<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1995
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from - to -
---------------------- -----------------------
Commission File Number 1-6071
RYMER FOODS INC.
Incorporated in the State of Delaware IRS Employer Identification No.
36-1343930
4600 South Packers Avenue
Suite 400
Chicago, Illinois 60609
312/927-7777
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
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
Registrant had 10,751,669 shares of common stock outstanding as of September 11,
1995.
--------------------------------------------------------------------------------
This report consists of 17 pages.
--
1.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
July 29, October 29,
1995 1994
-------- -----------
(in thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 2,492
Receivables, net 13,663 11,847
Inventories 20,320 16,951
Other 963 724
-------- --------
TOTAL CURRENT ASSETS 34,946 32,014
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 1,195 1,195
Machinery and equipment 6,586 6,173
-------- --------
7,781 7,368
Less accumulated depreciation and amortization 5,829 5,399
-------- --------
1,952 1,969
OTHER:
Goodwill, net of accumulated amortization of
$35,970,000 in 1995 and $35,386,000 in 1994 20,668 21,544
Assets held for sale 1,600 1,600
Other 895 1,365
-------- --------
$ 60,061 $ 58,492
-------- --------
-------- --------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt:
Banks $ - $ 5,844
Senior Notes - 2,250
Other 268 26
Accounts payable 2,540 2,953
Accrued liabilities 2,727 4,961
-------- --------
TOTAL CURRENT LIABILITIES 5,535 16,034
LONG-TERM DEBT:
Banks 15,953 -
Senior Notes 18,133 18,133
Other, including amounts to related parties 474 710
-------- --------
Total long-term debt 34,560 18,843
OTHER NON-CURRENT LIABILITIES 780 1,151
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par - 20,000,000 shares
authorized; 10,751,229 shares outstanding
in 1995 and 10,741,451 shares outstanding
in 1994 after deducting treasury shares of
230,516 in 1995 and 237,666 in 1994 10,751 10,741
Additional paid-in capital 44,360 44,344
Retained deficit (35,525) (32,239)
Notes receivable from sale of common shares
to related parties (400) (382)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 19,186 22,464
-------- --------
$ 60,061 $ 58,492
-------- --------
-------- --------
</TABLE>
See accompanying notes.
2.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $39,118 $44,083 $111,223 $120,874
Cost of sales 37,074 39,086 103,197 107,616
------- ------- ------- -------
Gross profit 2,044 4,997 8,026 13,258
Selling, general and
administrative expenses 2,693 3,089 8,547 8,761
------- ------- ------- -------
Operating income (loss) (649) 1,908 (521) 4,497
Interest expense 979 990 3,151 3,044
Other income (78) (145) (385) (440)
Income (loss) from continuing
operations before income taxes (1,550) 1,063 (3,287) 1,893
Provision for income taxes - 35 - 59
------- ------- ------- -------
Income (loss) from continuing operations (1,550) 1,028 (3,287) 1,834
Loss from discontinued operations,
net of income taxes - - - (466)
Gain on dispositions of discontinued
operations, net of income taxes - - - 4,474
------- ------- ------- -------
Net income (loss) $ (1,550) $ 1,028 $ (3,287) $ 5,842
------- ------- ------- -------
------- ------- ------- -------
Per common share data:
Primary:
Income (loss) from continuing operations $ (.14) $ .10 $ (.30) $ .17
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) $ (.14) $ .10 $ (.30) $ .56
------- ------- ------- -------
------- ------- ------- -------
Fully diluted:
Income (loss) from continuing operations $ (.14) $ .10 $ (.30) $ .17
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) $ (.14) $ .10 $ (.30) $ .56
------- ------- ------- -------
------- ------- ------- -------
Average shares outstanding 10,756,000 10,514,000 10,901,000 10,513,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
3.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------------
July 29, 1995 July 30, 1994
-------------- -------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Income (loss) from continuing operations $ (3,287) $ 1,834
Non-cash adjustments to income (loss):
Depreciation and amortization 444 510
Amortization of other assets 1,245 1,386
Other non-cash expense (income) (18) 30
Provision for bad debts 649 328
Net increase to accounts receivable (2,465) (3,288)
Net increase to inventories (3,369) (631)
Net decrease (increase) to other current and long-term assets (139) 45
Net decrease to accounts payable and accrued expenses (2,476) (731)
------- ------
Net cash flows from operating activities of
continuing operations (9,416) (517)
Net change in accrued expenses related to restructuring activities - (336)
Net cash flows from operating activities of
discontinued operations (529) (886)
------- ------
NET CASH FLOWS FROM OPERATING ACTIVITIES (9,945) (1,739)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of Rymer Chicken assets - 24,323
Proceeds from the sale of Mendelson stock - 750
Capital expenditures (427) (418)
Other (13) (8)
Net cash flows from investing activities of discontinued operations - (628)
------- ------
NET CASH FLOWS FROM INVESTING ACTIVITIES (440) 24,019
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line-of-credit facilities 10,109 (12,991)
Principal payments on debt (2,280) (6,665)
Proceeds from borrowings 37 34
Proceeds from issuance of common stock 27 9
------- ------
NET CASH FLOWS FROM FINANCING ACTIVITIES 7,893 (19,613)
Net change in cash and cash equivalents (2,492) 2,667
Cash and cash equivalents balance at beginning of year 2,492 -
------- ------
Cash and cash equivalents balance at end of third quarter $ - $ 2,667
------- ------
------- ------
Supplemental cash flow information:
Interest paid $ 2,311 $ 3,591
------- ------
------- ------
Income taxes paid, net of refunds $ 648 $ 48
------- ------
------- ------
</TABLE>
See accompanying notes.
4.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. The Company
operates on a fiscal year which ends on the last Saturday in October.
References in the following notes to years and quarters are references to
fiscal years and fiscal quarters. For further information refer to the
Consolidated Financial Statements and footnotes thereto included in Rymer
Foods Inc.'s (the Company's or Rymer's) Annual Report on Form 10-K for the
fiscal year ended October 29, 1994.
Certain reclassifications have been made to the 1994 consolidated financial
statements to conform to the 1995 presentation.
In management's opinion, the condensed consolidated financial statements
include all normal recurring adjustments which the Company considers
necessary for a fair presentation of the results for the period. Operating
results for the fiscal period presented are not necessarily indicative of
the results that may be expected for the entire fiscal year.
2. RECEIVABLES
Receivables are net of allowances for doubtful accounts of $429,000 at July
29, 1995 and $731,000 at October 29, 1994.
3. INVENTORIES
Inventories are stated principally at the lower of first-in, first-out cost
or market. The composition of inventories at July 29, 1995 and October 29,
1994 was:
<TABLE>
<CAPTION>
July 29, 1995 October 29, 1994
------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $ 8,761 $ 5,339
Work in process 24 -
Finished goods 11,535 11,612
------ ------
Total $20,320 $16,951
------ ------
------ ------
</TABLE>
4. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
The accompanying condensed consolidated financial statements reflect the
operations of the Company's chicken subsidiary as discontinued operations
for accounting purposes.
RYMER CHICKEN - VAN BUREN
In July 1993, the management of the Company designed a plan to sell the Van
Buren, Arkansas chicken processing operation. On December 10, 1993,
substantially all of the assets of Rymer Chicken were sold (the Sale of
Rymer Chicken) to Simmons Poultry Farms, Inc., Siloam Springs, Arkansas
(Simmons) pursuant to an Asset Purchase Agreement, dated as of November 19,
1993, among the Company, Rymer Chicken, Simmons and Simmons Industries,
Inc., an affiliate of Simmons, as amended (the Asset Purchase Agreement).
The purchase price was $24 million (subject to certain adjustments) plus
the assumption of substantially all of Rymer Chicken's obligations and
liabilities other than its obligations under its senior bank facility. The
Asset Purchase Agreement was approved by the Company's stockholders on
December 6, 1993.
Upon consummation of the Asset Purchase Agreement, the Company received
proceeds of $24.3 million and recorded a gain before income taxes of $4.0
million in the first quarter of 1994. The calculation of such gain
5.
<PAGE>
reflects all actual expenses and estimated future expenses associated with
the Sale of Rymer Chicken. Such gain is net of the writeoff of $5.4
million of goodwill related to Rymer Chicken.
RYMER CHICKEN - PLANT CITY
During 1992, the Company decided to place its idle Plant City chicken
facility and equipment for sale because chicken sales volume was not
expected to increase significantly in the near future.
The Company is actively pursuing the sale or lease of the Plant City,
Florida property at an amount in excess of its net book value of $1.6
million. Reserves established in 1992 and 1993 are considered adequate to
maintain the idle facility for at least two years.
The Company incurred costs related to operation of the idle facility of
approximately $46,000 during the first three quarters of 1995 and $71,000
during the first three quarters of 1994 which were charged to the reserve
established for such losses during fiscal 1992 and 1993.
SALE OF MURRY'S STOCK
In July 1989, the Company received voting and non-voting shares of common
stock in The Mendelson Holding Company, Ltd. (Mendelson Holding)
representing approximately a 12.5% interest in Mendelson Holding as partial
consideration for the sale of an indirect, wholly-owned subsidiary,
Murry's, Inc. (Murry's).
On November 17, 1993 (the Mendelson Closing Date), the Company sold its
stock in Mendelson Holding to Murry's for $750,000 in cash. The Company
used these proceeds to pay down debt and recorded a gain on the sale before
income taxes of $670,000 during the first quarter of 1994. In connection
with the sale, Murry's and Mendelson Holding, on the one hand, and the
Company, on the other, released all claims against each other (stipulating
to the dismissal of a pending lawsuit brought by Mendelson Holding against
the Company in Delaware Chancery Court). In addition, Murry's engaged the
Company as a consultant for three years for fees aggregating $800,000.
Consulting fees for 1994 totalling $250,000 were paid to the Company by
Murry's on the Mendelson Closing Date and fees of $300,000 were paid to the
Company during the first quarter of 1995. For the periods ended July 29,
1995 and July 30, 1994, the Company recorded consulting income of $225,000
and $187,000, respectively, from Murry's. The remaining $75,000 received
from Murry's during the 1995 first quarter is classified as an accrued
liability on the balance sheet at July 29, 1995 and will be recorded by the
Company as consulting income over the remainder of 1995.
The following summarizes the results of the various discontinued operations
reflected in the accompanying Condensed Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
------------------------
7/29/95 7/30/94
------- -------
(in thousands)
<S> <C> <C>
SALES:
Rymer Chicken $ - $ 9,468
----- ------
----- ------
LOSS FROM DISCONTINUED OPERATIONS:
Rymer Chicken $ - $ (492)
Credit equivalent to benefit for income tax - 26
----- ------
Loss from discontinued operations,
net of income taxes $ - $ (466)
----- ------
----- ------
GAIN ON DISPOSITIONS OF DISCONTINUED OPERATIONS:
Rymer Chicken $ - $ 4,017
Murry's - 670
----- ------
Total gain on dispositions of discontinued
operations before income taxes - 4,687
Provision for income taxes - 213
----- ------
Gain on dispositions of discontinued
operations, net of income taxes $ - $ 4,474
----- ------
----- ------
</TABLE>
6.
<PAGE>
Income (loss) from discontinued operations includes an allocation of
interest expense on debt not attributable to specific operations of the
Company which amounted to approximately $185,000 for the first quarter of
1994. The allocation was based on the proportion of net assets for sale to
total net assets of the Company. This treatment is in accordance with
current accounting pronouncements regarding allocation of interest to
discontinued operations.
In addition, the above discontinued operations also include a charge for
interest expense which specifically related to the operations of the
discontinued segment.
5. INCOME TAXES
In 1995, no provision for income taxes was recorded due to the loss from
operations. The 1994 provision for income taxes amounted to $.2 million.
The components of the net deferred tax asset recorded in the accompanying
balance sheets as of July 29, 1995 and October 29, 1994 are as follows:
<TABLE>
<CAPTION>
Non-Current
Deferred Tax Asset
-------------------
(in thousands)
<S> <C>
Deferred tax asset $ 15,701
Valuation allowance 15,701
-------
Net deferred tax asset $ -
-------
-------
</TABLE>
The Company did not record any change in its deferred tax asset during the first
three quarters of 1995 because results of operations are not expected to cause
any significant change to the net deferred tax asset. The following table
accounts for the difference between the actual tax provision attributable to
income before income taxes and the amounts obtained by applying the statutory
U.S. Federal income tax rate of 34% to the loss from continuing operations
before income taxes.
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
July 29, 1995
----------------------
(in thousands)
<S> <C>
Loss from continuing operations
before income taxes $ (3,287)
--------
--------
Total credit equivalent to benefit for
income taxes computed by applying
the U.S. statutory rate (34%) $ (1,118)
Increases in taxes due to:
Goodwill amortization ($875,000 x 34%) 298
Other differences, net 820
--------
Actual tax provision $ -
--------
--------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has agreements with certain of its customers to sell
merchandise over the next year for specified prices. The Company's
aggregate commitment under sales agreements was approximately $16.5 million
and $14.0 million at July 29, 1995 and October 29, 1994, respectively. The
Company also has agreements with certain of its suppliers to purchase raw
materials. The agreements extend for up to one year and provide the price
and quantity of materials to be supplied. The Company had purchase
commitments of approximately $3.4 million and $15.8 million at July 29,
1995 and October 29, 1994, respectively.
7.
<PAGE>
On January 27, 1995, Country Fed Meat Company, Inc. (CFM) initiated a
lawsuit against Rymer Foods Inc. d/b/a/ Rymer Meat Inc. (Rymer or the
Company) in the Superior Court of Fayette County, Georgia, essentially
alleging that Rymer was in breach of contract to supply certain meat
products to CFM. In March 1995, this case was removed to the United States
District Court for Georgia.
On February 21, 1995, Rymer Meat Inc. sued CFM in the United States
District Court for the Northern District of Illinois, seeking damages in
the amount of $1,716,360 for meat products sold to CFM from April 1994
through January 1995, but not paid for. At the same time, Rymer
International Seafood Inc. also sued CFM in the same court, but in a
separate action, seeking damages of $242,775 for seafood products sold to
CFM during January and February of 1995, but not paid for.
On June 28, 1995, the Company announced that it had reached a settlement
with CFM of the litigation pending between the two companies. As a result
of the settlement, all lawsuits between the companies were dismissed and no
further actions will be taken by either company on these matters. The
allowance for doubtful accounts established prior to and during the
Company's 1995 second quarter contained sufficient reserves to resolve the
matters in dispute without additional charges to operations during the
third quarter of 1995. All terms of the settlement are confidential.
The Company does not expect to continue a supply relationship with CFM in
the future. CFM had been one of Rymer's major customers, and during its
1994 fiscal year accounted for approximately 8% of its sales. During the
first three quarters of 1995, CFM accounted for approximately 3% of the
Company's sales.
8.
<PAGE>
Notes to Financial Statements (unaudited) -- cont'd.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
ASSUMING PRIMARY DILUTION
--------------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- ----------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands, except per share amounts)
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C> <C>
1 Average shares outstanding 10,750 10,505 10,747 10,503
2 Net additional shares outstanding
assuming exercise of stock options 6 9 154 10
3 Average number of common shares ------- ------- ------- -------
outstanding 10,756 10,514 10,901 10,513
------- ------- ------- -------
------- ------- ------- -------
EARNINGS
4 Income (loss) from continuing
operations $ (1,550) $ 1,028 $ (3,287) $ 1,834
------- ------- ------- -------
------- ------- ------- -------
5 Net income (loss) $ (1,550) $ 1,028 $ (3,287) $ 5,842
------- ------- ------- -------
------- ------- ------- -------
PER SHARE AMOUNTS
Income (loss) from continuing
operations (line 4 / line 3) $ (.14) $ .10 $ (.30) $ .17
------- ------- ------- -------
------- ------- ------- -------
Net income (loss)
(line 5 / line 3) $ (.14) $ .10 $ (.30) $ .56
------- ------- ------- -------
------- ------- ------- -------
<FN>
NOTE 1 - Earnings (loss) per share for all periods were calculated by the
Treasury Stock Method.
</TABLE>
9.
<PAGE>
Notes to Financial Statements (unaudited) -- cont'd.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
ASSUMING FULL DILUTION
--------------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- ----------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands, except per share amounts)
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C> <C>
1 Average shares outstanding 10,750 10,505 10,747 10,503
2 Net additional shares outstanding
assuming exercise of stock options 59 20 154 20
3 Average number of common shares ------ ------ ------ ------
outstanding 10,809 10,525 10,901 10,523
------ ------ ------ ------
------ ------ ------ ------
EARNINGS
4 Income (loss) from continuing
operations $ (1,550) $ 1,028 $ (3,287) $ 1,834
------ ------- ------- ------
------ ------- ------- -------
5 Net income (loss) $ (1,550) $ 1,028 $ (3,287) $ 5,842
------ ------- ------- ------
------ ------- ------- ------
PER SHARE AMOUNTS
Income (loss) from continuing
operations (line 4 / line 3) $ (.14) $ .10 $ (.30) $ .17
------ ------- ------- ------
------ ------- ------- ------
Net income (loss)
(line 5 / line 3) $ (.14) $ .10 $ (.30) $ .56
------ ------- ------- ------
------ ------- ------- ------
<FN>
NOTE 1 - Earnings (loss) per share for all periods were calculated by the
Treasury Stock Method.
</TABLE>
10.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results from operations are generated by its
Processing segment and by its Seafood Importing and Distributing segment. The
Processing segment consists of the Meat processing operation. The Seafood
operation comprises the Seafood Importing and Distributing segment.
THIRD QUARTER OF 1995 VERSUS THIRD QUARTER OF 1994
Consolidated sales for the third quarter of 1995 of $39.1 million decreased from
the third quarter of 1994 by $5 million or 11.3%. Sales for the Meat operation
decreased by 32% while sales for the Seafood operation increased by 32%. On a
consolidated basis, lower unit sales at the Meat operation accounted for the
majority of the sales decrease which was partially offset by greater unit sales
at the Seafood operation.
The Meat operation experienced a sales decrease of approximately $9.6 million
due to a 31% decrease in sales volume along with lower selling prices and a
lower priced mix of products sold. Sales volume for the Meat operation declined
primarily due to termination of sales to a major customer during the second
quarter of 1995.
The Seafood operation experienced an increase in sales of $4.6 million primarily
due to a 37% increase in unit sales partially offset by a 3.7% decrease in
selling prices. Selling prices declined as compared to the third quarter of
1994 primarily due to the introduction of smaller-sized, lower-priced Equadorian
shrimp into the Company's product line during 1995. Unit sales increased
primarily due to increased supplies as the Company began importing from Equador.
As compared to the third quarter of 1994, consolidated cost of sales decreased
by $2 million or 5.1% while total gross profit decreased by $3 million. As a
percentage of sales, the consolidated gross margin decreased to 5.2% compared to
11.3% a year ago.
Gross profit for the Meat operation decreased by $2.9 million compared to 1994
primarily due to decreased unit sales, lower selling prices and mix changes in
sales to national restaurant chain accounts.
Gross profit for the Seafood operation decreased by $41,000 or 4.8% as compared
to the third quarter of 1994. A significant increase in gross profit
attributable to the 37% increase in sales volume was offset by the effect of a
31% decrease in gross profit per pound primarily due to the higher cost of
purchased shrimp.
Selling, general and administrative expenses decreased in total by $0.4 million
or 12.8% compared to 1994 primarily resulting from lower salary and related
expenses in the administrative area.
At the end of the first quarter of 1995, certain issues between the Company and
one of its largest customers, Country Fed Meat Company, Inc. (CFM), resulted in
certain lawsuits being filed, as described more fully in Note 6 to the condensed
consolidated financial statements. On June 28, 1995, the Company announced that
it had reached a settlement with CFM of the litigation pending between the two
companies. As a result of the settlement, all lawsuits between the companies
were dismissed and no further actions will be taken by either company on these
matters. The allowance for doubtful accounts established prior to and during
the Company's 1995 second quarter contained sufficient reserves to resolve the
matters in dispute without additional charges to operations during the third
quarter of 1995. All terms of the settlement are confidential.
The Company does not expect to continue a supply relationship with CFM in the
future. CFM had been one of Rymer's major customers, and during its 1994 fiscal
year CFM accounted for approximately 8% of Rymer's sales. During the first
three quarters of 1995, CFM accounted for approximately 3% of the Company's
sales.
11.
<PAGE>
INTEREST EXPENSE
Interest expense decreased by $11,000 or 1.1% compared to a year ago primarily
due to an increase in average borrowings along with a higher prime interest rate
offset by a decrease of $135,000 in costs related to obtaining the former credit
line. These costs were amortized over the life of the former credit line
through April 7, 1995. The Company incurred no such costs during the third
quarter of 1995.
OTHER INCOME
The Company earned other income of $78,000 and $145,000 during the third
quarters of 1995 and 1994, respectively. Other income in both years is
comprised primarily of consulting fees. In connection with the Sale of Rymer
Chicken, the Company entered into a consulting agreement with Simmons. The
Company recorded income of $77,000 under this agreement in the third quarter of
1994. In connection with the sale of Murry's stock, the Company entered into a
three year consulting agreement with Murry's, Inc. The Company earned income of
$75,000 and $62,000 related to this agreement during the third quarters of 1995
and 1994, respectively.
INCOME TAXES
In 1995 no provision for income taxes was recorded due to the Company's loss.
The 1994 provision for income taxes amounted to $0.2 million. The Company has
operating loss carryforwards for tax reporting purposes which are available to
reduce Federal taxable income. Accordingly, the income tax provision for the
third quarter of 1994 of $35,000 represents the expected Federal alternative
minimum tax liability related to income earned during the quarter.
Effective with the first quarter of 1994, the Company adopted the provisions of
SFAS 109. (See Note 5 to the consolidated financial statements.)
FIRST THREE QUARTERS OF 1995 VERSUS FIRST THREE QUARTERS OF 1994
Consolidated sales for the first three quarters of 1995 of $111.2 million
decreased from the first three quarters of 1994 by $9.7 million or 8%. Sales
for the Meat operation decreased by 22.8% while sales for the Seafood operation
increased by 20.7%. On a consolidated basis, lower unit sales accounted for the
majority of the sales decrease which was partially offset by higher selling
prices due primarily to changes in the sales mix.
The Meat operation experienced a sales decrease of approximately $18.2 million
due to decreased sales volume primarily due to termination of sales to a major
customer during the second quarter of 1995 along with lower selling prices and a
lower priced mix of products sold.
The Seafood operation experienced an increase in sales of $8.5 million primarily
due to a 13.9% increase in unit sales along with the effect of a 6% increase in
selling prices. Selling prices increased due to a supply shortage in most
shrimp producing countries and due to the weakness of the U.S. Dollar as
compared to certain foreign currencies, particularly the Japanese Yen. Unit
sales increased primarily due to increased supplies as the Company began
importing from Equador during the second quarter of 1995.
As compared to the first three quarters of 1994, consolidated cost of sales
decreased by $4.4 million or 4.1% while total gross profit decreased by $5.2
million. As a percentage of sales, the consolidated gross margin decreased to
7.2% compared to 11% a year ago.
Gross profit for the Meat operation decreased by $5.4 million compared to 1994
primarily due to decreased unit sales along with mix changes in sales to
national restaurant chain accounts.
Gross profit for the Seafood operation increased by $0.2 million or 6.8%
compared to the first three quarters of 1994 reflecting the increase in sales
volume which was partially offset by the higher cost of purchased shrimp.
12.
<PAGE>
Selling, general and administrative expenses decreased in total by $214,000 or
2.4% compared to 1994. Administrative expenses increased by $39,000 primarily
resulting from increased bad debt and legal expenses which were partially offset
by lower salary expense. Selling expenses decreased by $253,000 primarily due
to decreased expenses related to the Company's retail products sold in grocery
and wholesale club stores which were partially offset by increased salary
expense.
INTEREST EXPENSE
Interest expense increased by $107,000 or 3.5% compared to a year ago. In
connection with the reclassification of the operating results of the Company's
chicken processing operations to discontinued operations in the first quarter of
1994, a portion of interest expense related to the Company's unsecured debt was
allocated to discontinued operations. Interest expense on unsecured debt
allocated to the loss from discontinued operations amounted to $185,000 in the
first quarter of 1994.
After giving effect to this allocation, interest expense decreased by $78,000
compared to 1994. This decrease was attributable to a reduction in the
outstanding principal amount of the Company's 11% Senior Notes. The Company
redeemed $1,050,000 of these notes in June 1994 and $2,250,000 in December 1994.
Lower Senior Note interest was partially offset by the effect of higher
borrowings under bank lines of credit and increases in the prime lending rate
charged by banks as compared to 1994.
DISCONTINUED OPERATIONS
The Company sold its Van Buren, Arkansas chicken processing operations (Rymer
Chicken) during the first quarter of 1994 at a gain of $4 million before income
taxes. During the first quarter of 1994, the Company also sold stock (which it
had received in connection with the sale of its Murry's, Inc. subsidiary in
1989) at a gain of $0.7 million before income taxes. The Company recorded a
provision for income taxes related to these dispositions of $0.2 million which
resulted in a net gain on dispositions of discontinued operations of $4.5
million after income taxes.
The Company incurred losses related to its discontinued chicken processing
operations during the first quarter of 1994 of $0.5 million. The 1994 loss
reflects operating results through the sale date of December 10, 1993.
The Company is actively pursuing the sale or lease of its Plant City, Florida
property at an amount in excess of its net book value of $1.6 million.
OTHER INCOME
The Company earned other income of $385,000 and $440,000 during the first three
quarters of 1995 and 1994, respectively. Other income in both years is
comprised primarily of consulting fees. In connection with the Sale of Rymer
Chicken, the Company entered into a consulting agreement with Simmons. The
Company recorded income of $145,000 and $230,000 under this agreement in the
first three quarters of 1995 and 1994, respectively. In connection with the
sale of Murry's stock, the Company entered into a three year consulting
agreement with Murry's, Inc. The Company earned income of $225,000 and $186,000
related to this agreement during the first three quarters of 1995 and 1994,
respectively.
INCOME TAXES
In 1995 no provision for income taxes was recorded due to the Company's loss.
The 1994 provision for income taxes amounted to $0.2 million which related
primarily to the gain arising from the Sale of Rymer Chicken in the first
quarter.
Effective with the first quarter of 1994, the Company adopted the provisions of
SFAS 109. (See Note 5 to the consolidated financial statements.
13.
<PAGE>
The Company has operating loss carryforwards for tax reporting purposes which
are available to reduce Federal taxable income. Accordingly, the income tax
provision for the first three quarters of 1994 of $189,000 represents the
expected Federal alternative minimum tax liability related to income earned
during the quarter. Of this amount, $2,000 related to income from continuing
operations and $187,000 related primarily to the gain on the Sale of Rymer
Chicken.
LIQUIDITY AND CAPITAL RESOURCES
The Company makes sales primarily on a seven to thirty day balance due basis.
Purchases from suppliers have payment terms generally ranging from wire transfer
to fourteen days including the use of letters of credit for purchases of
imported seafood.
The Company's cash management techniques involve the use of zero balance
disbursement accounts. Check clearings are covered by advances from the
Company's credit lines. Thus, in the absence of excess funds classified as cash
equivalents, the Company's cash balances are credit balance accounts
representing outstanding checks. The Company classified such credit balances as
accounts payable in the consolidated financial statements as of July 29, 1995.
At October 29, 1994, there was no loan outstanding under the Company's primary
credit line with BA Business Credit, Inc. (BABC) and the Company had a balance
of cash and cash equivalents of $2.5 million. The Company had a bank loan
outstanding at October 29, 1994 of $5.8 million under its line of credit at
LaSalle National Bank (LaSalle) for Rymer International Seafood. The Company's
excess funds were not used to reduce this loan due to restrictions under the
Company's bank agreements.
The Company's net working capital at July 29, 1995 was $29.4 million compared to
$16.0 million at October 29, 1994. Cash decreased by $2.5 million and accounts
receivable increased by $1.8 million while inventories increased by $3.4
million, other current assets increased by $239,000, and current liabilities
decreased by $10.5 million.
Inventories of Rymer Meat increased by $5 million while inventories of Rymer
Seafood decreased by $1.7 million. Meat inventories increased primarily due to
seasonal factors. The Meat operation purchased inventories needed to fulfill
future sales commitments primarily during the fourth quarter of 1994 and the
first quarter of 1995 while market conditions were favorable. Rymer Meat
inventories decreased by $4.3 million during the third quarter of 1995 and are
expected to continue to decline during the fourth quarter. Seafood inventories
declined primarily due to seasonal market fluctuations. Rymer Seafood purchased
a substantial amount of inventory during the fourth quarter of 1994 because
market conditions were deemed to be favorable at that time.
Accounts receivable increased for the Seafood operation by $3.2 million
primarily due to higher sales volume and seasonal sales fluctuations.
Receivables for the Meat operation decreased by $1.3 million as compared to
October 29, 1994 primarily due to the settlement of a receivable from a former
customer, Country Fed Meat Company, Inc. as discussed in Note 6 to the Financial
Statements included in Item 1.
Accounts payable at July 29, 1995 decreased by $0.4 million as compared to
October 29, 1994. Credit balance accounts representing outstanding checks which
were classified as accounts payable at July 29, 1995 were classified as a
reduction to cash balances at October 29, 1994. After considering the effect of
the different classification of credit balances in cash at July 29, 1995 versus
October 29, 1994, accounts payable for Rymer Seafood increased by approximately
$0.2 million as compared to October 29, 1994 while Rymer Meat accounts payable
decreased by $1.0 million, both primarily due to the timing of inventory
purchases due to seasonal factors. Accrued liabilities decreased by $1.6
million primarily due to reductions in accrued interest, accrued payroll and
related benefits and accrued income taxes.
Current liabilities decreased due to a decrease of $5.8 million in current
maturities of amounts outstanding under bank lines of credit and a decrease in
current maturities of Senior Notes of $2,250,000. Under its Senior Note
Indenture, the Company made a mandatory redemption of its Senior Notes on
December 29, 1994 using funds available under bank lines of credit. The
Company's bank debt was classified as current at October 29, 1994 due to the
maturity of credit agreements with BABC and LaSalle on April 7, 1995.
14.
<PAGE>
On April 7, 1995, the Company replaced its credit facility of $20 million
provided by BABC and $12.5 million provided by LaSalle with a $25 million credit
facility provided by LaSalle. The credit line facility, with an initial term of
two years, has lower interest rates and reduced lending restrictions as compared
to the former facilities. The LaSalle credit facility has an annual interest
rate of 1/2% over Prime as compared to an annual rate of 2% over Prime on the
former BABC facility and 1% over Prime on the former LaSalle facility.
As of July 29, 1995, the Company was in violation of certain restrictive
covenants under its Loan and Security Agreement with LaSalle. LaSalle has
agreed to waive these covenant violations for the third quarter of 1995. The
Company was charged a financing fee in connection with execution of this waiver.
Management is currently engaged in negotiations with LaSalle to amend certain
provisions of the Loan and Security Agreement.
At July 29, 1995, the Company had $24.9 million in total credit lines available,
$4.8 million of which was unused. At October 29, 1994, the Company had $20.1
million in total credit lines available, $12.5 million of which was unused.
Unused availability under credit lines reflects a reduction for letters of
credit outstanding of approximately $4.1 million and $1.7 million at July 29,
1995 and October 29, 1994, respectively.
Availability under this facility is expected by management to provide sufficient
resources to meet the Company's working capital needs through the next year. In
future years, the Company expects to utilize cash flows from operations to
retire the Senior Notes which mature on December 15, 2000 and to meet other
long-term capital requirements.
The Company has agreements with certain of its customers to sell merchandise
over the next year for specified prices. The Company's aggregate commitments
under sales agreements were approximately $16.5 million and $14.0 million at
July 29, 1995 and October 29, 1994, respectively. The Company also has
agreements with certain of its suppliers to purchase raw materials. The
agreements extend for up to one year and provide the price and quantity of
materials to be supplied. The Company had purchase commitments of approximately
$3.4 million and $15.8 million as of July 29, 1995 and October 29, 1994,
respectively.
At October 29, 1994, the Company had an operating loss carryforward for tax
reporting purposes of approximately $33 million. See Note 8 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended October 29, 1994 for expiration dates of the carryforwards. The
utilization of operating loss carryforwards is expected to enhance future cash
flow by reducing cash outlays which would otherwise be required for income tax
payments.
The Company anticipates spending a total of approximately $700,000 for capital
expenditures in 1995. The expenditures are primarily for planned improvements
at the Meat operation. There are no specific commitments outstanding related to
these planned expenditures.
SEASONALITY
The quarterly results of the Company are affected by seasonal factors. Sales
are usually lower in the fall and winter.
IMPACT OF INFLATION
Raw materials are subject to fluctuations in price. However, the Company does
not expect such fluctuations to materially impact its competitive position.
15.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed:
11 Computations of earnings per share are included in the Notes to
Condensed Consolidated Financial Statements included in Item 1
of this Form 10-Q.
(b) Reports on Form 8-K:
None
16.
<PAGE>
RYMER FOODS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RYMER FOODS INC.
(Registrant)
By /s/Ludwig A. Streck
----------------------------
Ludwig A. Streck, Senior Vice
President and Chief Financial Officer
Date: September 11, 1995
17.
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<PERIOD-END> JUL-29-1995
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