<PAGE>
<PAGE> 1
U.S. 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 December 31, 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 (I.R.S. 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 December 31, 1997 there were 5,753,007 shares of the Registrant's
common stock outstanding.
<PAGE>
<PAGE> 2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 4,658,000 $ 5,584,000
Notes and accounts receivable, less
allowance for doubtful accounts of
$1,637,000 (December 31) and
$1,326,000 (March 31) 84,999,000 85,789,000
Inventories:
Raw materials 37,918,000 49,745,000
Finished goods 101,136,000 79,950,000
---------- ----------
139,054,000 129,695,000
Prepaid expenses and other
current assets 4,337,000 3,354,000
----------- -----------
Total current assets 233,048,000 224,422,000
Long-term notes receivable, net 1,503,000 1,503,000
Property, plant and equipment, net 69,063,000 71,571,000
Other assets 23,373,000 23,222,000
------------ ------------
$326,987,000 $320,718,000
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable, collateralized $111,745,000 $ 87,740,000
Accounts payable 55,960,000 64,069,000
Accrued payroll and other
current liabilities 31,016,000 23,307,000
Income taxes payable 1,345,000 1,936,000
Current portion of long-term
and subordinated debt 2,819,000 1,502,000
---------- ----------
Total current liabilities 202,885,000 178,554,000
Long-term debt 108,029,000 100,584,000
Subordinated debt 3,665,000 4,665,000
Deferred income taxes payable 409,000 1,501,000
Minority interest 531,000 10,634,000
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 15,000,000 shares
Issued and outstanding:
5,753,007 shares (December 31)
and 4,740,415 shares (March 31) 57,000 47,000
Additional paid-in capital 33,013,000 27,533,000
Retained earnings (deficit) (19,800,000) (1,249,000)
Cumulative foreign currency
adjustments (1,802,000) (1,551,000)
------------ ------------
Total stockholders' equity 11,468,000 24,780,000
------------ ------------
$326,987,000 $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 nine months ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $135,655,000 $171,930,000 $362,596,000 $452,487,000
Cost of sales 121,255,000 143,763,000 317,053,000 386,656,000
------------ ------------ ------------ ------------
Gross profit 14,400,000 28,167,000 45,543,000 65,831,000
Selling, general and
administrative expenses 18,394,000 18,182,000 48,978,000 43,467,000
Interest expense 7,124,000 6,259,000 20,881,000 17,517,000
Interest income (172,000) (145,000) (495,000) (377,000)
Other (income) expense 29,000 (205,000) 449,000 60,000
---------- ---------- ---------- ----------
25,375,000 24,091,000 69,813,000 60,667,000
---------- ---------- ---------- ----------
Income (loss) before taxes
on income and
minority interest (10,975,000) 4,076,000 (24,270,000) 5,164,000
Taxes on income 69,000 244,000 76,000 562,000
--------- --------- --------- ---------
Income (loss) before
minority interest (11,044,000) 3,832,000 (24,346,000) 4,602,000
Minority interest* 4,332,000 (1,280,000) 9,842,000 1,463,000
----------- ---------- ---------- ----------
Net income (loss) ($ 6,712,000) $2,552,000 ($14,504,000) $6,065,000
=========== ========== ========== ==========
Basic income (loss) per share ($1.17) $ .49 ($2.62) $1.17
===== ===== ===== =====
Diluted income (loss) per share ($1.17) $ .45 ($2.62) $1.03
===== ===== ===== =====
Weighted average common
shares outstanding:
Basic 5,744,000 5,213,000 5,536,000 5,201,000
Diluted 5,744,000 5,706,000 5,536,000 5,988,000
</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 nine months ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Nine months ended
December 31,
---------------------------
1997 1996
------------ ----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) ($14,504,000) $6,065,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Minority interest in ARI (9,842,000) (1,463,000)
Depreciation and amortization 7,232,000 6,448,000
Provision for loss on receivables 311,000 379,000
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 479,000 (31,777,000)
(Increase) decrease in inventories (9,359,000) (20,425,000)
(Increase) decrease in prepaid
expenses and other current assets (983,000) 930,000
Increase (decrease) in accounts
payable, other current
liabilities and taxes payable (2,083,000) 32,346,000
Other, net (1,657,000) (997,000)
--------- ----------
NET CASH (USED IN)
OPERATING ACTIVITIES (30,406,000) (8,881,000)
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (3,403,000) (3,571,000)
Disposition of property, plant and equipment 80,000
Acquisition of olive business (33,952,000)
Disposition of property held for sale 2,647,000
--------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES (3,403,000) (34,796,000)
FINANCING ACTIVITIES:
Increase in notes payable 24,005,000 47,455,000
Increase in long-term debt 9,762,000 560,000
(Decrease) in long-term
and subordinated debt (1,000,000) (1,057,000)
Proceeds from sale of stock 116,000 100,000
Redemption of redeemable
common stock warrants (2,125,000)
Mortgage notes issuance cost (5,000)
---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 32,883,000 44,928,000
---------- ----------
INCREASE (DECREASE) IN CASH
DURING THE PERIOD (926,000) 1,251,000
CASH, BEGINNING OF PERIOD 5,584,000 3,819,000
----------- -----------
CASH, END OF PERIOD $ 4,658,000 $ 5,070,000
=========== ===========
Supplemental cash flow information:
Net cash paid during the period for:
Interest expense $14,943,000 $13,866,000
Income taxes $ 622,000 $ 260,000
</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 nine months ended December 31, 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 (14,504,000) (14,504,000)
10% Stock dividend 521,670 5,000 4,038,000 (4,043,000) --
Cash in lieu of
fractional shares (4,000) (4,000)
Common stock
issued 139,149 1,000 446,000 447,000
Conversion of
note payable
to stock 351,773 4,000 996,000 1,000,000
Foreign currency
adjustments (251,000) (251,000)
--------- -------- ----------- ---------- ----------- ------------
Balance
December 31,
1997
(unaudited) 5,753,007 $57,000 $33,013,000 ($19,800,000) ($1,802,000) $11,468,000
========= ======= =========== =========== =========== ============
</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 nine months ended December 31, 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.
During the three months ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") which 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. All prior EPS data
presented has been restated to conform with SFAS 128.
<PAGE>
<PAGE> 7
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 two statements will not have any
effect on the Company's fiscal 1998 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.
<PAGE>
<PAGE> 8
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.
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 ($2,127,000)
and ($4,896,000) for the three and nine months ended December
31, 1997, and $514,000 and ($953,000) for the three and nine
months ended December 31, 1996, respectively. ERLY also earned
Series B preferred dividends of $1,295,000 for each of the
three month periods ended December 31, 1997 and 1996, and
$3,885,000 for each of the nine month periods ended December
31, 1997 and 1996. As of December 31, 1997, ARI Series B
Preferred Stock dividends accumulated, but not declared, total
$23.7 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 that 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 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.
<PAGE>
<PAGE> 9
Operating results reflected in the accompanying financial
statements do not include CSC Olives' operating activities
before July 5, 1996. The following summarized unaudited pro
forma information assumes the Acquisition occurred on the first
day of the prior fiscal year (in thousands, except per share
data):
Nine months ended
December 31, 1996
Net sales $ 471,510
Net income $ 4,418
Earnings per share:
Basic $ .85
Diluted $ .74
Note 3 - Notes Payable
ARI has an $85 million revolving credit loan with interest at
the prime rate. The loan provides financing for ARI's rice and
olive operations. At December 31, 1997, the outstanding
balance on this loan was $91.2 million, up by $19.7 million
from the March 31, 1997 balance of $71.5 million. In December
1997, ARI received a 90 day $10 million increase to the line of
credit from its banks. 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 dividend payments.
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. Subsequently, ARI
obtained waivers from compliance with these covenants from its
banks covering the period up to and including December 30, 1997
and amendments effective December 31, 1997. As of December 31,
1997, ARI was not in compliance with the amended covenants
related to interest coverage, adjusted funded debt and adjusted
tangible net worth. The Company has requested waivers from
compliance with these amended covenants. The line also
contains certain cross default provisions with the indenture
for ARI's 13% mortgage notes due 2002.
Chemonics Industries, Inc. has lines of credit totaling $20
million which provide financing for both Consulting and Fire-Trol.
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> 10
Note 4 - 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 lawsuit arises from 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 first obtain
restraining orders to prevent threatened foreclosures
on ERLY common stock pledged as collateral by G.D. Murphy,
which threatened ARI's mortgage note financing. The lawsuit
also alleges certain other activities by ERLY and ARI,
including knowing participation in breaches of fiduciary
duties, fraud and civil conspiracy with the Murphys. A
restraining order was issued preventing foreclosure on the
shares pledged by G.D. Murphy but such restraining order was
subsequently terminated. The plaintiffs then obtained 333,333
shares of the pledged stock which was thereafter sold. In
order to minimize legal expenses, ERLY, ARI and D.A. Murphy are
utilizing common legal counsel in this matter. Gerald D. Murphy
retained separate legal counsel in February 1997. He has agreed
to pay up to 50% of legal 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 aggregate 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 subsequently 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 awards. On January 13, 1998 a final judgment was
rendered in which the tort claim verdict was reduced to $5.3
million plus prejudgment interest of $1.0 million. The
punitive damages against all defendants remained unchanged in
the final judgment. The Company filed a motion for a new trial
on February 12, 1998.
<PAGE>
<PAGE> 11
If a new trial is not granted, the Company and ARI intend to appeal
this judgment and believe they will be successful on appeal, however,
there can be no assurance that the Company will be successful in
its appeal. At this time, the Company does not have resources to
post a bond and there is no assurance that they will do so. The
Company is attempting to arrange for the posting of a bond in order
to avoid execution of this judgment pending appeal. These efforts
include discussions with its insurors and other actions such as the
sale of assets. Without posting a bond or otherwise superceding the
judgment by mid-April, the Company would be at risk for execution of
the judgment against it. If the bond can not be posted or if the
judgment can not be paid, the outcome of this litigation will have a
material adverse impact on ERLY's and ARI's financial condition.
ARI was named as a codefendant with Messrs. John M. Howland and
George E. Prchal in a lawsuit filed in February 1997 in the
U.S. District Court for the Southern District of 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 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. 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 is set for December 1, 1998.
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. In November
1997, the Court dismissed the complaint without prejudice.
<PAGE>
<PAGE> 12
ARI's 13% mortgage notes, with an outstanding principal balance
at December 31, 1997 of $99 million, provide for semi-annual
interest payments on February 28 and August 31. ARI is
considering a number of alternatives for paying the fixed
interest due on the mortgage notes on February 28, 1998 but due
to the current impairment of the liquidity of ARI and pending
resolution of the Companys' ability to satisfy or appeal the
final judgment in the Kingwood Lakes South litigation the
Company will not be able to make such payment by the due date.
The Company anticipates that such payment will be made before
the end of the 30 day grace period, however, no assurances can
be given that such interest payment can be made by the end of
the grace period.
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> 13
Item 2. ERLY INDUSTRIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Consolidated Results
For the quarter ended December 31, 1997, the Company reported
a net loss of $6.7 million on sales of $136 million, as
compared to net income of $2.6 million on sales of $172 million
for the third quarter of the prior fiscal year. Sales for the
third quarter of fiscal 1998 reflect a $36.8 million decrease
in sales by American Rice from the third quarter of last year,
plus a $1.0 million decrease in sales by Chemonics Fire-Trol,
partially offset by a $1.5 million increase in revenues by
Chemonics International.
Gross profit for the quarter ended December 31, 1997 was $14.4
million, a decrease of $13.8 million from the quarter ended
December 31, 1996 as a result of a $13.4 million decrease by
American Rice, due to the decrease in sales.
American Rice
Sales for the quarter ended December 31, 1997 decreased $36.8
million, or 24%, from $153.7 million in fiscal 1997 to $116.9
million in fiscal 1998. The sales decrease for the quarter
reflects a $34.2 million decline in export sales, a $.7 million
decrease in U.S. rice sales, and a $1.9 million decrease in
sales by the olive business acquired in July 1996. Export rice
sales declines were experienced in the Middle East, Asia,
Africa and Europe.
Gross profit was 8.2% of sales for the quarter ended December
31, 1997 compared to 15.0% last year. Gross profit decreased
$13.4 million, or 58%, from $23.0 million in the third quarter
last year to $9.6 million in the third quarter of this year,
due primarily to lower sales for the quarter.
ARI's selling, general and administrative expenses of $12.0
million decreased $1.0 million or 8%, from $13.0 million last
year. The decrease is due primarily to lower advertising and
promotional expenses. Selling, general and administrative
expenses as a percentage of net sales were 10.3% in the third
quarter of the current year compared to 8.5% last year.
<PAGE>
<PAGE> 14
Chemonics International - Consulting
For the quarter ended December 31, 1997, revenues for
International were $18.3 million, an increase of $1.5 million,
or 9%, from revenues of $16.8 million for the comparable period
last year. The increase in revenues from last year is
primarily attributed to the start-up of a significant project
in Egypt in the current year. Gross profit was $4.8 million
(26% of revenues) for the quarter compared to gross profit of
$4.8 million (28% of revenues) for the third quarter of last
year.
Chemonics Industries - Fire-Trol
Fire-Trol reported sales of $.5 million for the quarter
compared to sales of $1.5 million last year, a decrease of $1
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.
Gross profit for the quarter was $53,000, down from $415,000
last year due to the lower sales.
Corporate
Consolidated interest expense totaled $7.1 million for the
quarter ended December 31, 1997, compared to $6.3 million for
the same quarter of last year. This increase reflects
increased average borrowings from a year ago, primarily by ARI.
Interest expense in both periods includes amortization of
capitalized debt issuance costs.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Consolidated Results
For the nine months ended December 31, 1997, the Company
reported a net loss of $14.5 million on sales of $363 million,
as compared to net income of $6.1 million on sales of $452
million for the first nine months of the prior fiscal year.
Sales for the current year were down $90 million from last
year, primarily due to a $69.0 million decrease in sales by
American Rice, a $14.3 million decrease by Chemonics Fire-Trol,
and a $6.8 million decrease by Chemonics International.
Gross profit for the nine months ended December 31, 1997 was
$45.5 million compared to $65.8 million for the comparable
period of last year, a decrease of $20.3 million. This
decrease reflects a $14.5 million decrease by ARI and a $5.4
million decrease by Fire-Trol.
<PAGE>
<PAGE> 15
American Rice
Sales for the nine months ended December 31, 1997 decreased
$69.0 million, or 18.5%, from $372.6 million in fiscal 1997 to
$303.6 million in fiscal 1998. The decrease in sales was
composed of an $86.6 million decline in export rice sales and
a $4.8 million decrease in U.S. rice sales, partially offset by
a $22.4 million increase in sales by the olive business
acquired in July 1996. Export rice sales declines were
experienced in the Middle East, Asia, Africa and Europe.
Gross profit was 9.9% of sales for the nine month period ended
December 31, 1997, compared to 12% in fiscal 1997. Gross
profit decreased $14.5 million, or 33%, from $44.7 million in
the first nine months of last year to $30.2 million in the
first nine months of this year, due primarily to lower rice
sales volume, partially offset by higher gross profit from
olive sales.
ARI's selling, general and administrative expenses of $30.3
million increased $2.4 million, or 8.8%, from $27.9 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 7.5% in
the first nine months of last year to 10.0% this year.
Chemonics International - Consulting
For the nine months ended December 31, 1997, revenues for
International were $52.4 million, a decrease of $6.8 million,
or 12%, from revenues of $59.2 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
first part of the current fiscal year, with new and follow-on
projects not fully contributing until the latter part of
calendar 1997. Gross profit was $14.5 million (28% of
revenues) for the period compared to gross profit of $15.1
million (26% of revenues) for the comparable period last year.
Chemonics Industries - Fire-Trol
Fire-Trol reported net sales of only $6.4 million for the nine
months ended December 31, 1997, compared to sales of $20.7
million reported last year, a decrease of $14.3 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 nine months was only $651,000, or 10% of
sales, compared to $6.0 million, or 29% of sales last year.
<PAGE>
<PAGE> 16
Corporate
Consolidated interest expense totaled $20.9 million for the
nine months ended December 31, 1997, compared to $17.5 million
for the same period of last year. This increase reflects
increased average borrowings by ARI due to the acquisition of
the olive business in July 1996 and the loss of financing
associated with the RMTI agreement (see "Liquidity and Capital
Resources" section). Interest expense in both periods includes
amortization of capitalized debt issuance costs.
Liquidity And Capital Resources
At December 31, 1997, consolidated working capital was $30.2
million, compared to $45.9 million at March 31, 1997, a
decrease of $15.7 million. Stockholders' equity was $11.5
million at December 31, 1997, compared to $24.8 million at
March 31, 1997, a decrease of $13.3 million, primarily as a
result of the net loss for the nine months.
For the nine months ended December 31, 1997, cash used in
operations was $30.4 million, primarily related to the loss for
the period and a $9.4 million increase in inventory.
Expenditures for capital equipment were $3.4 million for the
period. Financing activities provided a $32.9 million increase
in cash for the period, primarily through an $8.9 million
capitalized lease relating to the sale and leaseback
transaction discussed below, plus a $24.0 million increase in
borrowings under the Company's lines of credit.
ARI has an $85 million revolving credit loan with interest at
the prime rate. The loan provides financing for ARI's rice and
olive operations. At December 31, 1997, the outstanding
balance on this loan was $91.2 million, up by $19.7 million
from the March 31, 1997 balance of $71.5 million. In December
1997, ARI received a 90 day $10 million increase to the line of
credit from its banks. 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 dividend payments.
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. Subsequently, ARI
obtained waivers from compliance with these covenants from its
banks covering the period up to and including December 30, 1997
and amendments effective December 31, 1997. As of December 31,
1997, ARI was not in compliance with the amended covenants
related to interest coverage, adjusted funded debt and adjusted
tangible net worth. The Company has requested waivers from
compliance with these amended covenants. The line also
contains certain cross default provisions with the indenture
for ARI's 13% mortgage notes due 2002.
Chemonics Industries, Inc. has lines of credit totaling $20
million which provide financing for both Consulting and Fire-Trol.
<PAGE>
<PAGE> 17
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.
In August 1997, ARI reached an agreement with Aqaba Packaging
Company ("APC") whereby APC purchases and processes rice
shipped in bulk to APC's facility at Aqaba, Jordan. ARI
has experienced continued problems with the implementation
of the provisions of this agreement. These problems include
APC's inability to meet its contractual commitments to purchase
sufficient rice from ARI to maintain adequate inventory levels
in Jordan. ARI is currently negotiating with APC for alternative
arrangements for this facility so that adequate inventory
levels may be maintained. ARI is accounting for this agreement
as a $10 million line of credit secured by its inventories
located at APC. At December 31, 1997 the balance outstanding
under this agreement is $4 million.
Beginning in the quarter ended June 30, 1997, ARI's liquidity
has been significantly impaired, in part, as a result of the
loss of financing associated with the RMTI agreement (see 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 has thus 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. Management
believes that its rice raw material costs have increased to the
extent the impairment of liquidity has precluded it from
bidding on a competitive basis. In addition to the sale and
leaseback transaction and the financing under the APC agreement
discussed above, management is exploring several other
opportunities to improve liquidity. However, no assurances can
be given that the Company can conclude the other arrangements
being considered.
<PAGE>
<PAGE> 18
ARI's 13% mortgage notes, with an outstanding principal balance
at December 31, 1997 of $99 million, provide for semi-annual
interest payments on February 28 and August 31. ARI is
considering a number of alternatives for paying the fixed
interest due on the mortgage notes on February 28, 1998 but due
to the current impairment of the liquidity of ARI and pending
resolution of the Companys' ability to satisfy or appeal the
final judgment in the Kingwood Lakes South litigation (see
Legal Proceedings), the Company will not be able to make
such payment by the due date. The Company anticipates
that such payment will be made before the end of the 30 day
grace period, however, no assurances can be given that such
interest payment can be made by the end of the grace period.
On January 13, 1998 a final judgment was rendered on the
Kingwood Lakes South litigation whereby the tort claim verdict
was reduced to $5.3 million plus prejudgment interest of $1.0
million. The punitive damages against all defendants remained
unchanged in the final judgment. The Company filed a motion
for a new trial on February 12, 1998. If a new trial is not
granted, the Company and ARI intend to appeal this judgment and
believe they will be successful on appeal, howvever, there can
be no assurance that the Company will be successful in its appeal.
At this time, the Company does not have resources to post a
bond and there is no assurance that they will do so. The Company
is attempting to arrange for the posting of a bond in order
to avoid execution of this judgment pending appeal. These efforts
includes discussions with its insurors and other actions such as
the sale of assets. Without posting a bond or otherwise
superceding the judgment by mid-April, the Company would be
at risk for execution of the judgment against it. If the bond
can not be posted or if the judgment can not be paid, the outcome
of this litigation will have a material adverse impact on
ERLY's and ARI's financial condition.
<PAGE>
<PAGE> 19
PART II
OTHER INFORMATION
Item 1. 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 lawsuit arises from 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 first obtain
restraining orders to prevent threatened foreclosures
on ERLY common stock pledged as collateral by G.D. Murphy,
which threatened ARI's mortgage note financing. The lawsuit
also alleges certain other activities by ERLY and ARI,
including knowing participation in breaches of fiduciary
duties, fraud and civil conspiracy with the Murphys. A
restraining order was issued preventing foreclosure on the
shares pledged by G.D. Murphy but such restraining order was
subsequently terminated. The plaintiffs then obtained 333,333
shares of the pledged stock which was thereafter sold. In
order to minimize legal expenses, ERLY, ARI and D.A. Murphy are
utilizing common legal counsel in this matter. Gerald D. Murphy
retained separate legal counsel in February 1997. He has agreed
to pay up to 50% of legal 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 subsequently 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 awards.
On January 13, 1998 a final judgment was rendered in which the
tort claim verdict was reduced to $5.3 million plus prejudgment
interest of $1.0 million. The punitive damages against all
defendants remained unchanged in the final judgment. The
Company filed a motion for a new trial on February 12, 1998.
<PAGE>
<PAGE> 20
If a new trial is not granted, the Company and ARI intend to
appeal this judgment and believe they will be successful on
appeal, however, there can be no assurance that the Company will
be successful in its appeal. At this time, the Company does
not have resources to post a bond and there is no assurance
that they will do so. The Company is attempting to arrange
for the posting of a bond in order to avoid execution of this
judgment pending appeal. These efforts include discussions
with its insurors and other actions such as the sale of assets.
Without posting a bond or otherwise superceding the judgment by
mid-April, the Company would be at risk for execution of the
judgment against it. If the bond can not be posted or if the
judgment can not be paid, the outcome of this litigation will
have a material adverse impact on ERLY's and ARI's financial
condition.
ARI was named as a codefendant with Messrs. John M. Howland and
George E. Prchal in a lawsuit filed in February 1997 in the
U.S. District Court for the Southern District of 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 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. 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 is set for December 1, 1998.
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. In November
1997, the court dismissed the complaint without prejudice.
<PAGE>
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on October 17, 1997.
(b) The meeting involved the election of five directors:
Gerald D. Murphy, Douglas A. Murphy, William H. Burgess,
Nanette N. Kelley, and Eugene E. Cafiero according to the
Report of the Inspector of Election.
(c) According to the Final Report of the Inspector of
Election, the following summarizes the matters voted upon
at the meeting and the number of votes cast for and against, as
as well as the number of abstentions and broker non-votes,
on each such matter.
1. Proposal to amend the Company's Bylaws to eliminate
cumulative voting in the election of directors
(requires 2,610,669 in favor to pass):
Votes for: 2,609,294
Votes against: 2,081,261
Abstentions: 26,111
2. Proposal to amend the Company's Articles of
Incorporation to provide that actions required or
permitted to be taken by the shareholders must be
effected at a duly called annual or special meeting of
shareholders and not by written consent (requires
2,610,669 in favor to pass):
Votes for: 2,565,823
Votes against: 2,118,288
Abstentions: 32,555
3. Per the Report of the Inspector of Election, the
following persons received the following votes with
respect to the election of directors:
In Favor
---------
Gerald D. Murphy 4,474,505
Douglas A. Murphy 4,474,505
William H. Burgess 4,474,505
Bill J. McFarland --
Alan M. Wiener --
Nanette N. Kelley 4,821,146
Eugene F. Cafiero 4,536,051
William D. Blake 1
Robert A. Seale 1
John M. Spain 1
The Company has not yet accepted the results of the Final Report
of the Inspector of Election due to a question about the actual
votes that were counted and whether all shareholder votes were
properly counted. The Board of Directors is considering requesting
the relevant court to clarify the issue so that the final results
can be tabulated and recorded by the Company.
<PAGE>
<PAGE> 22
According to the Inspector of Election, the proposal to
eliminate cumulative voting failed to receive over 50% of the
outstanding shares (by a margin of 1,375 votes). However, the
Inspector of Election did not count 6,248 shares which were
voted with the voting agent on a timely basis but not received
by the Inspector. If these votes should be counted, then the
proposal to eliminate cumulative voting would have passed by a
majority of 4,873 votes. If the election of directors was
held without cumulative voting, the slate of directors proposed
by the Company would have been elected.
Subsequent to the Final Report by the Inspector of Election,
the Board of Directors accepted the resignation of directors
Bill McFarland and Alan Weiner and in light of the questions
raised by the 6,248 shares not counted, deemed it appropriate
to appoint as directors Ms. Nanette Kelley and Mr. Eugene
Cafiero to eliminate any issues raised by the failure to count
the votes represented by the 6,248 shares by the Inspector of
Election. Ms. Kelley and Mr. Cafiero were notified of their
appointment to the Board of Directors at the December 3, 1997
Board of Directors meeting.
At the December 1997 Board meeting, the newly constituted board
voted to expand the board from five to seven members and
appointed two additional directors--Mr. Richard Nevins and Mr.
Harpal Randhawa. At this time the Board has not yet decided
whether to request the proper court to clarify whether the
6,248 votes should have been included by the Inspector of
Election in the final report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Calculation of Basic Income Per Share
11.2 Calculation of Diluted Income Per Share
27 Financial Data Schedule (electronic filing)
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
<PAGE>
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ERLY INDUSTRIES INC.
(Registrant)
Date: February 18, 1998 By /s/ Richard. N. McCombs
-----------------------
Richard N. McCombs
Vice President and
Chief Finanacial Officer
By /s/ Thomas A. Whitlock
----------------------
Thomas A. Whitlock
Vice President and
Corporate Controller
<PAGE>
<PAGE> 24
EXHIBIT 11.1
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF BASIC INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
----------------------------- ----------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income (loss) before
minority interest ($11,044) $ 3,832 ($24,346) $ 4,602
Minority interest 4,332 (1,280) 9,842 1,463
------- ------- ------- -------
Net income (loss) ($ 6,712) $ 2,552 ($14,504) $ 6,065
======= ======= ======= =======
Average number of shares of
common stock outstanding 5,744 5,213 5,536 5,201
===== ===== ===== =====
Basic income (loss)
per common share ($ 1.17) $ .49 ($ 2.62) $ 1.17
====== ====== ======= =======
</TABLE>
<PAGE>
<PAGE> 25
EXHIBIT 11.2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF DILUTED INCOME (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 30,
----------------------------- ------------------------------
1997 1996 1997 1996
-------- --------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income (loss) before
minority interest ($11,044) $ 3,832 ($ 24,346) $ 4,602
Interest adjustment - convertible
note payable (a) 26 (a) 77
Income (loss) before minority ------- ------- ------- -------
interest, as adjusted ( 11,044) 3,858 ( 24,346) 4,679
Minority interest 4,332 (1,280) 9,842 1,463
------- ------- ------- -------
Net income (loss), as adjusted ($ 6,712) $ 2,578 ($14,504) $ 6,142
======= ======= ======= =======
Average number of shares of
common stock outstanding 5,744 5,213 5,536 5,201
Other dilutive securities (a) 493 (a) 787
----- ----- ----- -----
Total 5,744 5,706 5,536 5,988
===== ===== ===== ======
Diluted income (loss)
per common share ($ 1.17) $ .45 ($ 2.62) $ 1.03
====== ====== ====== ======
(a) Exercise of stock options, warrants and convertible note is not assumed as the
computation would be anti-dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,658,000
<SECURITIES> 0
<RECEIVABLES> 86,636,000
<ALLOWANCES> 1,637,000
<INVENTORY> 139,054,000
<CURRENT-ASSETS> 233,048,000
<PP&E> 109,758,000
<DEPRECIATION> 40,695,000
<TOTAL-ASSETS> 326,987,000
<CURRENT-LIABILITIES> 202,885,000
<BONDS> 103,665,000
<COMMON> 57,000
0
0
<OTHER-SE> 11,411,000
<TOTAL-LIABILITY-AND-EQUITY> 362,987,000
<SALES> 362,596,000
<TOTAL-REVENUES> 362,596,000
<CGS> 317,053,000
<TOTAL-COSTS> 317,053,000
<OTHER-EXPENSES> 449,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,881,000
<INCOME-PRETAX> (14,428,000)
<INCOME-TAX> 76,000
<INCOME-CONTINUING> (14,504,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,504,000)
<EPS-PRIMARY> (2.62)
<EPS-DILUTED> (2.62)
</TABLE>
