<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended September 30, 1997 Commission file number 1-7894
ERLY INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
California 95-2312900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10990 Wilshire Boulevard, Los Angeles, California 90024-3955
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 879-1480
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- ------
As of October 31, 1996 there were 5,221,337 shares of the Registrant's
common stock outstanding.
<PAGE>
<PAGE> 2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,640,000 $ 5,584,000
Notes and accounts receivable, less
allowance for doubtful accounts of
$1,551,000 (September 30) and
$1,326,000 (March 31) 82,509,000 85,789,000
Inventories:
Raw materials 50,013,000 49,745,000
Finished goods 72,383,000 79,950,000
---------- ----------
122,396,000 129,695,000
Prepaid expenses and other
current assets 4,723,000 3,354,000
----------- -----------
Total current assets 214,268,000 224,422,000
Long-term notes receivable, net 1,503,000 1,503,000
Property, plant and equipment, net 72,275,000 71,571,000
Other assets 23,662,000 23,222,000
------------ ------------
$311,708,000 $320,718,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, collateralized $ 85,078,000 $ 87,740,000
Accounts payable 59,464,000 64,069,000
Accrued payroll and other
current liabilities 23,948,000 23,307,000
Income taxes payable 1,345,000 1,936,000
Current portion of long-term
and subordinated debt 2,518,000 1,502,000
---------- ----------
Total current liabilities 172,353,000 178,554,000
Long-term debt 107,411,000 100,584,000
Subordinated debt 4,665,000 4,665,000
Deferred income taxes payable 315,000 1,501,000
Minority interest 6,511,000 10,634,000
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 15,000,000 shares
Issued and outstanding:
5,221,337 shares (September 30)
and 4,740,415 shares (March 31) 52,000 47,000
Additional paid-in capital 28,934,000 27,533,000
Retained earnings (deficit) (6,963,000) (1,249,000)
Cumulative foreign currency
adjustments (1,570,000) (1,551,000)
------------ ------------
Total stockholders' equity 20,453,000 24,780,000
------------ ------------
$311,708,000 $320,718,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 3
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $116,302,000 $155,966,000 $246,813,000 $280,557,000
Cost of sales 96,915,000 131,616,000 212,119,000 242,893,000
------------ ------------ ------------ ------------
Gross profit 19,387,000 24,350,000 34,694,000 37,664,000
Selling, general and
administrative expenses 15,161,000 13,625,000 30,584,000 25,285,000
Interest expense 7,233,000 6,094,000 13,757,000 11,258,000
Interest income (155,000) (146,000) (323,000) (232,000)
Other (income) expense 163,000 (54,000) 420,000 265,000
---------- ---------- ---------- ----------
22,402,000 19,519,000 44,438,000 36,576,000
Income (loss) before taxes
on income and
minority interest (3,015,000) 4,831,000 (9,744,000) 1,088,000
Taxes on income 7,000 225,000 7,000 318,000
--------- --------- --------- ---------
Income (loss) before
minority interest (3,022,000) 4,606,000 (9,751,000) 770,000
Minority interest* 2,001,000 157,000 4,037,000 2,743,000
----------- ---------- ---------- ----------
Net income (loss) ($ 1,021,000) $4,763,000 ($5,714,000) $3,513,000
=========== ========== ========== ==========
Net income (loss) per share
of common and common
stock equivalents:
Primary ($ .20) $ .94 ($1.16) $ .67
===== ===== ===== =====
Fully diluted ($ .20) $ .89 ($1.16) $ .64
===== ===== ===== =====
Weighted average common and
common stock equivalents:
Primary 5,088,000 5,041,000 4,921,000 5,225,000
Fully diluted 5,088,000 5,378,000 4,921,000 5,562,000
</TABLE>
* Represents minority interest in net earnings or loss of American Rice, Inc.
applicable to common stock, after preferred stock dividend requirements (see
Note 1).
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 4
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Six months ended
September 30,
---------------------------
1997 1996
------------ ----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($5,714,000) $3,513,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Minority interest in ARI (4,037,000) (2,743,000)
Depreciation and amortization 4,729,000 4,107,000
Provision for loss on receivables 225,000 174,000
Gain on redemption of warrant
repurchase obligation (387,000)
Change in assets and liabilities,
excluding effect from acquisition
of olive business:
(Increase) decrease in receivables 3,055,000 (15,136,000)
(Increase) decrease in inventories 7,299,000 8,863,000
(Increase) decrease in prepaid
expenses and other current assets (1,369,000) 231,000
Increase (decrease) in accounts
payable, other current
liabilities and taxes payable (5,741,000) 748,000
Other, net (1,131,000) (1,000,000)
--------- ----------
NET CASH (USED IN)
OPERATING ACTIVITIES (2,684,000) (1,630,000)
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (4,557,000) (2,552,000)
Disposition of property, plant and equipment 71,000
Acquisition of olive business (33,952,000)
Disposition of property held for sale 2,255,000
--------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES (4,557,000) (34,178,000)
FINANCING ACTIVITIES:
Increase (decrease) in notes payable (2,662,0000) 38,884,000
Increase (decrease) in long-term
and subordinated debt 8,843,000 380,000
Redemption of redeemable
common stock warrants (2,125,000)
Proceeds from sale of stock 116,000 100,000
Mortgage notes issuance cost (3,000)
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 6,297,000 37,236,000
---------- ----------
INCREASE (DECREASE) IN CASH
DURING THE PERIOD (944,000) 1,428,000
CASH, BEGINNING OF PERIOD 5,584,000 3,819,000
----------- -----------
CASH, END OF PERIOD $ 4,640,000 $ 5,247,000
=========== ===========
Supplemental cash flow information:
Net cash paid during the period for:
Interest expense $11,829,000 $10,289,000
Income taxes $ 582,000 $ 719,000
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 5
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Retained Foreign Total
------------------- Paid-in Earnings Currency Stockholders'
Shares Dollars Capital (Deficit) Adjustments Equity
--------- -------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance
April 1, 1997 4,740,415 $47,000 $27,533,000 ($ 1,249,000) ($1,551,000) $24,780,000
Net income (loss)
for the period (5,714,000) (5,714,000)
Common stock
issued 129,149 1,000 405,000 406,000
Conversion of
note payable
to stock 351,773 4,000 996,000 1,000,000
Foreign currency
adjustments (19,000) (19,000)
--------- -------- ----------- ---------- ----------- ------------
Balance
September 30,
1997
(unaudited) 5,221,337 $52,000 $28,934,000 ($6,963,000) ($1,570,000) $20,453,000
========= ======= =========== =========== =========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 6
ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended September 30, 1997 and 1996
Basis of Presentation:
The information furnished is unaudited but reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of results for
the interim periods. Results for interim periods are not necessarily
indicative of results to be expected for the entire year. Quarterly results
are affected by certain seasonal factors. Olive sales increase during
holiday periods, most notably in the third fiscal quarter. Forest fire
retardant products are applied during forest fire seasons, principally the
second fiscal quarter.
Reference should be made to the Notes To Consolidated Financial Statements in
the Company's 1997 Form 10-K for a discussion of accounting policies and
other significant matters.
The accompanying consolidated financial statements include the accounts of ERLY
Industries Inc. and its subsidiaries (the "Company" or "ERLY"). All
significant intercompany accounts, intercompany profits and intercompany
transactions are eliminated.
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.
At March 31, 1997, the Company had net operating loss carryforwards for
federal tax reporting purposes of approximately $34 million, which expire at
various dates, primarily in years 2002 through 2011. Tax expense reflected
in the consolidated statements of operations represents estimated federal,
state and foreign tax expense on pre-tax earnings reduced by the utilization
of deferred tax assets relating to net operating loss carryforwards that had
previously been reserved.
Primary earnings per share are based on the weighted average number of: (1)
common shares, and (2) dilutive common share equivalents (consisting of stock
options and warrants) outstanding during each period presented. Fully diluted
earnings per share assumes conversion of a $1 million convertible note
payable, unless conversion would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 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.
<PAGE>
<PAGE> 7
Pro forma basic and diluted EPS for all historical periods presented,
assuming SFAS No. 128 was effective at the beginning of each such historical
period, would not be materially different from the primary and fully diluted
EPS presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and displaying
of comprehensive income and its components. SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments and related information in interim and annual financial statements.
SFAS No. 130 and 131 are effective for periods beginning after December 15,
1997. These three statements will not have any effect on the Company's 1997
financial statements, however, management is evaluating what, if any,
additional disclosure may be required when these statements are implemented.
Note 1 - Minority Interest
In May 1993, substantially all of the assets and liabilities of ERLY's wholly
owned subsidiary, Comet Rice, Inc. ("Comet"), were acquired by American Rice,
Inc. ("ARI"), 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. As a result of the transaction, ERLY's ownership increased to 81%
of the voting rights of ARI.
ERLY's 81% voting interest in ARI consists of the following securities of ARI:
* 777,777 shares of ARI common stock which represent 32% of ARI's total
outstanding common stock and 9% of ARI's common shares on a fully
converted basis.
* 777,777 shares of ARI Series A Preferred Stock, which is convertible one
for one, has voting rights, liquidation preferences of $25.70 per share,
but has no stated dividend. These shares represent 9% of ARI's common
shares on a fully converted basis.
* 2,800,000 shares of ARI Series B Preferred Stock, which is convertible
into 5,600,000 common shares, has voting rights, liquidation preferences
of $5.00 per share and an annual cumulative dividend of approximately
$5.2 million. These shares represent 63% of ARI's common shares on a
fully converted basis.
ARI also issued a Series C Preferred Stock to third parties which does not have
voting or conversion rights but does have an annual cumulative dividend of
$750,000. The Series A, Series B and Series C Preferred Stocks are unique
securities with preferential rights which are superior to common stock rights.
The Minority Interest of ARI in ERLY's consolidated financial statements
represents the 68% of the common stock of ARI which ERLY does not own and the
Series C Preferred Stock, for a total of 19% of the voting interest in ARI on a
fully converted basis.
<PAGE>
<PAGE> 8
ARI's earnings or losses 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 dividend requirements was ($1,030,000) and
($2,076,000) for the three and six months ended September 30, 1997 and 1996,
respectively. ERLY also earned Series B preferred dividends of $1,295,000
for each of the three month periods ended September 30, 1997 and 1996, and
$2,590,000 for each of the six month periods ended September 30, 1997 and
1996. As of September 30, 1997, ARI Series B Preferred Stock dividends
accumulated, but not declared, total $22.4 million.
Note 2 - 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 "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 manufacturer of olive processing machinery.
The purchase was funded primarily from ARI's credit facilities. The
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 Acquisition occurred on the first
day of the prior fiscal year (in thousands, except per share data):
Three months ended Six months ended
September 30, 1996 September 30, 1996
------------------ ------------------
Net sales $ 156,767 $ 299,580
Net income $ 4,737 $ 1,688
Earnings per share:
Primary $ .94 $ .32
Fully diluted $ .89 $ .31
<PAGE>
<PAGE> 9
Note 3 - Long-term and Subordinated Debt
Certain of the Company's and subsidiaries' long-term debt agreements require
maintenance of minimum amounts or ratios related to working capital, long-term
debt and net worth, in addition to the observance of other covenants. These
restrictions also preclude the payment of cash dividends.
Note 4 - Commitments and Contingencies
In July 1997, The Powell Group, a diversified holding company based in Baton
Rouge, Louisiana, through its wholly owned subsidiary, Farmers Rice Milling
Company, a Louisiana corporation, filed a shareholder derivative complaint
purportedly on behalf of ERLY and ARI, against Gerald D. Murphy, Douglas A.
Murphy, the Company and ARI in the U.S. District Court, Central District of
California. Farmers Rice subsequently amended the complaint to add all of
the other directors of ERLY and ARI as defendants.
In the complaint, Farmers Rice alleges (1) breach of fiduciary duty, (2) waste
of corporate assets, and (3) illegal corporate loan. The derivative complaint
further requests injunctive relief prohibiting the Company and ARI from making
allegedly ongoing litigation defense payments on behalf of Gerald D. Murphy
and Douglas A. Murphy and requiring ongoing indemnification by such
individuals to the Company and ARI. Both the Company and ARI are nominal
defendants with the lawsuit being brought on behalf of the Company and ARI
against Gerald D. Murphy and Douglas A. Murphy. The complaint principally
challenges certain litigation expenditures incurred by the Company in
connection with litigation to which the Company, ARI, Gerald D. Murphy and
Douglas A. Murphy are parties, which is described below. While the complaint
alleges that such expenditures were improperly incurred, in fact, all
expenditures and the involvement of the Company in the underlying litigation
were fully authorized by the Companys' Boards of Directors.
The Company filed a motion to dismiss the lawsuit due to The Powell Group's
failure to either make a demand on the boards of directors to take action with
respect to the wrongs alleged or to very specifically allege the facts which
demonstrate why a demand on the boards would be futile. The Company also
argued that the issues in the derivative action were issues which the
disinterested directors in pre-litigation resolutions had taken steps to
resolve, such that these issues were properly dealt with in the first
instance by the boards themselves. The Court agreed and dismissed the
complaint without prejudice in November 1997. The Company does not expect
The Powell Group to re-file the lawsuit.
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, over their contractual obligations, if any,
to the partnership. The Company and ARI were named as codefendants in the
lawsuit allegedly because of their efforts 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, fraud, civil
conspiracy with the Murphys and conversion. The plaintiff subsequently added
a claim that ERLY and ARI were alter egos of the Murphys.
<PAGE>
<PAGE> 10
In order to minimize legal expenses, ERLY, ARI and the Murphys are utilizing
common legal counsel in this matter. Gerald D. Murphy has agreed to pay up
to 50% of such expenses after any insurance recoveries as determined by the
members of the board of directors not a party to the lawsuit. On September 9,
1997 the jury in this litigation returned two alternative verdicts in favor
of the plaintiffs and the plaintiffs were required to elect between those
verdicts. The plaintiffs elected the jury's tort claim verdict in the amount
of $9,657,000 rendered jointly and severally against Gerald D. Murphy,
Douglas A. Murphy, ERLY and ARI, along with separate awards of punitive
damages against Gerald D. Murphy of $3,000,000, Douglas A. Murphy of $500,000,
ERLY of $100,000, and ARI of $100,000. The defendants have filed motions
before the trial court for judgment in defendants' favor notwithstanding the
verdict and for a reduction of the amounts awarded by the jury based, in
part, on the absence of evidence to support those amounts. In the event any
judgment is entered against the Company or ARI, the Company and ARI intend
to appeal that judgment. At this time, prior to the trial court's rulings
on the defendants' expected motions to set aside or reduce the verdicts, the
Company cannot state whether or not the outcome of this litigation may have
a material impact on its or ARI's financial condition. It may be some time
before an actual final judgment is entered.
ARI was 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 prior to October 1993 they were officers of ARI. Messrs.
Howland and Prchal were directors of ARI from October 1993 to October 1997.
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. In April 1997, ARI obtained a preliminary injunction from the U.S.
District Court of 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. In October 1997, ARI voluntarily terminated this injunction. RMTI
has added claims of fraud, participation in breach of duty, and tortuous
interference against ARI. The date for the trial has not been set. 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.
Note 5 - Stockholders' Equity
In October 1997, the Company declared a 10% stock dividend to shareholders of
record at the close of business on October 31, 1997.
<PAGE>
<PAGE> 11
Item 2. ERLY INDUSTRIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Consolidated Results
For the quarter ended September 30, 1997, the Company reported a net loss of
$1.0 million on sales of $116 million, as compared to net income of $4.8
million on sales of $156 million for the second quarter of the prior fiscal
year. Sales for the second quarter of fiscal 1998 reflect a $28.3 million
decrease in sales by American Rice from the second quarter of last year, plus
a $9.0 million decrease in sales by Chemonics Fire-Trol, and a $2.4 million
decrease in revenues by Chemonics International.
Gross profit for the quarter ended September 30, 1997 was $19.4 million, a
decrease of $5.0 million from the quarter ended September 30, 1996 as a result
of decreases by Chemonics Fire-Trol of $3.2 million and American Rice of $2.5
million, partially offset by an increase by Chemonics International of
$722,000.
American Rice
Sales for the quarter ended September 30, 1997 decreased $28.3 million, or 23%,
from $121.5 million in fiscal 1997 to $93.2 million in fiscal 1998. The sales
decrease for the quarter reflects a $33.3 million decline in export sales and a
$3.1 million decrease in U.S. rice sales, partially offset by an $8.1 million
increase in sales by the olive business acquired in July 1996. Export sales
declines were experienced primarily in four Middle East markets and Africa.
Gross profit was 13.6% of sales for the quarter ended September 30, 1997
compared to 12.5% last year. Gross profit decreased $2.5 million, or 16%,
from $15.2 million in the second quarter last year to $12.7 million in the
second quarter of this year, due primarily to lower sales for the quarter.
ARI's selling, general and administrative expenses of $9.4 million increased
$988,000 or 12%, from $8.4 million last year. The increase is due primarily to
higher advertising and promotional expenses associated with the olive business
acquired in fiscal 1997. Selling, general and administrative expenses as a
percentage of net sales were 10.1% in the second quarter of the current year
compared to 6.9% last year.
<PAGE>
<PAGE> 12
Chemonics International - Consulting
For the quarter ended September 30, 1997, revenues for International were $18.8
million, a decrease of $2.4 million, or 11%, from revenues of $21.1 million for
the comparable period last year. The decrease in revenues from last year is
primarily attributed to the wind down of some projects in the current year,
with new and follow-on projects not yet completely started. Gross profit was
$5.8 million (31% of revenues) for the quarter compared to gross profit of
$5.1 million (24% of revenues) for the second quarter of last year. This
increase reflects a reduced level of subcontracted work and a greater
utilization of Chemonics' staff as a percentage of the cost input.
Chemonics Industries - Fire-Trol
Fire-Trol reported sales of $4.3 million for the quarter compared to sales of
$13.3 million reported last year, a decrease of $9.0 million or 68%. Due to a
very slow forest fire season this year, Fire-Trol's sales were the lowest in
the last 10 years. The current year follows last year's near record level of
forest fire activity, which therefore results in a significant swing when
comparing to last year's results. Gross profit for the quarter was $881,000,
down from $4.1 million last year due to the significantly lower sales.
Corporate
Consolidated interest expense totaled $7.2 million for the quarter ended
September 30, 1997, compared to $6.1 million for the same quarter of last year.
This increase reflects increased average borrowings from a year ago due to the
acquisition of the olive business in July 1996. Interest expense in both
periods includes amortization of capitalized debt issuance costs.
RESULTS OF OPERATIONS - SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Consolidated Results
For the six months ended September 30, 1997, the Company reported a net loss of
$5.7 million on sales of $247 million, as compared to net income of $3.5
million on sales of $281 million for the first six months of the prior fiscal
year. Sales for the current year were down $34 million from last year,
primarily due to a $13.3 million decrease by Chemonics Fire-Trol, a $12.3
million decrease in sales by American Rice and an $8.3 million decrease by
Chemonics International.
Gross profit for the six months ended September 30, 1997 was $34.7 million
compared to $37.7 million for the comparable period of last year.
American Rice
Sales for the six months ended September 30, 1997 decreased $12.3 million, or
5.6%, from $218.9 million in fiscal 1997 to $206.6 million in fiscal 1998. The
decrease in sales was composed of a $32.6 million decline in export sales and a
$4.0 million decrease in U.S. rice sales, partially offset by a $24.3 million
increase in sales by the olive business acquired in July 1996. Export sales
declines were experienced primarily in Middle East markets and Africa.
<PAGE>
<PAGE> 13
Gross profit was 11.7% of sales for the six month period ended September 30,
1997, compared to 9.9% in fiscal 1997. Gross profit increased $2.4 million,
or 11%, from $21.7 million in the first six months of last year to $24.1
million in the first six months of this year, due primarily to the Early
California Foods acquisition.
ARI's selling, general and administrative expenses of $18.3 million increased
$3.4 million, or 23%, from $14.9 million last year. The increase is primarily
due to higher advertising and promotional expenses associated with the olive
business acquired in July 1996. Selling, general and administrative expenses
as a percentage of net sales increased from 6.8% in the first six months
of last year to 8.9% this year.
Chemonics International - Consulting
For the six months ended September 30, 1997, revenues for International were
$34.1 million, a decrease of $8.3 million, or 20%, from revenues of $42.4
million for the comparable period last year. The decrease in revenues
from last year is primarily attributed to the wind down of some projects
in the current year, with new and follow-on projects not yet completely
started. Gross profit was $9.7 million (29% of revenues) for the period
compared to gross profit of $10.3 million (24% of revenues) for the
comparable period last year.
Chemonics Industries - Fire-Trol
Fire-Trol reported net sales of only $5.9 million for the six months ended
September 30, 1997, compared to sales of $19.2 million reported last year, a
decrease of $13.3 million, or 69%. The current year experienced an extremely
low level of forest fire activity resulting in the lowest sales in the past
10 years for Fire-Trol. Due to the significantly lower sales, gross profit
for the six months was only $598,000 or 10% of sales, compared to $5.6
million, or 29% of sales last year.
Corporate
Consolidated interest expense totaled $13.8 million for the six months ended
September 30, 1997, compared to $11.3 million for the same period of last year.
This increase reflects increased average borrowings due to the acquisition of
the olive business in July 1996. Interest expense in both periods includes
amortization of capitalized debt issuance costs.
Liquidity And Capital Resources
At September 30, 1997, consolidated working capital was $41.9 million,
compared to $45.9 million at March 31, 1997, a decrease of $4.0 million.
Stockholders' equity was $20.5 million at September 30, 1997, compared to
$24.8 million at March 31, 1997, a decrease of $4.3 million, primarily as
a result of the net loss for the six months.
<PAGE>
<PAGE> 14
For the six months ended September 30, 1997, cash used in operations was $2.7
million, primarily related to the loss for the period. Expenditures for
capital equipment were $4.6 million for the period. Financing activities
provided a $6.3 million increase in cash for the period, primarily through
an $8.9 million capitalized lease relating to the sale and leaseback
transaction discussed below, partially offset by a $2.7 million decrease
in borrowings under the Company's lines of credit.
ARI has an $85 million revolving credit loan with 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. The loan provides
financing for ARI's rice and olive operations. At September 30, 1997, the
outstanding balance on this loan was $69.1 million. The Company has
requested a $10 million increase in the line of credit. This loan facility
contains restrictive covenants which, among other things, require the
attainment of certain financial ratios and provide limitations on capital
expenditures, lease obligations, and prohibit payment of dividends. As of
September 30, 1997, ARI was not in compliance with certain of the covenants
related to interest coverage, adjusted funded debt and adjusted tangible net
worth. Although no assurances can be given, management expects to obtain
waivers from its banks related to these covenants in the near future.
Chemonics Industries, Inc. has lines of credit totaling $20 million which
provide financing for both Consulting and Fire-Trol.
In July 1997, ARI completed a sale and leaseback transaction for substantially
all of its olive processing machinery and equipment located in Visalia,
California. ARI realized proceeds from the sale of approximately $8.9 million
which were used for operating purposes. These assets were leased for a seven
year term with a two year extension option. The transaction is being accounted
for as a capital lease with the proceeds recorded as a liability that is
reduced by lease payments over the lease term.
ARI's liquidity in the quarter ended June 30, 1997 and currently, has been
impaired primarily as a result of the loss of financing associated with the
RMTI agreement (See Note 4 to the Consolidated Financial Statements and Part
II - Legal Proceedings). Without the RMTI agreement, the general corporate
financing required for ARI's sales and marketing in Saudi Arabia is
significantly greater. ARI has had to utilize its credit lines to maintain
the inventory position for its Saudi Arabia sales and this has reduced
the availability for its domestic activities. In addition to increasing
the use of ARI's credit lines, ARI has also experienced an increase
in its accounts payable. In addition to the sale and leaseback transaction
discussed above, the Company is exploring several other opportunities to
improve liquidity. However, no assurances can be given that the Company
can conclude the other arrangements being considered.
In August 1997, ARI reached an agreement with Aqaba Packaging Company ("APC")
whereby APC will purchase, receive, store, process and bag rice shipped in
bulk to APC's rice terminal at Aqaba, Jordan. Additionally, the agreement
provides that ARI can purchase rice from this facility for delivery to ARI's
customers in the Middle East, primarily Saudi Arabia. ARI is currently
discussing various financing arrangements to insure that sufficient levels
of inventories are maintained by APC to meet ARI's and APC's sales
requirements in Middle East markets.
<PAGE>
<PAGE> 15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In July 1997, The Powell Group, a diversified holding company based in Baton
Rouge, Louisiana, through its wholly owned subsidiary, Farmers Rice Milling
Company, a Louisiana corporation, filed a shareholder derivative complaint
purportedly on behalf of ERLY and ARI, against Gerald D. Murphy, Douglas A.
Murphy, the Company and ARI in the U.S. District Court, Central District of
California. Farmers Rice subsequently amended the complaint to add all of
the other directors of ERLY and ARI as defendants.
In the complaint, Farmers Rice alleges (1) breach of fiduciary duty,
(2) waste of corporate assets, and (3) illegal corporate loan. The
derivative complaint further requests injunctive relief prohibiting the
Company and ARI from making allegedly ongoing litigation defense payments
on behalf of Gerald D. Murphy and Douglas A. Murphy and requiring ongoing
indemnification by such individuals to the Company and ARI. Both the
Company and ARI are nominal defendants with the lawsuit being brought on
behalf of the Company and ARI against Gerald D. Murphy and Douglas A.
Murphy. The complaint principally challenges certain litigation expenditures
incurred by the Company in connection with litigation to which the Company,
ARI, Gerald D. Murphy and Douglas A. Murphy are parties, which is described
below. While the complaint alleges that such expenditures were improperly
incurred, in fact, all expenditures and the involvement of the Company in
the underlying litigation were fully authorized by the Companys' Boards of
Directors.
The Company filed a motion to dismiss the lawsuit due to The Powell Group's
failure to either make a demand on the boards of directors to take action with
respect to the wrongs alleged or to very specifically allege the facts which
demonstrate why a demand on the boards would be futile. The Company also
argued that the issues in the derivative action were issues which the
disinterested directors in pre-litigation resolutions had taken steps to
resolve, such that these issues were properly dealt with in the first
instance by the boards themselves. The Court agreed and dismissed the
complaint without prejudice in November 1997. The Company does not expect
The Powell Group to re-file the lawsuit.
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, over their contractual obligations, if any,
to the partnership. The Company and ARI were named as codefendants in the
lawsuit allegedly because of their efforts 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, fraud, civil
conspiracy with the Murphys and conversion. The plaintiff subsequently added
a claim that ERLY and ARI were alter egos of the Murphys.
<PAGE>
<PAGE> 16
In order to minimize legal expenses, ERLY, ARI and the Murphys are utilizing
common legal counsel in this matter. Gerald D. Murphy has agreed to pay up
to 50% of such expenses after any insurance recoveries as determined by the
members of the board of directors not a party to the lawsuit. On September 9,
1997 the jury in this litigation returned two alternative verdicts in favor
of the plaintiffs and the plaintiffs were required to elect between those
verdicts. The plaintiffs elected the jury's tort claim verdict in the amount
of $9,657,000 rendered jointly and severally against Gerald D. Murphy,
Douglas A. Murphy, ERLY and ARI, along with separate awards of punitive
damages against Gerald D. Murphy of $3,000,000, Douglas A. Murphy of $500,000,
ERLY of $100,000, and ARI of $100,000. The defendants have filed motions
before the trial court for judgment in defendants' favor notwithstanding the
verdict and for a reduction of the amounts awarded by the jury based, in
part, on the absence of evidence to support those amounts. In the event any
judgment is entered against the Company or ARI, the Company and ARI intend to
appeal that judgment. At this time, prior to the trial court's rulings on
the defendants' expected motions to set aside or reduce the verdicts, the
Company cannot state whether or not the outcome of this litigation may have
a material impact on its or ARI's financial condition. It may be some time
before an actual final judgment is entered.
ARI was 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 prior to October 1993 they were officers of ARI. Messrs. Howland
and Prchal were directors of ARI from October 1993 through October 1997.
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. In April 1997, ARI obtained a preliminary injunction from the U.S.
District Court of 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. In October 1997, ARI voluntarily terminated this
injunction. RMTI has added claims of fraud, participation in breach of
duty, and tortuous interference against ARI. The date for the trial has
not been set. 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.
<PAGE>
<PAGE> 17
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on October 17, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Calculation of Primary Income Per Share
11.2 Calculation of Fully Diluted Income Per Share
27 Financial Data Schedule (electronic filing)
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1997.
<PAGE>
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ERLY INDUSTRIES INC.
(Registrant)
Date: November 19, 1997 By /s/ Thomas A. Whitlock
----------------------
Thomas A. Whitlock
Vice President and
Corporate Controller
<PAGE>
<PAGE> 19
EXHIBIT 11.1
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF PRIMARY INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------------- ----------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income (loss) before
minority interest ($ 3,022) $ 4,606 ($ 9,751) $ 770
Minority interest 2,001 157 4,037 2,743
------- ------- ------- -------
Net income (loss) ($ 1,021) $ 4,763 ($ 5,714) $ 3,513
======= ======= ======= =======
Average number of shares of
common stock and common
stock equivalents outstanding:
Average number of shares of
common stock outstanding 5,088 4,733 4,921 4,723
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method (a) 308 (a) 502
----- ----- ----- -----
Total 5,088 5,041 4,921 5,225
===== ===== ===== =====
Primary income (loss) per
common share ($ .20) $ .94 ($ 1.16) $ .67
====== ====== ======= =======
</TABLE>
<PAGE>
<PAGE> 20
EXHIBIT 11.2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED INCOME PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
----------------------------- ------------------------------
1997 1996 1997 1996
-------- --------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income (loss) before
minority interest ($ 3,022) $ 4,606 ($ 9,751) $ 770
Interest adjustment - convertible
note payable (a) 25 (a) 51
Income (loss) before minority ------- ------- ------- -------
interest, as adjusted ( 3,022) 4,631 ( 9,751) 821
Minority interest 2,001 157 4,037 2,743
------- ------- ------- -------
Net income (loss), as adjusted ($ 1,021) $ 4,788 ($ 5,714) $ 3,564
======= ======= ======= =======
Average number of shares of
common stock and common
stock equivalents outstanding 5,088 5,041 4,921 5,225
Other potentially
dilutive securities:
Common stock issuable upon
conversion of note payable (a) 337 (a) 337
----- ----- ----- -----
Total 5,088 5,378 4,921 5,562
===== ===== ===== ======
Fully diluted income (loss)
per common share ($ .20) $ .89 ($ 1.16) $ .64
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 4,640,000
<SECURITIES> 0
<RECEIVABLES> 84,060,000
<ALLOWANCES> 1,551,000
<INVENTORY> 122,396,000
<CURRENT-ASSETS> 214,268,000
<PP&E> 111,170,000
<DEPRECIATION> 38,895,000
<TOTAL-ASSETS> 311,708,000
<CURRENT-LIABILITIES> 172,353,000
<BONDS> 104,665,000
<COMMON> 52,000
0
0
<OTHER-SE> 20,401,000
<TOTAL-LIABILITY-AND-EQUITY> 311,708,000
<SALES> 246,813,000
<TOTAL-REVENUES> 246,813,000
<CGS> 212,119,000
<TOTAL-COSTS> 212,119,000
<OTHER-EXPENSES> 420,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,757,000
<INCOME-PRETAX> (5,707,000)
<INCOME-TAX> 7,000
<INCOME-CONTINUING> (5,714,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,714,000)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
