties, civil conspiracy with the Murphys and conversion. The
plaintiff recently added a reverse alter ego claim. 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 position or results of
operations; however, as with any litigation, the ultimate outcome is unknown.
In order to minimize legal expenses, ERLY, ARI, and the Murphys are using
common legal counsel in this matter and have agreed to share legal expenses
ratably.
ARI has also been named as a codefendant with Messrs. John M. Howland and
George E. Prchal in a lawsuit filed in February 1997 in U.S. district court
in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle of
Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI for
processing the Company's rice through RMTI's facility in Jeddah, Saudi
Arabia. Messrs. Howland and Prchal were officers of RMTI through January
1997 and have also been directors of ARI since October 1993 and prior to
October 1993 were officers of ARI. In January 1997, RMTI ceased shipping
ARI's rice through its Jeddah facility and terminated the employment of
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI
failed to perform under the terms of the agreement and Messrs. Howland and
Prchal breached their fiduciary duties to RMTI. On April 21, 1997, the
Company obtained a restraining order from the U.S. District Court for the
Southern District of Texas ordering RMTI to desist and refrain from purchasing
rice of U.S. or Vietnam origin from any supplier other than ARI and from
introducing and/or marketing rice of U.S. and Vietnam origin in Saudi Arabia
targeted against ARI's U.S. origin and Vietnam origin rice. The Company
believes that this litigation will not have a material effect on the
Company's financial position or results of operations; however, as with
any litigation, the ultimate outcome is unknown.
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.
<PAGE>
<PAGE> 20
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 17, 1996.
<PAGE>
<PAGE> 21
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 1997*
1st Quarter $ 10-1/8 $ 6-1/2
2nd Quarter 9-5/8 6-5/8
3rd Quarter 9-1/4 5-7/8
4th Quarter 9-1/4 6-7/8
Fiscal Year 1996*
1st Quarter $ 9 $ 8
2nd Quarter 8-3/4 7-1/8
3rd Quarter 8-1/8 6
4th Quarter 9-1/4 5-3/8
* Restated for a 10% stock dividend in September 1996.
(b) Holders
There were approximately 1,009 shareholders of record as of March 31, 1997.
(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> 22
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, 1997:
DATE ELECTED
AS DIRECTOR
NAME OF DIRECTOR AGE OF COMPANY
Gerald D. Murphy 69 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.
Douglas A. Murphy 41 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 80 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 60 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 the Comet American
Marketing division of American Rice, Inc. 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 59 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. 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> 23
The following is a list of the executive officers of ERLY Industries Inc.,
their ages and their positions as of June 15, 1997:
Gerald D. Murphy 69 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 41 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 60 Vice President of the Company since 1975;
President of the Comet American Marketing
division of American Rice, Inc. 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 51 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 56 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 63 Vice President of the Company since 1986; Vice
President - Finance of the Early California
Foods division of American Rice, Inc. since
1996; 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 47 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> 24
Item 11. Executive Compensation
Pursuant to General Instruction G(3), information concerning executive
compensation is incorporated by reference to the Company's 1997 Proxy
Statement to Shareholders.
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 1997 Proxy Statement to Shareholders.
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 1997 Proxy Statement to Shareholders.
<PAGE>
<PAGE> 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page
Number
(a) 1. Financial Statements
Selected Financial Data 28-29
Management's Discussion and Analysis of
Financial Condition and Results of Operations 30-35
Consolidated Statements of Operations 36-37
Consolidated Balance Sheets 38
Consolidated Statements of Cash Flows 39-40
Consolidated Statements of Stockholders' Equity 41
Notes to Consolidated Financial Statements 42-64
Independent Auditors' Report 65
2. Financial Statement Schedules
Schedule I - Condensed Financial
Information of ERLY Industries Inc.
(Parent Only) 66-68
Schedule II - Valuation and Qualifying
Accounts 69
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> 26
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(continued)
3. Exhibits
Exhibit Exhibit
Number Description Reference
(3)(i) Articles of Incorporation (as amended
September 6, 1995) (incorporated by
reference to Exhibit 3 to the Company's
1996 Form 10-K).
(4) The Indenture dated as of December 1, 1993 for
$8,880,000 12 1/2% Subordinated Sinking Fund
Debentures due 2002 (incorporated by reference
to Exhibit 4 to the Company's 1994 Form 10-K).
(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) Asset Purchase and Sale Agreement between American
Rice, Inc. and Campbell Soup Company, dated as of
June 11, 1996 (incorporated by reference to Exhibit
2.1 of Form 8-K, filed July 22, 1996).
(28) Share Sale Agreement between American Rice, Inc.
and Campbell Soup Company, dated as of June 11, 1996
(incorporated by reference to Exhibit 2.2 of Form 8-K,
filed July 22, 1996).
(28) American Rice, Inc. 1997 Annual Report and Form
10-K (incorporated by reference to ARI's 1997
Form 10-K, filed June 30, 1997, file No. 0-17039).
<PAGE>
<PAGE> 27
(b) 1. Reports on Form 8-K
A Form 8-K was filed in July 1996 to report the acquisition on
July 6, 1996 of the ripe and green olive businesses of Campbell
Soup Company. This was amended by the filing of Form 8-K/A-2 on
February 27, 1997 to amend pro forma financial information
previously submitted.
<PAGE>
<PAGE> 28
ERLY INDUSTRIES INC. AND SUBSIDIARIES
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years ended March 31: 1993 1994 1995 1996 1997
(In thousands except ------- ------- ------- ------- -------
per share data)
<S> <C> <C> <C> <C> <C>
Net sales
Rice and olives(1) $ 169,617 $ 284,464 $ 373,050 $ 394,838 $ 515,937
Consulting 37,185 41,944 63,546 77,754 77,427
Fire-Trol 12,629 8,416 23,003 14,034 20,936
- ------------------------------------------------------------------------------------------------
Total net sales $ 219,431 $ 334,824 $ 459,599 $ 486,626 $ 614,300
Operating profit (loss) (2)
Rice and olives ($ 316) $ 16,002 $ 18,501 $ 14,338 $ 25,837
Consulting 1,539 1,508 4,920 4,157 2,907
Fire-Trol 1,507 (173) 5,348 1,329 3,483
- ------------------------------------------------------------------------------------------------
Total operating profit $ 2,730 $ 17,337 $ 28,769 $ 19,824 $ 32,227
Income (loss) from
continuing operations
before minority interest ($ 10,989) $ 14,765 $ 8,653 ($ 8,439) $ 6,637
Net income (loss) ($ 8,673) $ 17,669 $ 9,275 ($ 1,149) $ 7,352
Income (loss) from
continuing operations
per share*
Primary ($ 2.52) $ 2.90 $ 1.68 ($ .24) $ 1.51
Fully diluted ($ 2.52) $ 2.71 $ 1.58 ($ .24) $ 1.46
Net income (loss)
per share*
Primary ($ 1.99) $ 3.82 $ 1.68 ($ .24) $ 1.51
Fully diluted ($ 1.99) $ 3.58 $ 1.58 ($ .24) $ 1.46
Average common and
common equivalent
shares outstanding*
Primary 4,347,000 4,624,000 5,522,000 4,708,000 4,868,000
Fully diluted 4,357,000 4,962,000 5,943,000 4,708,000 5,123,000
Cash dividends per
common share $ - $ - $ - $ - $ -
Stock dividend issued - - - 15% 10%
At year-end:
Total assets $ 135,100 $ 199,150 $ 207,058 $ 235,135 $ 320,718
Long-term debt** $ 40,565 $ 67,971 $ 68,321 $ 100,276 $ 101,086
Subordinated debt** $ 9,941 $ 8,880 $ 7,670 $ 6,665 $ 5,665
Stockholders' equity
(deficiency) ($ 9,194) $ 8,394 $ 16,799 $ 17,534 $ 24,780
Shares outstanding 3,486,956 3,674,765 3,718,272 4,284,985 4,740,415
</TABLE>
<PAGE>
<PAGE> 29
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 ($690,000), ($3,784,000), ($645,000) and $2.6 million in
1997, 1996, 1995 and 1994, respectively. ERLY also earned Series B Preferred
dividends of $5.2 million in 1997, 1996 and 1995 and $4.3 million from the
date of the Acquisition to the end of fiscal year 1994 (see Note 11 of Notes
to the Consolidated Financial Statements).
This information should be read in conjunction with the Consolidated
Financial Statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Notes to Selected Financial Data:
(1) ARI sales increased in 1994 due to the combination of Comet and ARI. ARI
sales increased in 1997 with the acquisition of the Early California Foods
division.
(2) Operating profit represents gross profit less selling, general and
administrative expenses, excluding corporate overhead.
* Retroactively adjusted to give effect to a 10% stock dividend in
September 1996.
** Including current portion.
<PAGE>
<PAGE> 30
ERLY INDUSTRIES INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results
of Operations
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Consolidated Results
For the year ended March 31, 1997, ERLY Industries recorded net income of $7.4
million or $1.46 per fully diluted share of common stock on sales of $614
million. This compares with a net loss in 1996 of $1.1 million or $.24 per
share of fully diluted common stock on sales of $487 million. Results for
fiscal year 1996 include a $7.2 million provision for loss on disposal of
property held for sale (see Note 6). 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.
Consolidated sales increased by $128 million in 1997 over 1996 due to
increases by ARI ($122 million) and Fire-Trol ($7 million). ARI results
reflect the acquisition of the olive business in fiscal 1997 which had sales
of $71 million for the year plus a $55 million increase in sales of rice.
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 is relatively constant and margins are typically higher than those
for commodity rice products. Demand for commodity rice products is
relatively constant globally, but demand for U.S. grown commodity rice is
dependent upon supply and cost relative to other sources of supply. Supply
and costs for both branded and commodity products depend on many factors
including governmental actions, crop yields and weather, and such factors
can persist through one or more fiscal years.
In general, management believes that it is insulated from many of the effects
of rough rice price fluctuations for the following reasons: (i) the Company's
net sales are proportionately weighted toward the relatively higher margin
branded products, (ii) approximately one-half of the Company's rough rice
purchases, excluding rough rice milled under contract for others, are made
as spot market purchases and matched against commodity orders at prices
providing a favorable margin to costs, (iii) the Company's high rice
inventory turnover rate of approximately five times per year reduces the
Company's exposure to seasonal price fluctuations, and (iv) the Company's
diversity of rice sources and rice customers increases the ability of the
Company to take advantage of supply and demand imbalances.
<PAGE>
<PAGE> 31
On July 5, 1996, ARI acquired the domestic and foreign olive business of
Campbell Soup Company for approximately $36 million. Assets acquired include
domestic inventories and fixed assets, all of the outstanding common stock
of a Spanish olive company and fifty-one percent of the stock of a marketer
of olive processing machinery. The purchase was funded primarily from ARI's
credit facilities. The Acquisition is accounted for as a purchase, and the
results of operations of the acquired business are included in the Company's
consolidated financial statements after July 5, 1996.
Historically, sales of olives have pronounced seasonal elements, with higher
sales occurring in conjunction with holiday consumption. Accordingly,
because the quarterly period ending December 31 contains both the
Thanksgiving and Christmas holidays, the two holidays of highest consumption,
it will have significantly higher sales than the other three quarters of the
fiscal year. Margins normally follow the seasonal pattern of sales.
Net Sales. ARI's net sales increased $121.7 million, or 30.9%, from $393.8
million in fiscal 1996 to $515.5 million in fiscal 1997. The sales increase
of $121.7 million was composed of $67.6 million in olive sales derived from
the Olive Acquisition in July 1996, $39.0 million in increases in sales of
exported rice, and $15.1 million in increases in sales of rice in the U.S.
Export rice sales increased due primarily to higher volume, while average
export rice prices remained at approximately the same levels as the prior
year. Export rice sales volume increased approximately 3.1 million
equivalent rough rice hundredweight as a result of higher sales in the Middle
East and Africa partially offset by lower sales to Asia and the Western
Hemisphere. Domestic rice sales were higher as a result of higher average
prices partially offset by lower volume.
Gross Profit. Gross profit was 11.9% of sales for fiscal 1997 compared to
9.7 % for fiscal 1996. Gross profit increased $23.2 million, or 61.0%, from
$38.1 million in fiscal 1996 to $61.3 million in fiscal 1997, due primarily
to the Olive Acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expense increased $11.1 million to $35.9 million in fiscal
1997 due primarily to higher advertising and promotional expenses associated
with the Olive Acquisition.
Chemonics International - Consulting
Revenues for International decreased slightly by $327,000, or .4% to $77.4
million in 1997 from $77.7 million in 1996. Although sales were essentially
flat, significant shifts occurred in the regions constituting these sales as
revenue from contracts in the former Soviet Union declined, while new
contracts began in Latin America with the World Bank and the International
Development Bank. Gross profit as a percentage of revenues for 1997 was 28.6%
compared to 27.4% for the prior fiscal year. This increase reflects a reduced
level of subcontracted work and a greater utilization of Chemonic's staff as
as percentage of cost input. Operating income was $2.9 million, or 3.8% of
revenues in fiscal 1997 compared to $4.2 million or 5.3% of revenues in
fiscal 1996. Selling, general and administrative expenses were up by
approximately $2 million for the year due largely to intensified efforts to
obtain new business and maintain Chemonic's current market share.
<PAGE>
<PAGE> 32
Chemonics Fire-Trol
Fire-Trol reported net sales of $20.9 million in fiscal 1997 compared to net
sales of $14.0 million in fiscal 1996, an increase of 49%. Fiscal 1997
represented a near record sales year for Fire-Trol due to the significant
forest fire activity experienced in the Western United States in the summer
of 1996. Fiscal year 1996 reflected a more normal fire season. Gross profit
for fiscal year 1997 as a percentage of sales increased to 28.4% from 26.9%
in fiscal 1996 due to the increase in sales. Operating income for fiscal
year 1997 was $3.5 million, compared to $1.3 million in 1996, an increase
of $2.2 million due to the increase in sales.
Corporate
Consolidated interest expense was $23.4 million in 1997 compared to $19.8
million in 1996, an increase of $3.6 million. ARI had a $3.8 million
increase in interest expense, primarily due to higher average balances
outstanding due to the addition of the olive business. Interest expense
in both periods includes amortization of capitalized debt issuance costs
and accretion of the $6 million original issue discount on the $100 million
notes issued by ARI in August 1995.
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 $.24 per fully diluted share of common stock on sales of
$487 million. This compares with net income in 1995 of $9.3 million or
$1.58 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 6). 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 decline in
operating results from last year is primarily due to decreases recorded by
the Company's subsidiaries, ARI and Fire-Trol.
American Rice
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 $8.8 million while domestic sales increased by $11.9 million.
Export sales increased due to higher average prices partially offset
by lower volume. Average export prices increased approximately 23.0%,
accounting for $48.4 million in sales increases. Total export sales volume
declined approximately 4.1 million equivalent rough rice hundredweight or
16%, accounting for a $39.6 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.
<PAGE>
<PAGE> 33
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. In fiscal year 1996 ARI
entered into an agreement to sell its principal Houston property held for
sale, for net proceeds of approximately $11.2 million after expenses
associated with the sale. In anticipation of this transaction the carrying
value of the property was reduced to its approximate net realizable value
(after accrual of certain costs) by a non-recurring charge of $7.2 million
in fiscal year 1996.
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.
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.
<PAGE>
<PAGE> 34
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
ARI requires liquidity and capital primarily for the purchase of rough rice
and olives and to invest in property, plant and equipment necessary to
support operations. Historically, ARI has financed both working capital and
capital expenditures through internally generated funds and by funds provided
by credit lines. Chemonics' international consulting operation requires
capital to finance the costs of it's consulting projects, a significant
portion which are labor related, prior to collection under applicable
contract terms.
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 an $85 million line of credit and $7.3 million in short-term
notes from foreign banks to finance Vietnam inventory. Chemonics is funded
by a $19 million line for its international consulting activities and U.S.
Fire-Trol operations and a $1.0 million line for Fire-Trol operations in
Canada. 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, 1997, borrowing availability under
ARI's line of credit was $8.5 million and borrowing availability under
Chemonics' lines was $3.0 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 and the borrowing limit was increased to
$85.0 million. 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.
Cash used in operations totaled $29.4 million for 1997 compared to cash flow
used in operations of $2.5 million in 1996. The change was primarily
attributable to increased inventory levels and increased receivables,
partially offset by net income in 1997 and higher accounts payable and
accrued liability levels. Inventories were up $52 million over last year
with ARI accounting for $51 million of the increase. ARI's inventories
increased due to a variety of factors which included the increased inventory
associated with the Olive Acquisition and higher rice inventories in the
Caribbean region and for the Saudi Arabia business. Historically, the rice
ARI sold in Saudi Arabia was shipped from the United States in packaged form.
In 1994, ARI began shipping rice in bulk form to the Middle East region and
packing it under strict quality supervision in order to reduce vessel loading
and freight costs while providing enhanced market competitiveness, improved
customer service and product freshness. Until January 1997, products were
packed at a facility in Jeddah, Saudi Arabia (see Item 3 - Legal
Proceedings). Since January 1997 other Middle East facilities with similar
advantages have been utilized.
<PAGE>
<PAGE> 35
Cash provided by financing activities totaled $57 million in 1997 compared to
cash provided of $8.8 million in 1996. Cash provided by financing activities
in 1997 primarily reflected the $60.3 million increase notes payable, due to
the addition of the olive business. In September 1996, ARI closed the sale
of its principal Houston property held for sale and received gross proceeds
of approximately $13.1 million of which approximately $1 million was used to
retire mortgage notes discussed below.
Cash outlays for capital expenditures in 1997 totaled $6.2 million of which
$5.1 million was invested in the Company's rice and olive operations for
infrastructure, development and modernization of new and existing facilities.
The significant growth in International's revenue in recent years necessitated
increases in its 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. This was increased to $19
million in fiscal 1997 and now provides financing for Chemonics' international
consulting operations and its U.S. Fire-Trol operations. Chemonics Industries
also has a $1.0 million line of credit to support its Canadian Fire-Trol
operations.
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
Notes provide for interest payments semi-annually, accruing fixed interest
at an annual rate of 13.0%, an effective yield rate of 14.4%
ARI intends to satisfy its obligations under the Notes as well as future
capital expenditures 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.
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, 1997, ARI Series B Preferred dividends accumulated,
but not declared, total $19.9 million, and the Preferred C dividends
accumulated but not declared total $2.9 million.
<PAGE>
<PAGE> 36
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $614,300,000 $486,626,000 $459,599,000
Cost of sales 524,535,000 422,434,000 392,902,000
- ----------------------------------------------------------------------------------
Gross profit 89,765,000 64,192,000 66,697,000
Selling, general and
administrative expenses 60,017,000 46,003,000 40,418,000
Interest expense 23,429,000 19,849,000 15,868,000
Interest income (617,000) (486,000) (451,000)
Other (income) expense (381,000) (499,000) (196,000)
Provision for loss on
disposal of property 7,200,000 1,000,000
- ----------------------------------------------------------------------------------
82,448,000 72,067,000 56,639,000
- ----------------------------------------------------------------------------------
Income (loss) before
taxes on income
and minority interest 7,317,000 ( 7,875,000) 10,058,000
Taxes on income 680,000 564,000 1,405,000
- ----------------------------------------------------------------------------------
Income (loss) before
minority interest 6,637,000 (8,439,000) 8,653,000
Minority interest* 715,000 7,290,000 622,000
- ----------------------------------------------------------------------------------
Net income (loss) $ 7,352,000 ($1,149,000) $ 9,275,000
==================================================================================
</TABLE> (Continued)
<PAGE>
<PAGE> 37
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) per common
and common stock equivalents:
Primary** $ 1.51 ($ .24) $ 1.68
==================================================================================
Fully diluted** $ 1.46 ($ .24) $ 1.58
==================================================================================
Weighted average common and
common stock equivalents:
Primary 4,868,000 4,708,000 5,522,000
Fully diluted 5,123,000 4,708,000 5,943,000
</TABLE>
* Represents minority interest in net earnings or loss of American Rice,
Inc. applicable to common stock, after preferred stock dividend
requirements (see Note 11).
** Retroactively adjusted to give effect to 10% stock dividend in September
1996.
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 38
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,584,000 $ 3,819,000
Notes and accounts receivable,
less allowance for doubtful
accounts of $1,326,000 (1997)
and $1,715,000 (1996) 85,789,000 56,665,000
Inventories 129,695,000 78,004,000
Prepaid expenses and other
current assets 3,354,000 2,020,000
Properties held for sale, net 13,535,000
- --------------------------------------------------------------------------------
Total current assets 224,422,000 154,043,000
Long-term notes receivable, net 1,503,000 1,574,000
Property, plant and equipment, net 71,571,000 56,360,000
Other assets 23,222,000 23,158,000
- --------------------------------------------------------------------------------
$ 320,718,000 $ 235,135,000
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, collateralized $ 87,740,000 $ 27,413,000
Accounts payable 64,069,000 48,670,000
Accrued payroll and other
current liabilities 23,307,000 16,497,000
Income taxes payable 1,936,000 2,165,000
Current portion of long-term and
subordinated debt 1,502,000 1,163,000
- --------------------------------------------------------------------------------
Total current liabilities 178,554,000 95,908,000
Long-term debt 100,584,000 100,113,000
Subordinated debt 4,665,000 5,665,000
Deferred income taxes payable 1,501,000 1,592,000
Minority interest 10,634,000 11,811,000
Commitments and contingencies
Redeemable common stock warrants 2,512,000
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 15,000,000 shares
Issued and outstanding:
4,740,415 shares (1997) and
4,284,985 shares (1996) 47,000 43,000
Additional paid-in capital 27,533,000 23,879,000
Retained earnings (deficit) (1,249,000) (5,046,000)
Cumulative foreign currency
adjustments (1,551,000) (1,342,000)
- --------------------------------------------------------------------------------
Total stockholders' equity 24,780,000 17,534,000
- --------------------------------------------------------------------------------
$ 320,718,000 $ 235,135,000
================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 39
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $7,352,000 ($1,149,000) $ 9,275,000
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 8,775,000 7,247,000 7,627,000
Minority interest (715,000) (7,290,000) (622,000)
Provision for loss on disposal
of property 7,200,000 1,000,000
Provision for loss on receivables 653,000 320,000 437,000
Gain on redemption of warrant
repurchase obligation (387,000)
Change in assets and liabilities,
net of effects of acquisition
and sale of businesses:
(Increase) decrease in receivables (26,857,000) ( 3,553,000) (18,851,000)
(Increase) decrease in inventories (30,336,000) (21,982,000) 7,274,000
Increase (decrease) in accounts
payable, other current
liabilities and taxes payable 15,917,000 17,987,000 7,343,000
Other, net (3,758,000) ( 1,241,000) (245,000)
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (29,356,000) ( 2,461,000) 13,238,000
INVESTING ACTIVITIES:
Acquisition of Olive business
(net of cash acquired) (33,952,000)
Disposition of assets held for sale 13,118,000
Additions to property, plant
and equipment (6,227,000) (6,306,000) (4,601,000)
Disposition of property, plant
and equipment 1,153,000 50,000 16,000
- -------------------------------------------------------------------------------------
NET CASH (USED IN)
INVESTING ACTIVITIES (25,908,000) (6,256,000) (4,585,000)
</TABLE>
(Continued)
<PAGE>
<PAGE> 40
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
-------------- ----------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in
notes payable $ 60,327,000 ($ 14,470,000) $ 1,188,000
Principal payments on
long-term debt (275,000) (63,118,000) (8,237,000)
Principal reduction on
subordinated debt (1,000,000) (1,000,000) (1,201,000)
Redemption of redeemable
common stock warrants (2,125,000)
Proceeds from notes and
long-term debt 94,000,000
Mortgage notes issuance cost (5,000) (6,631,000)
Proceeds from sale of stock 107,000 37,000 250,000
- -------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 57,029,000 8,818,000 ( 8,000,000)
- -------------------------------------------------------------------------------------
INCREASE IN CASH
DURING THE YEAR 1,765,000 101,000 653,000
CASH, BEGINNING OF YEAR 3,819,000 3,718,000 3,065,000
- -------------------------------------------------------------------------------------
CASH, END OF YEAR $ 5,584,000 $ 3,819,000 $ 3,718,000
=====================================================================================
Supplemental cash flow information -
Net cash paid during the year for:
Interest expense $ 22,360,000 $15,964,000 $ 11,583,000
Income taxes $ 1,008,000 $ 953,000 $ 686,000
</TABLE>
Non-cash activities:
In fiscal year 1997, the Company acquired the domestic and foreign olive
business of Campbell Soup Company for $35,976,000. In conjunction with
the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 43,961,000
Cash paid 35,976,000
------------
Liabilities assumed $ 7,985,000
============
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> 41
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, 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
Net income 7,352,000 7,352,000
Foreign currency
adjustments (209,000) (209,000)
10% stock
dividend 430,417 4,000 3,547,000 (3,551,000) --
Cash payments
in lieu of
fractional shares (4,000) (4,000)
Common stock
issued 25,013 107,000 107,000
--------- -----------------------------------------------------------------------------
Balance
March 31, 1997 4,740,415 $ 47,000 $27,533,000 ($1,249,000) ($1,551,000) $24,780,000
========= =============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<PAGE> 42
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.
Revenue recognition - The Company's ARI and Fire-Trol subsidiaries generally
record revenues upon shipment of product to the customer. The Company's
consulting business records revenues in the following manner--On cost-
reimbursable contracts, revenues are recorded as contract costs are incurred,
plus a proportionate amount of the fee expected to be realized on the
contract. On time-and-materials contracts, revenues are recorded at
contractual rates for labor hours incurred, plus other expenses. On fixed-
price contracts, revenues are recorded using the percentage-of-completion
method, generally based on costs incurred in relation to total estimated
costs. Provisions for estimated losses on contracts are recorded when
identifiable.
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.
<PAGE>
<PAGE> 43
Note 1 - Summary of Significant Accounting Policies (continued)
Property, plant and equipment--Property, plant and equipment are stated at
cost and are depreciated, using the straight-line method of depreciation
over the estimated useful lives of the related assets as follows: buildings
and improvements--10 to 45 years; machinery and equipment--3 to 25 years;
and, leasehold improvements--the lesser of useful life or lease term.
Other assets--Included in other assets are trademarks and tradenames, which
are being amortized on a straight-line basis over 40 years and deferred
costs related to long-term debt and subordinated debentures, which are
being amortized over the respective terms of the related debt. The Company
utilizes estimated future undiscounted cash flows to evaluate any possible
impairment of trademarks and tradenames.
Federal and state income taxes--Deferred income tax assets and liabilities
are computed annually for differences between the financial statement basis
and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable
to periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The Company does not provide
U.S. federal income taxes on undistributed earnings of foreign subsidiaries
as such earnings are intended to be permanently reinvested in those
operations.
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. The U.S. dollar is currently the functional currency for all
operations except Canada, Vietnam and Spain, where the Canadian dollar, the
Vietnamese dong and the Spanish peseta are the functional currencies,
respectively.
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 $99 million principal amount of 13% mortgage notes
was approximately $98 million as of March 31, 1997, 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 has included
additional footnote disclosures, as necessary.
<PAGE>
<PAGE> 44
Note 1 - Summary of Significant Accounting Policies (continued)
Impairment of long-lived assets--On April 1, 1996, the Company adopted
Financial Accounting Standards Board 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.
The adoption of this statement did not have a material effect on the
consolidated financial statements. The Company evaluates long-lived assets
for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. If the estimated
future cash flows (undiscounted and without interest charges) from the use
of an asset are less than the carrying value, a write down would be recorded
to reduce the related asset to its estimated fair value.
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.
Recent Accounting Pronouncement--In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128"),
which is effective for periods ending after December 15, 1997 and specifies
the computation, presentation and disclosure requirements of earnings per
share ("EPS"). SFAS 128 requires a dual presentation of basic and diluted
EPS. Basic EPS, which excludes the impact of common stock equivalents,
replaces primary EPS. Diluted EPS, which utilizes the average market price
per share as opposed to the greater of the average market price per share or
ending market price per share when applying the treasury stock method in
determining common stock equivalents, replaces fully diluted EPS. Pro
forma basic and diluted EPS for all historical periods presented, assuming
SFAS No. 128 was effective at the beginning of such historical period, would
not be materially different from the primary and fully diluted EPS presented.
Reclassifications--Certain reclassifications have been made to prior year
consolidated financial statements to conform to current year presentation.
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.
<PAGE>
<PAGE> 45
Note 2 - Acquisition of Comet Rice, Inc. by American Rice, Inc. (continued)
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.
Note 3 - Olive Business Acquisition
On July 5, 1996, the Company's subsidiary, ARI, acquired the domestic and
foreign olive business of Campbell Soup Company ("CSC Olives") for
approximately $36 million (the "Olive Acquisition"). Assets acquired include
domestic inventories and fixed assets, all of the outstanding common stock
of a Spanish company which comprises the foreign olive business, and 51% of
the stock of Sadrym California, a marketer of olive processing machinery.
The purchase was funded primarily from ARI's credit facilities. The Olive
Acquisition was accounted for as a purchase and the results of operations
of the acquired business have been included in the Company's consolidated
financial statements after July 5, 1996. The olive business is operated
as the Early California Foods division of ARI.
Operating results reflected in the accompanying financial statements do
not include CSC Olives' operating activities before July 5, 1996. The
following summarized pro forma information assumes the Olive Acquisition
occurred on the first day of the current fiscal year (in thousands,
except per share data):
Year ended
March 31, 1997
--------------
Pro forma net sales $ 632,030
==========
Pro forma net income $ 5,553
==========
Pro forma earnings per share:
Primary $ 1.14
Fully diluted $ 1.08
<PAGE>
<PAGE> 46
Note 4 - Inventories
A summary of inventories at March 31, 1997 and 1996 follows:
1997 1996
----------- -----------
Raw materials $ 49,745,000 $47,883,000
Finished goods 79,950,000 30,121,000
- ----------------------------------------------------------------------
$129,695,000 $78,004,000
======================================================================
Note 5 - Property, Plant and Equipment
A summary of property, plant and equipment at March 31, 1997 and 1996 follows:
1997 1996
-------------- --------------
Land $ 3,103,000 $ 596,000
Buildings and improvements 36,295,000 30,931,000
Machinery and equipment 67,753,000 54,813,000
- ----------------------------------------------------------------------
107,151,000 86,340,000
Less accumulated depreciation
and amortization (35,580,000) (29,980,000)
- ----------------------------------------------------------------------
$ 71,571,000 $ 56,360,000
======================================================================
Depreciation expense was $7,133,000 (1997), $5,484,000 (1996) and
$5,099,000 (1995).
Note 6 - Properties Held for Sale
The consolidated balance sheet at March 31, 1996 included properties held for
sale of $13.5 million which primarily represented 39 acres of land in
Houston, Texas, held for sale by ARI. In fiscal year 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. In September 1996, ARI completed the sale of the
property and received gross proceeds of approximately $13.1 million.
<PAGE>
<PAGE> 47
Note 7 - Other Assets
Other assets at March 31, 1997 and 1996 consist of the following:
1997 1996
-------------- --------------
Trademarks and tradenames $ 14,761,000 $ 14,360,000
Deferred debt issue costs 13,733,000 12,022,000
Winery assets held for sale 2,510,000 3,148,000
Other 903,000 778,000
- ----------------------------------------------------------------------
31,907,000 30,308,000
Less accumulated amortization:
Trademarks and tradenames (2,514,000) (2,149,000)
Deferred debt issue costs (6,171,000) (5,001,000)
- ----------------------------------------------------------------------
$ 23,222,000 $ 23,158,000
======================================================================
Winery assets held for sale primarily represents two wineries of the
Company's discontinued wine operations which management intends to dispose
of in an orderly manner. Both plants are leased to third parties, one of
which is under a lease that includes an option to buy. In fiscal 1995,
a $1.0 million reserve for impairment was provided on these assets.
<PAGE>
<PAGE> 48
Note 8 - 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 $7,877,000 (1997), $5,386,000 (1996) and $4,980,000 (1995).
A comparison of information relating to the Company's lines of credit for
the years ended March 31, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Average during the year:
Short-term borrowings $64,709,000 $35,391,000 $31,739,000
Weighted average interest
rate* 9.11% 10.68% 9.50%
Average bank prime rate 8.25% 8.71% 7.84%
At March 31:
Lines of credit and short-term loans,
subject to collateral availability $115,500,000 $74,364,000 $62,438,000
Short-term borrowings $ 87,740,000 $27,413,000 $41,883,000
Average interest rate 8.50% 8.50% 10.89%
Bank prime rate 8.50% 8.25% 9.00%
Unused short-term
borrowing capacity $11,540,000 $23,278,000 $14,989,000
Maximum month-end
short-term borrowings
during the year $87,740,000 $46,418,000 $43,964,000
</TABLE>
*Based on outstanding borrowings
Substantially all receivables, inventories, property, plant and equipment
and the capital stock of American Rice, Inc. and Chemonics Industries, 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 and increased to $85.0 million. 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> 49
Note 9 - Income Taxes
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
Years ended March 31,
------------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Currently payable
Federal $ 171,000 $ -- $ 183,000
State 388,000 802,000
Foreign 143,000 564,000 420,000
- ---------------------------------------------------------------------------
702,000 564,000 1,405,000
Deferred (22,000)
- ---------------------------------------------------------------------------
Total provision $ 680,000 $ 564,000 $1,405,000
===========================================================================
</TABLE>
The pre-tax income (loss) (before minority interest) related to domestic
and foreign operations is as follows:
Years ended March 31,
-----------------------------------------
1997 1996 1995
---------- ------------ -------------
Domestic $8,495,000 ($8,948,000) $8,937,000
Foreign (1,178,000) 1,073,000 1,121,000
- ---------------------------------------------------------------------------
Total $7,317,000 ($7,875,000) $10,058,000
===========================================================================
The reconciliation of the Company's effective tax rate to
the statutory federal tax rate is as follows:
Years ended March 31,
--------------------------------
1997 1996 1995
---- ---- ----
Federal rate 34% (35%) 35%
State taxes 3 8
Foreign taxes 7 2 4
Change in valuation allowance (38) 40 (34)
Other 3 1
- -----------------------------------------------------------------------
Effective tax rate 9% 7% 14%
=======================================================================
<PAGE>
<PAGE> 50
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, 1997 and 1996 are as
follows:
1997 1996
------------ -------------
Deferred tax assets:
Allowance for doubtful accounts
and other reserves $ 1,909,000 $ 2,270,000
Net operating loss carryforwards 11,811,000 16,001,000
Tax credit carryforwards 199,000
Other 910,000 1,217,000
Deferred tax liabilities:
Difference in basis of property (12,574,000) (13,837,000)
--------------------------------------------------------------------------
Subtotal 2,255,000 5,651,000
Valuation allowance (3,756,000) (7,243,000)
- --------------------------------------------------------------------------
Net deferred tax asset (liability) ($1,501,000) ($1,592,000)
==========================================================================
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, 1997, the Company has net operating
loss carryforwards for federal tax reporting purposes of approximately $34
million, which expire at various dates, primarily in years 2002 through 2011.
The Company's California franchise tax returns for fiscal years 1982 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> 51
Note 10 - Long-term and Subordinated Debt
A schedule of outstanding long-term and subordinated debt at March 31, 1997
and 1996 follows:
1997 1996
----------- -----------
Long-term debt:
ARI mortgage notes due 2002,
interest at 13%, net of
unamortized discount of $5,032,000 $93,968,000 $94,322,000
Term loans due 2008, interest
at 6% 3,000,000 3,000,000
Convertible note payable to
officer, due 1998, interest
at bank prime rate plus 2% 1,000,000 1,000,000
(See Note 13)
Various obligations with maturities
to 2000, interest rates ranging from
5% to 12% 3,118,000 1,954,000
Less current portion of
long-term debt (502,000) (163,000)
- ---------------------------------------------------------------------------
$100,584,000 $100,113,000
===========================================================================
Subordinated debt:
12-1/2% subordinated sinking
fund debentures $5,665,000 $6,665,000
Less current portion of
subordinated debt (1,000,000) (1,000,000)
- ---------------------------------------------------------------------------
$4,665,000 $5,665,000
===========================================================================
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> 52
Note 10 - 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 12).
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.
Contingent interest accrued in fiscal 1997 was zero and $143,000 for the
semiannual periods ended June 30, 1996 and December 31, 1996, respectively.
Contingent interest accrued in fiscal 1996 was $447,000 and zero for the
semiannual periods ended June 30, 1995 and December 31, 1995, respectively.
As the applicable fixed charge coverage ratio was less than 2.0:1, ARI
elected to defer payments of the contingent interest.
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 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), (c) notes receivable from ERLY (as
defined), and (d) 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.
<PAGE>
<PAGE> 53
Note 10 - Long-term and Subordinated Debt (continued)
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.
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: 1998--$1,502,000;
1999--$3,506,000; 2000--$1,410,000; 2001--$1,360,000; 2002--$1,665,000;
thereafter--$102,340,000.
Interest expense on long-term and subordinated debt amounted to $15,552,000
(1997), $14,463,000 (1996) and $10,888,000 (1995).
Note 11 - 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.
<PAGE>
<PAGE> 54
Note 11 - Minority Interest (continued)
The Minority Interest of ARI in ERLY's consolidated financial statements
represents the 68% of the common stock of ARI which ERLY does not own and
the Series C Preferred Stock, for a total of 19% of the voting interest in
ARI on a fully converted basis.
The earnings or losses of ARI are allocated between ERLY and the minority
interest in accordance with the underlying terms of the various securities,
rather than allocation based on voting ownership of the subsidiary. No
conversion is assumed in the case of convertible preferred stocks for
purposes of this calculation, even though conversion may occur at any
time at the option of ERLY.
ARI's cumulative annual dividends of $5.2 million related to the Series B
Preferred Stock and $750,000 related to the Series C Preferred Stock are
deducted from ARI earnings or loss to yield earnings or loss to be allocated
to common stock. The Series B Preferred Stock dividend is allocated entirely
to ERLY, while the Series C Preferred Stock dividend is allocated entirely to
Minority Interest. 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 ($690,000), ($3,784,000) and ($645,000) in 1997, 1996 and 1995,
respectively. ERLY also earned Series B Preferred dividends of $5.2 million
in 1997, 1996 and 1995.
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 12 - Redeemable Common Stock and Common Stock Warrants
In connection with the discontinuation of the Company's juice business in
December 1993, the Company issued warrants to acquire up to 10% of ERLY's
common stock at $.01 per share. In conjunction with the repayment of the
ERLY Juice debt in August 1995 described in Note 10, the Company had the
right to call the warrants prior to September 30, 1996 for $2,512,000 and,
accordingly, the warrants were classified as redeemable common stock
warrants at March 31, 1996.
In August 1996, the Company exercised its call option and redeemed all of
the outstanding common stock warrants in exchange for a payment of
$2,125,000, resulting in a gain of $387,000 which is included in other
income.
<PAGE>
<PAGE> 55
Note 12 - Redeemable Common Stock and Common Stock Warrants (continued)
In fiscal 1992, ERLY issued 379,500 shares (as adjusted) 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 $4.75 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.
Note 13 - Stockholders' Equity
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 $2.97 per share (as adjusted).
In September 1996, the Company declared a 10% stock dividend to shareholders
of record at the close of business on September 23, 1996. All per share
amounts have been retroactively adjusted to reflect this stock dividend.
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. The options generally expired ten years from the
date of grant. At March 31, 1997, options for 124,595 shares issued
under the Plan in 1988 remain outstanding. All of these options were
exercisable at a price of $3.56 per share and expire in 1998.
In fiscal 1996, the Company granted stock options to a key employee for
88,550 shares at a price of $4.55 per share (as adjusted for stock
dividends). At March 31, 1997, all of the options were exercisable.
These options expire in the year 2001.
<PAGE>
<PAGE> 56
Note 13 - Stockholders' Equity (continued)
The following table summarizes stock option activity for the three years
ended March 31, 1997, as adjusted for a 10% stock dividend declared
in September 1996:
Weighted
Average
Number of Exercise Price
Options Per Option
--------- -------------
Outstanding at March 31, 1994 155,827 $3.52
Granted -
Exercised (10,186) $2.95
Canceled or expired -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1995 145,641 $3.56
Granted 88,550 $4.55
Exercised (10,230) $3.56
Canceled or expired -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1996 223,961 $3.95
Granted -
Exercised (10,816) $3.56
Canceled or expired - -
- ---------------------------------------------------------------------------
Outstanding at March 31, 1997 213,145 $3.97
===========================================================================
Exercisable at March 31, 1997 213,145
========================================================
In addition to the stock options described above, the Company has issued
warrants to purchase 12,650 shares at $2.67 per share (as adjusted) which
expire in September 1998.
<PAGE>
<PAGE> 57
Note 13 - Stockholders' Equity (continued)
The Company has elected to follow Accounting Principals Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (Statement 123) required use of option valuation
models that were developed for use in valuing publicly traded stock options.
Under APB 25, because of the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income (loss) and income (loss) per share
is required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The
weighted-average fair value of options granted during 1996 was $4.81. The
fair value of options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996; risk-free interest rates of 6%; zero percent
dividend yields; volatility factors of the expected market price of the
Company's common stock of 25%; and a weighted-average expected life of the
options of 5.65 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated value of the options
is amortized to expense over the options' vesting period.
The Company's pro forma information is as follows (in thousands, except per
share information):
1997 1996
-------- --------
Pro forma net income (loss) $ 7,154 ($ 1,362)
======== ========
Pro forma net income (loss) per share:
Primary $ 1.47 ($ .29)
Fully diluted $ 1.42 ($ .29)
<PAGE>
<PAGE> 58
Note 14 - Nature of the Business - Segment Information
The Company operates principally in three industries - food 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 is relatively constant and margins are typically higher than
those for commodity rice products. Demand for commodity rice products is
relatively constant globally, but demand for U.S. grown commodity rice is
dependent upon supply and cost relative to other sources of supply. Supply
and costs for both branded and commodity products depend on many factors
including governmental actions, crop yields and weather, and such factors
can persist through one or more fiscal years.
Historically, sales of olives have pronounced seasonal elements, with higher
sales occurring in conjunction with holiday consumption. Accordingly,
because the quarterly period ending December 31 contains both the
Thanksgiving and Christmas holidays, the two holidays of highest consumption,
it will have significantly higher sales than the other three quarters of the
fiscal year. Margins normally follow the seasonal pattern of sales.
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> 59
Note 14 - 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, 1997 follow:
<TABLE>
<CAPTION>
Years ended March 31,
---------------------------------------------------------------
1997 1996 1995
------------------ ------------------ -----------------
$ % $ % $ %
-------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales (in thousands)
Export sales - Rice and olives
Middle East $165,666 $117,359 $ 91,449
Caribbean, Mexico and South America 65,410 64,654 84,806
Asia 31,583 49,453 49,963
Europe 21,114 18,111 13,632
Africa 14,352 3,338 3,864
Other 6,731 5,396 5,806
- ----------------------------------------------------------------------------------------------------------
304,856 50% 258,311 53% 249,520 54%
Domestic sales
Rice and olives 211,081 34 136,527 28 123,530 27
Consulting 77,427 13 77,754 16 63,546 14
Fire-Trol 20,936 3 14,034 3 23,003 5
- ----------------------------------------------------------------------------------------------------------
Total $614,300 100% $486,626 100% $459,599 100%
==========================================================================================================
Income (loss) before taxes on
income and minority interest
Rice and olives $ 25,837 $ 14,338 $ 18,501
Consulting 2,907 4,157 4,920
Fire-Trol 3,483 1,329 5,348
- -------------------------------------------------------------------------------------------------
Operating profit 32,227 19,824 28,769
General corporate expense (2,479) (1,635) (2,490)
Interest expense (23,429) (19,849) (15,868)
Interest income 617 486 451
Other income 381 499 196
Write-down of plant facilities* (7,200) (1,000)
- -------------------------------------------------------------------------------------------------
$ 7,317 ($ 7,875) $10,058
=================================================================================================
</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> 60
Note 13 - Nature of the Business - Segment Information (continued)
Years ended March 31,
------------------------------------
1997 1996 1995
-------- -------- --------
(in thousands)
Identifiable assets
Rice and olives $307,471 $222,080 $187,994
Consulting 24,517 25,310 21,748
Fire-Trol 11,564 10,244 8,455
Corporate 1,548 2,138 3,381
Discontinued operations 2,725 3,162 2,649
Intercompany eliminations (27,107) (27,799) (17,169)
- -------------------------------------------------------------------------
Total $320,718 $235,135 $207,058
=========================================================================
Depreciation and amortization
Rice and olives $ 7,554 $ 6,339 $ 6,981
Consulting 705 414 236
Fire-Trol 468 471 391
Corporate 48 23 19
- -------------------------------------------------------------------------
Total $ 8,775 $ 7,247 $ 7,627
=========================================================================
Capital expenditures
Rice and olives $ 5,117 $ 3,690 $ 3,562
Consulting 370 1,947 493
Fire-Trol 740 669 546
- -------------------------------------------------------------------------
Total $ 6,227 $ 6,306 $ 4,601
=========================================================================
Note 15 - 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 $930,000 (1997), $618,000 (1996) and
$1,407,000 (1995).
<PAGE>
<PAGE> 61
Note 16 - Commitments and Contingencies
In April 1995, a lawsuit was filed in the district court of Harris County,
Texas by Kingwood Lakes South, L.P. and Tenzer Company, Inc. as plaintiffs
against G.D. Murphy and D.A. Murphy, Chairman and President of the Company
and ARI, respectively. ERLY and ARI were named as codefendants in the
lawsuit by an amendment to the original petition in September 1995. This
is a dispute between the general partner of a proposed real estate
development and G.D. Murphy and D.A. Murphy. Damages sought are in the
range of $10 million, plus attorneys' fees and punitive damages. 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, as well as certain other alleged activities, including knowing
participation in breaches of fiduciary duties, civil conspiracy with the
Murphys and conversion. The plaintiffs recently added a reverse alter ego
claim. 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.
ARI has also been named as a codefendant with Messrs. John M. Howland and
George E. Prchal in a lawsuit filed in February 1997 in U.S. district court
in Houston, Texas by Rice Milling & Trading Investments, LTD., an Isle of
Man Company ("RMTI"). In 1994, ARI entered into an agreement with RMTI
for processing the Company's rice through RMTI's facility in Jeddah, Saudi
Arabia. Messrs. Howland and Prchal were officers of RMTI through January
1997 and have also been directors of ARI since October 1993 and prior to
October 1993 were officers of ARI. In January 1997, RMTI ceased shipping
ARI's rice through its Jeddah facility and terminated the employment of
Messrs. Howland and Prchal. The lawsuit alleges among other things ARI
failed to perform under the terms of the agreement and Messrs. Howland
and Prchal breached their fiduciary duties to RMTI. On April 21, 1997, the
Company obtained a restraining order from the U.S. District Court for the
Southern District of Texas ordering RMTI to desist and refrain from purchasing
rice of U.S. or Vietnam origin from any supplier other than ARI and from
introducing and/or marketing rice of U.S. and Vietnam origin in Saudi Arabia
targeted against ARI's U.S. origin and Vietnam origin rice. The Company
believes that this litigation will not have a material effect on the Company's
financial condition; however, as with any litigation, the ultimate outcome
is unknown.
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.
<PAGE>
<PAGE> 62
Note 16 - Commitments and Contingencies (continued)
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,
- ----------------------------------------------------------------------------
1998 $ 5,545,000
1999 5,196,000
2000 4,822,000
2001 4,478,000
2002 4,009,000
Thereafter 33,196,000
- ----------------------------------------------------------------------------
$57,246,000
============================================================================
Total rental expense amounted to $7,272,000 (1997), $5,543,000 (1996) and
$5,589,000 (1995). Certain leases provide for options to renew and for
payment of taxes, insurance and maintenance costs.
In October 1996, ARI entered into a new seven year lease agreement for
office space in Houston, Texas with a limited partnership owned directly
and indirectly by the Chairman and President of the Company. ARI's
annual lease expense under the lease ranges from approximately $600,000 in
the first year to approximately $740,000 in the seventh year, which
management believes is comparable to, or better than, rates for similar
office space in the proximity. In connection with the lease, ARI performs
building management services in exchange for certain reductions in the lease
cost.
<PAGE>
<PAGE> 63
Note 17 - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Fiscal Year 1997
(In thousands, except per share data)
-------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 124,591 $ 155,966 $ 171,930 $ 161,813 $ 614,300
Gross profit $ 13,314 $ 24,350 $ 28,167 $ 23,934 $ 89,765
Income (loss) before
minority interest ($ 3,836) $ 4,606 $ 3,832 $ 2,035 $ 6,637
Minority interest 2,586 157 (1,280) (748) 715
- ------------------------------------------------------------------------------------------------------
Net income (loss) ($ 1,250) $ 4,763 $ 2,552 $ 1,287 $ 7,352
======================================================================================================
Earnings (loss) per share*:
Primary ($ .27) $ .94 $ .53 $ .26 $ 1.51
Fully diluted ( .27) .88 .49 .25 1.46
Weighted average shares
outstanding*:
Primary 4,713 5,049 4,850 4,861 4,868
Fully diluted 4,713 5,387 5,192 5,198 5,123
Price range of common stock*:
High $ 10-1/8 $ 9-5/8 $ 9-1/4 $ 9-1/4
Low 6-1/2 6-5/8 5-7/8 6-7/8
</TABLE>
* Restated for 10% stock dividend in September 1996.
<PAGE>
<PAGE> 64
Note 19 - Quarterly Results of Operations (Unaudited) (continued)
<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 $ .39 $ .16 ($ .94) $ .02 ($ .24)
Fully diluted .37 .15 ( .94) .02 ( .24)
Weighted average shares
outstanding*:
Primary 5,847 5,562 4,704 5,385 4,708
Fully diluted 6,184 5,899 4,704 5,721 4,708
Price range of common stock*:
High $ 9 $ 8-3/4 $ 8-1/8 $ 9-1/4
Low 8 7-1/8 6 5-3/8
</TABLE>
* Restated for 10% stock dividend in September 1996.
** 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> 65
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, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended March 31,
1997. Our audits also included the financial statement schedules listed in
the Index at Item 14(a)(2). 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, 1997
and 1996, and the results of its operations and cash flows for each of the
three years in the period ended March 31, 1997 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 20, 1997
<PAGE>
<PAGE> 66
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,
--------------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Corporate overhead expenses ($2,479) ($1,635) ($ 2,490)
Income from subsidiaries 600 600 1,522
Intercompany interest (2,235) (1,705) (644)
Interest expense (1,220) (1,294) (1,487)
Interest income 273 330 186
Other income 1,308 1,331 27
- ----------------------------------------------------------------------------
Income (loss) before taxes on income (3,753) (2,373) (2,886)
Taxes on income (benefit) (3,999) 2,185 (4,422)
- ----------------------------------------------------------------------------
Income (loss) before undistributed
earnings of subsidiaries 246 (4,558) 1,536
Undistributed earnings
of subsidiaries 7,106 3,409 7,739
----------------------------------------------------------------------------
Net income (loss) $7,352 ($1,149) $ 9,275
============================================================================
</TABLE>
<PAGE>
<PAGE> 67
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED BALANCE SHEETS
(in thousands)
<TABLE> March 31,
<CAPTION> -------------------------
1997 1996
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash $ 430 $ 289
Accounts receivable, net 292 96
Other current assets 42 781
- --------------------------------------------------------------------
Total current assets 764 1,166
Intercompany receivable from
Chemonics Industries, Inc. -- 1,957
Long-term notes receivable, net 819 819
Property, plant and equipment, net 7 10
Investment in subsidiaries* 55,922 51,935
Deferred income taxes 4,865 2,556
Other assets 121 124
- --------------------------------------------------------------------
$ 62,498 $ 58,567
====================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other
current liabilities $ 3,384 $ 2,934
Current portion of long-term
and subordinated debt 1,064 1,057
- --------------------------------------------------------------------
Total current liabilities 4,448 3,991
Intercompany payable to
American Rice, Inc. 24,165 24,361
Long-term debt 4,440 4,504
Subordinated debt 4,665 5,665
Redeemable common stock warrants 2,512
Stockholders' equity:
Common stock 47 43
Additional paid-in capital 27,533 23,879
Retained earnings (deficit) (1,249) (5,046)
Cumulative foreign currency
adjustments (1,551) (1,342)
- --------------------------------------------------------------------
Total stockholders' equity 24,780 17,534
- --------------------------------------------------------------------
$ 62,498 $ 58,567
====================================================================
</TABLE>
* Recorded at equity in net assets of subsidiaries.
<PAGE>
<PAGE> 68
ERLY INDUSTRIES INC. (PARENT COMPANY ONLY)
SCHEDULE I - CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 7,352 ($ 1,149) $ 9,275
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Undistributed earnings of subsidiaries (7,106) (3,409) (7,739)
Depreciation and amortization 51 23 19
Provision for loss on receivables 200
Gain on redemption of warrant
repurchase obligation (387)
Change in assets and liabilities, net (1,361) 3,166 (3,531)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,451) (1,369) (1,776)
INVESTING ACTIVITIES:
Change in intercompany payables, net 1,696 (745) 2,764
Other, net 2,971 1,072 256
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,667 327 3,020
FINANCING ACTIVITIES:
Intercompany loan from ARI 10,500
Additional long-term debt 200
Principal payments on long-term debt (57) (8,665) (84)
Principal payments on subordinated debt (1,000) (1,000) (1,201)
Redemption of redeemable
common stock warrants (2,125)
Proceeds from sale of stock 107 37 250
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,075) 1,072 (1,035)
- -------------------------------------------------------------------------------
INCREASE IN CASH DURING THE YEAR 141 30 209
CASH, BEGINNING OF YEAR 289 259 50
- -------------------------------------------------------------------------------
CASH, END OF YEAR $ 430 $ 289 $ 259
===============================================================================
</TABLE>
<PAGE>
<PAGE> 69
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, 1997
- --------------
Allowance for
doubtful
accounts $ 1,715,000 $ 653,000 ($ 1,042,000) $ 1,326,000
============================================================================================
Reserve for
notes
receivable $ 200,000 $ 200,000
============================================================================================
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) $ --
============================================================================================
</TABLE>
(a) Uncollectible accounts written off to allowance for doubtful accounts;
and, charges to reserve for discontinued businesses.
<PAGE>
<PAGE> 70
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 30, 1997
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 30, 1997 June 30, 1997
/s/ Bill J. McFarland /s/ William H. Burgess
- --------------------------- ----------------------------
Bill J. McFarland, Director William H. Burgess, Director
June 30, 1997 June 30, 1997
/s/ Alan M. Wiener
- ------------------------
Alan M. Wiener, Director
June 30, 1997
<PAGE>
<PAGE> 71
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,
---------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations $6,637 ($8,439) $ 8,653 $14,765 ($10,989)
Minority interest on
continuing operations 715 7,290 622 (1,376)
- ----------------------------------------------------------------------------------------------------
Continuing operations, net 7,352 (1,149) 9,275 13,389 (10,989)
Loss on discontinued operations (8,810) ( 4,972)
Income from extraordinary items 16,792 7,288
Minority interest on extraordinary items (3,702)
- -----------------------------------------------------------------------------------------------------
Extraordinary items, net 13,090 7,288
- -----------------------------------------------------------------------------------------------------
Net income (loss) $7,352 ($1,149) $ 9,275 $17,669 ($ 8,673)
=====================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding*:
Average number of shares of
common stock outstanding 4,731 4,708 4,663 4,472 4,357
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 137 (a) 859 152 (a)
- -----------------------------------------------------------------------------------------------------
Total 4,868 4,708 5,522 4,624 4,357
=====================================================================================================
Primary income (loss)
per common share*:
Income (loss) from
continuing operations (b) $ 1.51 ($ . 24) $ 1.68 $ 2.90 ($ 2.52)
Loss on discontinued operations (1.91) (1.14)
Income from extraordinary items (b) 2.83 1.67
- -----------------------------------------------------------------------------------------------------
Primary income (loss)
per common share $ 1.51 ($ .24) $ 1.68 $ 3.82 ($ 1.99)
=====================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 10% stock dividend in
September 1996.
(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> 72
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,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations $ 6,637 ($ 8,439) $ 8,653 $14,765 ($10,989)
Minority interest 715 7,290 622 (1,376)
Interest adjustment
on convertible debt 103 (a) 98 80 (a)
- -----------------------------------------------------------------------------------------------------
Continuing operations, net 7,455 ( 1,149) 9,373 13,469 (10,989)
Loss on discontinued operations (8,810) (4,972)
Income from extraordinary items 16,792 7,288
Minority interest on extraordinary items (3,702)
- ----------------------------------------------------------------------------------------------------
Extraordinary items, net 13,090 7,288
- ----------------------------------------------------------------------------------------------------
Net income (loss), as adjusted $7,455 ($1,149) $ 9,373 $17,749 ($ 8,673)
====================================================================================================
Average number of shares of
common stock and common
stock equivalents outstanding*:
Average number of shares of
common stock outstanding 4,731 4,708 4,663 4,472 4,357
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 55 (a) 942 152 (a)
Other potentially dilutive securities:
Common stock issuable upon
conversion of note payable 337 (a) 338 338 (a)
- ----------------------------------------------------------------------------------------------------
Total 5,123 4,708 5,943 4,962 4,357
====================================================================================================
Fully diluted income (loss)
per common share*:
Income (loss) from
continuing operations (b) $ 1.46 ($ .24) $ 1.58 $ 2.71 ($ 2.52)
Loss on discontinued operations (1.77) (1.14)
Income from extraordinary items (b) 2.64 1.67
- -----------------------------------------------------------------------------------------------------
Fully diluted income (loss)
per common share $ 1.46 ($ .24) $ 1.58 $ 3.58 ($ 1.99)
=====================================================================================================
</TABLE>
* Retroactively adjusted to give effect to 10% stock dividend in
September 1996.
(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> 73
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. 100%
(Texas)
Compania Envasadora Loreto, S.A. 100%
(Spain)
Sadrym California, Inc. 51%
(California)
Chemonics Industries, Inc. Chemonics International, Inc. 100%
(Arizona) (California)
Chemonics Fire-Trol, Inc. 100%
(Delaware)
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> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,584,000
<SECURITIES> 0
<RECEIVABLES> 87,115,000
<ALLOWANCES> 1,326,000
<INVENTORY> 129,695,000
<CURRENT-ASSETS> 224,422,000
<PP&E> 107,151,000
<DEPRECIATION> 35,580,000
<TOTAL-ASSETS> 320,718,000
<CURRENT-LIABILITIES> 178,554,000
<BONDS> 103,665,000
<COMMON> 47,000
0
0
<OTHER-SE> 24,733,000
<TOTAL-LIABILITY-AND-EQUITY> 320,718,000
<SALES> 614,300,000
<TOTAL-REVENUES> 614,300,000
<CGS> 524,535,000
<TOTAL-COSTS> 524,535,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,429,000
<INCOME-PRETAX> 8,032,000
<INCOME-TAX> 680,000
<INCOME-CONTINUING> 7,352,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,352,000
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.46
</TABLE>
