SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A1
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Rymer Foods Inc.
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the
following items, financial statements, exhibits or other
portions of its Form 10-Q for the quarterly period ended
January 27, 1996 as set forth in the pages attached
hereto:
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
amendment to be signed on its behalf by the undersigned
thereunto duly authorized.
RYMER FOODS INC.
Edward M. Hebert Senior Vice President,
Chief Financial Officer and Treasurer
Date: July 23, 1996
This report consists of 18 pages
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
January 27, October 28,
1996 1995
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Receivables, net $ 8,389 $11,214
Inventories 15,120 18,985
Other 637 775
TOTAL CURRENT ASSETS 24,146 30,974
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 1,693 1,441
Machinery and equipment 6,839 6,761
8,532 8,202
Less accumulated depreciation
and amortization 6,446 6,172
2,086 2,030
OTHER:
Assets held for sale or lease 1,600 1,600
Other 763 920
$ 28,595 $ 35,524
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt:
Banks $ 11,494 $ 16,372
Senior Notes 19,765 18,133
Other 265 673
Accounts payable 2,245 1,909
Accrued liabilities 2,764 4,453
TOTAL CURRENT LIABILITIES 36,533 41,540
LONG-TERM DEBT:
Other 70 70
OTHER NON-CURRENT LIABILITIES 760 772
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par - 20,000,000 shares
authorized; 10,753,999 shares outstanding
in 1996 and 10,753,934 shares outstanding
in 1995 after deducting treasury shares of
225,118 in 1996 and 225,183 in 1995 10,754 10,754
Additional paid-in capital 44,363 44,363
Retained deficit (63,885) (61,569)
Notes receivable from sale of common shares
to related parties - (406)
TOTAL STOCKHOLDERS' DEFICIT ( 8,768) (6,858)
$ 28,595 $ 35,524
See accompanying notes.
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RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
Thirteen Weeks Ended
January 27, January 28,
1996 1995
(in thousands, except per share data)
<S> <C> <C>
Net sales $28,793 $35,881
Cost of sales 27,991 33,044
Gross profit 802 2,837
Selling, general and
administrative expenses 1,887 2,636
Operating loss (1,085) 201
Interest expense 1,233 1,011
Other income (2) (181)
Net loss $(2,316) $ (629)
Per common share data:
Primary:
Net loss $ (.22) $ (.06)
Fully diluted:
Net loss $ (.22) $ (.06)
See accompanying notes.
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RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Thirteen Weeks Ended
Jan. 27, 1996 Jan. 28, 1995
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss $ (2,316) $ (629)
Non-cash adjustments to income (loss):
Depreciation and amortization 273 151
Amortization of other assets 78 466
Other non-cash expense (income) - (6)
Provision for bad debts 79 256
Payment-in-kind interest on Senior Notes 426 -
Net decrease (increase) to accounts
receivable 2,746 (123)
Net decrease (increase) to inventories 3,865 (7,443)
Net decrease to other current and
long-term assets 237 65
Net decrease to accounts payable and
accrued expenses (165) (680)
Net cash flows from operating activities of
continuing operations 5,223 (7,943)
Net cash flows from operating activities of
discontinued operations (8) (226)
Net cash flows from operating activities 5,215 (8,169)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (329) (63)
Other
(6) ( 5)
Net cash flows from investing activities (335) (68)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under
line-of-credit facilities (4,878) 7,970
Principal payments on debt (2) (2,255)
Proceeds from borrowings - 14
Proceeds from issuance of common stock - 16
Net cash flows from financing activities (4,880) 5,745
Net change in cash and cash equivalents - (2,492)
Cash and cash equivalents balance at
beginning of year - 2,492
Cash and cash equivalents balance at
end of first quarter $ - $ -
Supplemental cash flow information:
Interest paid $ 419 $ 1,401
Income taxes paid, net of refunds $ 5 $ 183
See accompanying notes.
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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/A1 for the fiscal year ended October 28, 1995.
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. GOING CONCERN
The accompanying condensed consolidated financial statements have
been prepared assuming the Company will continue as a going
concern.
In the first quarter of 1996, the Company reported a decrease in
net sales from its Meat processing segment as compared to the first
quarter of 1995 of 45% principally due to the loss of certain major
customers. In 1995, the Company reported a net loss from
continuing operations of $29.3 million, the fourth loss from
continuing operations before extraordinary item in the last five
years. In the first quarter of 1996, Rymer Meat was informed that
its supply contracts with restaurants owned by Darden Restaurants
(formerly General Mills) would not be renewed. Sales to these
restaurant chains comprised approximately 15% of net sales from its
Meat processing segment in the first quarters of both 1996 and
1995. At January 27, 1996, the Company had a stockholders' deficit
of $8.8 million.
<PAGE>
As explained more fully in Note 6, the Company was not in
compliance at July 29, 1995, October 28, 1995 and January 27, 1996
with certain covenants contained in the loan agreement between the
Company and LaSalle National Bank (LaSalle). It is likely that in
1996, the Company will continue to be in violation of certain
covenants contained in the loan agreement, unless such covenants
are modified or waived. The Company is renegotiating certain of
these covenants, but there is no assurance that it will be
successful in this regard. In addition, an event of default under
the LaSalle Agreement and a cross-default under the Senior Note
Indenture existed at January 27, 1996 and October 28, 1995 due to
the non-payment of certain notes to former affiliates in January
1996 (See Note 6). The Company received a waiver of such event of
default under the Indenture in March 1996 with an effective date as
of February 8, 1996.
These conditions raise substantial doubt about the Company's
ability to continue operating as a going concern. The accompanying
condensed consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management believes that the Company's future success is dependent
upon reversing the sales decline experienced in 1995 and the first
quarter of 1996, on the continued reduction of operating costs and
on the success of negotiations with its major lenders. The Company
is pursuing new sales opportunities while continuing to streamline
its production process and to reduce other costs. In addition,
negotiations with the Company's lenders are continuing.
Significant expense and personnel reductions implemented during the
fourth quarter of 1995, including an approximate 20% reduction of
the Company's work force, are expected to reduce wage, salary and
other expenses by approximately $4.0 million in 1996.
3. RECEIVABLES
Receivables are net of allowances for doubtful accounts of $667,500
at January 27, 1996 and $568,000 at October 28, 1995.
4. INVENTORIES
Inventories are stated principally at the lower of first-in, first-
out cost or market. The composition of inventories was as follows:
January 27, 1996 October 28, 1995
(in thousands)
Raw materials $ 3,362 $ 6,415
Finished goods 11,758 12,570
Total $15,120 $18,985
5. DISCONTINUED OPERATIONS AND PROPOSED SALE OF RYMER INTERNATIONAL
SEAFOOD
Rymer Chicken - Plant City
During 1992, the Company decided to place its idle Plant City
chicken facility and equipment for sale.
<PAGE>
The facility has not yet been sold. In January 1996, the Company
entered into a preliminary agreement to lease the Plant City
facility for a period of ten years. In June 1996, the preliminary
lease agreement was cancelled. As a result, the property continues
to be marketed for sale or lease. Management believes, based on a
recent estimate of the property's value, that the carrying value is
appropriate. The Company will continue to evaluate the carrying
value in the future. Rymer Chicken-Plant City assets are
classified as assets held for sale or lease at both January 27,
1996 and October 28, 1995.
Reserves established in 1992 and 1993 are considered adequate to
maintain the idle facility. The Company incurred costs related to
maintaining the idle facility of approximately $14,000 during the
first quarter of 1996 and $44,000 during the first quarter of 1995
which were charged to the reserve established for such losses
during fiscal 1992 and 1993.
Rymer International Seafood
On January 5, 1996, the Company announced that it had signed an
agreement in principle to sell the assets of Rymer Seafood (Sale of
Rymer Seafood) to an entity to be formed by the current President
of Rymer Seafood. The agreement specifies that the sales price for
the assets, based on balances as of January 27, 1996, will be
approximately $12.2 million, consisting of $1.5 million in cash,
$1.5 million in a ten year subordinated note of the buyer and the
assumption by the buyer of approximately $7.5 million in bank debt
and $1.7 million of other current liabilities. Consummation of the
transaction is subject to a variety of conditions, including
negotiation of definitive documentation and approval by the holders
of 66 2/3% of the outstanding Common Stock of the Company and the
holders of a majority of Rymer's outstanding 11% Senior Notes. The
Company plans to proceed with solicitation of these approvals and,
if obtained, to complete the Sale of Rymer Seafood during the
fourth quarter of 1996.
The Company, in its originally filed first quarter 1996 Form 10-Q,
reported its Rymer Seafood segment as a discontinued operation. As
a result of discussions with the staff of the Securities and
Exchange Commission, the Company has reclassified these operations
to continuing operations. The Company expects to record a loss on
the sale of Rymer Seafood of approximately $1.5 million which will
be recorded as of the measurement date which is expected to be in
the fourth quarter of 1996. Absent this proposed sale, management
believes that the carrying value of the Seafood assets is
recoverable in the course of normal operations.
<PAGE>
The net assets of Rymer Seafood expected to be sold are as follows
as of January 27, 1996 and October 28, 1995:
January 27, October 28,
1996 1995
(in thousands)
Receivables $ 5,424 $ 6,537
Inventories 7,584 6,866
Other current assets 9 8
Net property, plant and equipment 41 43
Total assets 13,058 13,454
Less: current liabilities (9,055) (9,451)
$ 4,003 $ 4,003
The following summarizes the results of Rymer Seafood reflected in
the accompanying condensed statements of operations:
1996 1995
(in thousands)
Net sales $16,814 $13,902
Income from operations $ 32 $ 64
6. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consists of the following:
January 27, October 28,
1996 1995
(in thousands)
Banks, with interest of 1/2% over
prime in 1996 and 1995 $11,494 $16,372
Senior Notes due December 15, 2000,
with interest at 18% 19,765 18,133
Other, including capitalized leases
and amounts to related parties
Due to former executives under restructured
employment and consulting agreements 255 656
Other 80 87
31,594 35,248
Less amounts classified as current 31,524 35,178
$ 70 $ 70
As of January 27, 1996, October 28, 1995 and July 29, 1995, the
Company was in violation of certain covenants under its Loan and
Security Agreement with LaSalle. LaSalle 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.
<PAGE>
On January 5, 1996, LaSalle and the Company entered into the
Forbearance Agreement and Amendment. Under this agreement, which
was subsequently amended, LaSalle agreed to temporarily forbear
from exercising its remedies under the Loan and Security Agreement.
In addition, the Loan Agreement was amended to, among other things,
reduce advance rates for inventories and, for purposes of computing
interest, loan payments are applied by the bank on the second
business day after available funds are received.
On February 7, 1996, LaSalle and the Company entered into an
Amendment to the Forbearance Agreement (Letter Agreement). In the
Letter Agreement, LaSalle agreed to waive certain financial
covenant violations and the resulting events of default as of
October 28, 1995. The Forbearance Agreement and the Letter
Agreement were executed on the assumption that no other events of
default existed under the loan agreement. As discussed below, the
Company subsequently determined that another event of default under
the loan agreement existed at the time of the execution of these
agreements. This event of default related to the non-payment of
certain notes payable to former executives of the Company (the
Affiliate Debt default). On February 22, 1996, the Company
received a letter from LaSalle confirming that the waiver as of
October 28, 1995 contained in the Letter Agreement was valid for
the events of default specified in the Forbearance Agreement
despite the subsequent determination of the Affiliate Debt default.
The Company remains in default under the LaSalle agreement,
however, due to non-payment of the Affiliate Debt.
LaSalle also agreed to amend the Loan and Security Agreement in
order to revise the next test date for the financial covenants to
be as of February 24, 1996. On March 12, 1996, the Company and
LaSalle entered into an Amendment to Loan Agreement that modified
certain provisions of the Loan and Security Agreement between the
Company and LaSalle, including covenants relating to financial
amounts and ratios. The Company expects to be in compliance with
such financial covenants, as so modified. However, there is no
assurance that the Company will remain in compliance with the
covenants, as modified. LaSalle has the right, upon the occurrence
of an event of default, to terminate the credit facility and
declare all loans due and payable on demand. The Company's bank
indebtedness and indebtedness under the Senior Notes have been
classified as current liabilities at both January 27, 1996 and
October 28, 1995.
<PAGE>
In January 1996, the Company did not make required payments of
$255,000 under notes payable due to former executives (Affiliate
Debt). The Affiliate Debt is related to certain amended employment
and consulting agreements between the Company and the former
executives (See Note 11 to the Consolidated Financial Statements in
the Company's Annual Report on Form 10-K/A1 for the year ended
October 28, 1995). The Company has deferred payment of this debt
in order to conserve cash for use in operation of its business.
The Company intends to continue to accrue interest on the debt at
9.5%. The non-payment of the Affiliate Debt caused cross-defaults
under the Loan and Security Agreement with LaSalle and under the
Senior Note Indenture. While LaSalle has not waived this default,
the Company believes that it is LaSalle's intention not to take any
action as a result of the default. However, there can be no
assurance that LaSalle will continue to forbear from taking action
as a result of these defaults.
In March of 1996, the Company entered into Supplement No. 1 to the
Indenture (Supplemental Indenture) with Continental Stock Transfer
and Trust Company as Trustee for the Senior Notes which was dated
as of February 8, 1996. The Supplemental Indenture, which received
the approval of a majority of the Senior Note holders, amended the
Indenture to exclude the non-payment of the Affiliate Debt, and the
resulting cross-default under any other debt that arises by reason
of non-payment of the Affiliate Debt, from the definition of events
of default under the Indenture. If another event of default occurs
and continues under the Company's bank agreement with LaSalle,
however, it would constitute an event of default under the
Indenture, enabling the Trustee or the holders of 25% in aggregate
principal amount of the Notes to declare the Notes to be
immediately due and payable.
The Senior Notes were issued pursuant to the Indenture between the
Company and Continental Stock Transfer & Trust Company, as trustee
(the Indenture). The Senior Notes bear interest at 11% payable
semi-annually in arrears on June 15 and December 15. Through
December 15, 1996, the Company may issue additional Senior Notes in
payment of interest to the extent that the Company lacks sufficient
available cash (as defined in the Indenture) to pay the interest in
cash. For interest paid by the issuance of additional Senior Notes
after June 15, 1993, and through December 15, 1996, the interest
rate will be increased to 18% per annum.
At January 27, 1996 and October 28, 1995, the Company had a bank
loan of $4.0 million and $8.1 million, respectively, outstanding
under its line of credit with LaSalle for Rymer Meat. In addition,
as of January 27, 1996 and October 28, 1995, $7.5 million and $8.2
million, respectively, was outstanding under the LaSalle line
of credit for Rymer Seafood. According to the proposed agreement
to sell Rymer Seafood, the loan balance for Rymer Seafood is to be
assumed by the buyers of Rymer Seafood.
<PAGE>
The Company's Rymer Meat subsidiary had total lines of credit
available under notes payable of $6.3 million at January 27, 1996
and $11.7 million at October 28, 1995 of which $2.3 million and
$3.6 million, respectively, was unused.
The Company's Seafood subsidiary had total lines of credit
available under notes payable of $10.9 million at January 27, 1996
and $10.8 million at October 28, 1995 of which $0.9 million and
$1.1 million, respectively, was unused.
Total availability under credit lines is reduced by the amount of
letters of credit outstanding. Letters of credit are used
primarily for purchases of seafood inventory from foreign sources.
Rymer Seafood had letters of credit outstanding totalling
approximately $2.5 million and $1.5 million at January 27, 1996 and
October 28, 1995, respectively.
The following table summarizes the activity of the Company's Senior
Notes (in thousands):
Senior Notes originally issued in connection
with the 1993 Restructuring $19,977
Interest payment-in-kind on June 15, 1993 1,456
Mandatory redemptions:
June 1994 (1,050)
December 1994 (2,250)
Senior Note principal outstanding at October 28, 1995 18,133
Interest payment-in-kind on December 15, 1995 1,632
Senior Note principal outstanding at January 27, 1996 $19,765
On December 15, 1995, the Company announced that, as permitted by
the terms of its 11% Senior Notes due December 15, 2000, it had
elected to make its December 15, 1995 interest payment on its
Senior Notes by issuing additional Senior Notes in a principal
amount equal to the interest payment due of $1,632,000. According
to the Senior Note Indenture, such an election requires the Company
to pay its interest at a rate of 18% versus the 11% rate applicable
if the interest was paid in cash. Accordingly, the Company
recorded an additional interest charge of approximately $470,000 in
the fourth quarter of 1995 related to this interest payment. There
is doubt whether the Company will have funds available to pay its
June 15, 1996 or December 15, 1996 Senior Note interest payments in
cash. Accordingly, the Company is accruing interest expense on the
Senior Notes at a rate of 18% for fiscal 1996.
The Company may seek to restructure the terms of its 11% Senior
Notes in an effort to improve its liquidity. There can be no
assurances that such a restructuring will occur.
<PAGE>
The notes payable to former executives under the restructured
employment and consulting agreements were amended in connection
with the Restructuring (See Note 11 to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K/A1 for the
year ended October 28, 1995). At October 28, 1995, the balance
consisted of unsecured notes totalling $406,000 which bore interest
at 9.5% per annum and matured on January 2, 1996 and non-interest
bearing notes with a face value of $255,000 which were due and
payable on January 2, 1996. The Company did not make the required
payments under these notes, as discussed previously.
The interest bearing notes payable were equal to, and were offset
on January 2, 1996 against, notes receivable owed to the Company by
the executives under stock purchase agreements. The notes
receivable also bore interest at 9.5% per annum and were due
January 1, 1996.
7. INCOME TAXES
In both 1996 and 1995, no provision for income taxes was recorded
due to the loss from operations. The components of the net deferred
tax asset recorded in the accompanying balance sheet as of January
27, 1996 has not changed significantly from balances as of October
28, 1995. The Company did not record any income tax benefit during
the first quarter of 1996 because of the uncertainty of the
utilization of the benefit. The Company continues to record a full
valuation allowance for its deferred tax asset so that the balance
of the net deferred tax asset at both January 27, 1996 and October
28, 1995 is zero.
8. 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 $6.9
million and $4.1 million at January 27, 1996 and October 28, 1995,
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
$2.9 million at both January 27, 1996 and October 28, 1995.
Notes to Financial Statements (unaudited) -- cont'd.
<PAGE>
COMPUTATION OF EARNINGS PER SHARE
ASSUMING PRIMARY DILUTION ASSUMING FULL DILUTION
Thirteen Weeks Ended Thirteen Weeks Ended
January 27, January 28, January 27, January 28,
1996 1995 1996 1995
(In thousands, except per share amounts)
AVERAGE SHARES OUTSTANDING
1 Average shares outstanding 10,754 10,741 10,754 10,741
2 Net additional shares outstanding
assuming exercise of stock
options - 297 74 297
3 Average number of common shares
outstanding 10,754 11,038 10,828 11,038
EARNINGS
4 Net loss $(2,316) $ (629) $(2,316) $ (629)
PER SHARE AMOUNTS
Net loss (line 4 / line 3) $ (.22) $ (.06) $ (.21) $ (.06)
(a)
NOTE 1 - In all years, earnings per share was calculated using the
treasury stock method.
(a) Amount is anti-dilutive; accordingly, primary earnings per share is
disclosed for reporting purposes in accordance with generally
accepted accounting principles.
<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
meat processing and seafood importing and distribution operation.
Going Concern
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As
discussed in Note 2 to the condensed consolidated financial statements,
certain conditions raise substantial doubt about the Company's ability
to continue operating as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
First Quarter of 1996 versus First Quarter of 1995
Consolidated sales for the first quarter of 1996 of $29 million
decreased from the first quarter of 1995 by $7.1 million or 20%. Sales
decreased primarily due to reduced sales volume due to increased
competition. A significant portion of the sales volume decrease
resulted from the termination of sales to a major customer during the
second quarter of 1995. Sales of the Company's meat segment decreased
by $10 million or 45% and sales of its seafood importing and
distributing segment increased $2.9 million or 21%.
The Company experienced a decline in unit sales in its meat segment of
approximately 49% primarily due to increased competition. In addition,
sales decreased partially as a result of the Company's customers
experiencing sales declines. Many restaurant chains have experienced
sales declines due to ever-increasing competitive pressures in the
casual dining segment of the foodservice market and due to adverse
weather conditions in certain areas of the country. The Company's meat
segment experienced an increase of 6.6% in the average selling price
primarily due to a higher priced mix of products sold in 1996 as
compared to 1995.
As compared to 1995, consolidated cost of sales decreased by $5.1
million or 15.3% while total gross profit decreased by $2.0 million or
71.7%. As a percentage of sales, the gross margin decreased to 2.8% as
compared to 7.9% in 1995.
<PAGE>
Gross profit decreased compared to 1995 primarily due to decreased unit
sales. The Company was unable to achieve reductions in certain factory
expenses proportionate to the decline in sales. Factory expenses
declined by 20% as compared to a 49% decrease in unit sales. The
Company experienced increases in maintenance and depreciation expense.
Increased maintenance and building improvements have been necessary
primarily due to the age and condition of the current Meat facility.
The Company is depreciating the building improvements over the building
lease term which is through July 1996. Management is currently
evaluating alternative building facilities and intends to relocate to a
more efficient facility as soon as is practicable. Management is
continuing to streamline its operations. The hourly work force has
declined by approximately 24% at the end of the first quarter of 1996
versus 1995.
Selling, general and administrative expenses decreased by $749,000 or
28.4% in 1996 as compared to 1995. Administrative expenses decreased by
$723,000. A reduction in goodwill amortization of $290,000 was
experienced as compared to the first quarter of 1995 due to the required
writedown of goodwill recorded in the Company's 1995 fourth quarter.
Reductions in salaries and related expenses due to headcount reductions
at the meat processing operation and of corporate personnel contributed
to the majority of the remaining decrease of $433,000. Selling expenses
decreased by $26,000 primarily due to a reduction in expenses related to
the Company's retail products sold in grocery and wholesale club stores
and reduced salary expenses due to decreases in personnel partially
offset by additional selling costs at Rymer Seafood associated with
their Ecuadorian Shrimp line.
Interest Expense
Interest expense increased by $222,000 or 22.0% as compared to 1995.
This increase was attributable to increased interest expense on the
Company's 11% Senior Notes. On December 15, 1995, the Company announced
that, as permitted by the terms of its 11% Senior Notes due December 15,
2000, it had elected to make its December 15, 1995 interest payment on
its Senior Notes by issuing additional Senior Notes in a principal
amount equal to the interest payment due. According to the Senior Note
Indenture, such an election requires the Company to pay its interest at
a rate of 18% versus the 11% rate applicable if the interest is paid in
cash. The Company does not expect to have funds available to pay its
June 15, 1996 or December 15, 1996 Senior Note interest payments in
cash. Accordingly, the Company is accruing interest expense on the
Senior Notes at a rate of 18% for fiscal 1996. The Company recorded an
additional interest charge of approximately $335,000 in the first
quarter of 1996 related to the increase in the interest rate on the
Senior Notes. After considering the increase in Senior Note interest of
approximately $335,000, interest expense decreased by approximately
$113,000 compared to 1995 due primarily to lower interest rates on the
credit line facility due to the replacement of the higher-cost former
credit facility with BA Business Credit Inc. with the LaSalle credit
facility on April 7, 1995.
The Company may also seek to restructure the terms of its 11% Senior
Notes in an effort to improve its liquidity. There can be no assurances
that such a restructuring will occur.
<PAGE>
Other Income
The Company earned other income of $181,000 in 1995 which was comprised
primarily of consulting fees. The Company earned other income in 1996
of $2,000 consisting primarily of interest income.
DISCONTINUED OPERATIONS AND PROPOSED SALE OF RYMER INTERNATIONAL SEAFOOD
The Company continues to carry its idle Plant City, Florida property at
its estimated net realizable value of $1.6 million. In January 1996,
the Company entered into a preliminary agreement to lease the Plant City
facility for a period of ten years. The preliminary lease agreement was
cancelled in June 1996. As a result, the property continues to be
marketed for sale or lease. Management believes, based on a recent
estimate of the property's value, that the carrying value is
appropriate. The Company will continue to evaluate the carrying value
in the future.
On January 5, 1996, the Company announced that it had signed an
agreement in principle to sell the assets of Rymer Seafood (Sale of
Rymer Seafood) to an entity to be formed by the current President of
Rymer Seafood. The agreement specifies that the sales price for the
assets, based on balances as of January 27, 1996, would be approximately
$12.2 million, consisting of $1.5 million in cash, $1.5 million in a ten
year subordinated note of the buyer and the assumption by the buyer of
approximately $7.5 million in bank debt and $1.7 million of other
current liabilities. Consummation of the transaction is subject to a
variety of conditions, including negotiation of definitive documentation
and approval by the holders of 66 2/3% of the outstanding Common Stock
of the Company and the holders of a majority of Rymer's outstanding 11%
Senior Notes. The Company plans to seek these approvals and, if
received, to complete the Sale of Rymer Seafood during the fourth
quarter of 1996.
The Company, in its originally filed first quarter 1996 10-Q, reported
its Rymer Seafood segment as a discontinued operation. As a result of
discussions with the staff of the Securities and Exchange Commission,
the Company has reclassified these operations to continuing operations.
The Company expects to record a loss on the sale of Rymer Seafood of
approximately $1.5 million which will be recorded as of the measurement
date which is expected to be in the fourth quarter of 1996. Absent this
proposed sale, management believes that the carrying value of the
Seafood assets is recoverable in the course of normal operations.
Income Taxes
In both 1996 and 1995, no provision for income taxes was recorded due to
the loss from operations.
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. Rymer Seafood uses letters of
credit for purchases of imported seafood.
<PAGE>
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 condensed consolidated
financial statements as of January 27, 1996 and October 28, 1995.
On April 7, 1995, the Company replaced its credit facility of $20
million provided by BA Business Credit, Inc. (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 January 27, 1996, October 28, 1995 and July 29, 1995, the Company
was in violation of certain financial covenants under its Loan and
Security Agreement with LaSalle. LaSalle 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.
In response to the October 28, 1995 violations, on January 5, 1996,
LaSalle and the Company entered into a Forbearance Agreement and
Amendment. Under this agreement, which was subsequently amended,
LaSalle agreed to temporarily forbear from exercising its remedies under
the Loan and Security Agreement. In addition, the Loan Agreement was
amended to, among other things, reduce advance rates for inventories
and, for purposes of computing interest, loan payments are applied by
the bank on the second business day after available funds are received.
On February 7, 1996, LaSalle and the Company entered into an Amendment
to the Forbearance Agreement (Letter Agreement). In the Letter
Agreement, LaSalle agreed to waive certain financial covenant violations
and the resulting events of default as of October 28, 1995. The
Forbearance Agreement and the Letter Agreement were executed on the
assumption that no other events of default existed under the loan
agreement. As discussed below, the Company subsequently determined that
another event of default under the loan agreement existed at the time of
the execution of these agreements. This event of default related to the
non-payment of certain notes payable to former executives of the Company
(the Affiliate Debt default). On February 22, 1996, the Company
received a letter from LaSalle confirming that the waiver as of October
28, 1995 contained in the Letter Agreement was valid for the specified
events of default despite the subsequent determination of the Affiliate
Debt default. The Company remains in default under the LaSalle
agreement, however, due to non-payment of the Affiliate Debt.
<PAGE>
In the Letter Agreement, LaSalle also agreed to amend the Loan and
Security Agreement in order to revise the next test date for the
financial covenants to be as of February 24, 1996. On March 12, 1996,
the Company and LaSalle entered into an Amendment to Loan Agreement that
modified certain provisions of the Loan and Security Agreement between
the Company and LaSalle, including covenants relating to financial
amounts and ratios. The Company expects to be in compliance with such
financial covenants, as so modified. However, there is no assurance
that the Company will remain in compliance with the covenants, as
modified. LaSalle has the right, upon the occurrence of an event of
default, to terminate the credit facility and declare all loans due and
payable on demand. The Company's bank indebtedness and indebtedness
under the Senior Notes have been classified as current liabilities at
both January 27, 1996 and October 28, 1995.
In January of 1996, the Company did not make required payments of
$255,000 under notes payable due to former executives (Affiliate Debt).
The Affiliate Debt is related to certain amended employment and
consulting agreements between the Company and the former executives (See
Note 11 to the Consolidated Financial Statements in the Company's Annual
Report on Form 10-K/A1 for the year ended October 28, 1995). The
Company has deferred payment of this debt in order to conserve cash for
use in operation of its business. The Company intends to continue to
accrue interest on the debt at 9.5%. The non-payment of the Affiliate
Debt caused cross-defaults under the Loan and Security Agreement with
LaSalle and under the Senior Note Indenture. While LaSalle has not
waived this default, the Company believes that it is LaSalle's intention
not to take any action as a result of the default. However, there can
be no assurance that LaSalle will continue to forbear from taking action
as a result of these defaults.
In March of 1996, the Company entered into Supplement No. 1 to the
Indenture (Supplemental Indenture) with Continental Stock Transfer and
Trust Company as Trustee for the Senior Notes which was dated as of
February 8, 1996. The Supplemental Indenture, which received the
approval of a majority of the Senior Note holders, amended the Indenture
to exclude the non-payment of the Affiliate Debt, and the resulting
cross-default under any other debt that arises by reason of non-payment
of the Affiliate Debt, from the definition of events of default under
the Indenture. If another event of default occurs and continues under
the Company's bank agreement with LaSalle, however, it would constitute
an event of default under the Indenture, enabling the Trustee or the
holders of 25% in aggregate principal amount of the Notes to declare the
Notes to be immediately due and payable.
At January 27, 1996 and October 28, 1995, the Company had a bank loan of
$4.0 million and $8.1 million, respectively, outstanding under its line
of credit with LaSalle for Rymer Meat. In addition, as of January 27,
1996 and October 28, 1995, $7.5 million and $8.2 million, respectively,
was outstanding under the LaSalle line of credit for Rymer International
Seafood. According to the proposed agreement to sell Rymer Seafood, the
loan balance for Rymer Seafood is to be assumed by the buyers of Rymer
Seafood.
On December 15, 1995, the Company announced that, as permitted by the
terms of its 11% Senior Notes due December 15, 2000, it had elected to
make its December 15, 1995 interest payment on its Senior Notes by
issuing additional Senior Notes in a principal amount equal to the
interest payment due of $1,632,000. According to the Senior Note
Indenture, such an election requires the Company to pay its interest at
a rate of 18% versus the 11% rate applicable if the interest is paid in
cash. There is doubt whether the Company will have funds available to
pay its June 15, 1996 or December 15, 1996 Senior Note interest payments
in cash. Accordingly, the Company intends to accrue interest expense on
the Senior Notes at a rate of 18% for fiscal 1996.
<PAGE>
The Company had a net working capital deficit at January 27, 1996 of
$12.4 million which is a decrease in working capital of $1.8 million as
compared to a working capital deficit of $10.6 million at October 28,
1995. The decrease was primarily due to a decrease in current assets of
$6.8 million partially offset by a decrease in current liabilities of
$5.0 million.
Accounts receivable decreased by $2.8 million primarily due to decreased
sales. Inventories decreased by $3.9 million due to decreased
purchasing along with efforts by the Company to reduce inventories in
order to reduce debt.
Current liabilities decreased due to a decrease in bank loans of $4.9
million, a decrease in accrued liabilities of $1.7 million, and a
decrease in other long-term debt of 0.4 million. These decreases were
partially offset by an increase in the principal amount of Senior Notes
of $1.6 million and accounts payable of $0.3 million.
The decrease in accrued expenses is primarily attributable to the
payment of Senior Note interest of $1.6 million on December 15, 1995 by
the issuance of new Senior Notes. Other long-term debt decreased due to
the offset of notes payable of approximately $406,000 against notes
receivable of approximately the same amount on January 2, 1996. The
notes receivable were classified as a reduction of stockholders' equity
as they related to stock purchase agreements.
Under its Senior Note Indenture, the Company made a mandatory redemption
of its Senior Notes of $2,250,000 on December 29, 1994 using funds
available under bank lines of credit.
Upon favorable conclusion of negotiations with LaSalle, of which there
is no assurance, availability under this facility is expected by
management to provide sufficient resources to meet its working capital
needs through the next year. The anticipated future cash flows of the
Company may not be sufficient to retire the Senior Notes upon maturity
on December 15, 2000. Accordingly, the Company may seek to restructure
the terms of its 11% Senior Notes. There can be no assurances that such
a restructuring will occur. Furthermore, if a Senior Note restructuring
should occur, it would likely affect the equity capitalization of the
Company.
The Company's Meat subsidiary had total lines of credit available under
notes payable of $6.3 million at January 27, 1996 and $11.7 million at
October 28, 1995 of which $2.3 million and $3.6 million, respectively,
was unused.
The Company's Seafood subsidiary had total lines of credit available
under notes payable of $10.9 million at January 27, 1996 and $10.8
million at October 28, 1995 of which $0.9 million and $1.1 million,
respectively, was unused.
Total availability under credit lines is reduced by the amount of
letters of credit outstanding. Letters of credit are used primarily for
purchases of seafood inventory from foreign sources. Rymer Seafood had
letters of credit outstanding totalling approximately $2.5 million and
$1.5 million at January 27, 1996 and October 28, 1995, respectively.
<PAGE>
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 $6.9
million and $4.1 million at January 27, 1996 and October 28, 1995,
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 $2.9 million as of
both January 27, 1996 and October 28, 1995.
At October 28, 1995, the Company had an operating loss carryforward for
tax reporting purposes of approximately $31.2 million. See Note 8 to
the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K/A1 for the year ended October 28, 1995 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 a total of approximately $500,000 for capital
expenditures in 1996. 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.
<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/A1.
Exhibits incorporated by reference:
10.1 Supplement No. 1, dated as of February 8,
1996, to the Indenture dated as of April 7,
1993 between Rymer Foods Inc. and Continental
Stock Transfer & Trust Company as Trustee for
Rymer Foods Inc. 11% Senior Notes due 2000.
10.2 Amendment to Loan Agreement, dated as of
February 24, 1996, by and among Rymer Meat
Inc., Rymer International Seafood Inc., Rymer
Foods Inc. and LaSalle National Bank.
13.1 Annual Report on Form 10-K/A1 of Rymer
Foods Inc. for the fiscal year ended October
28, 1995 (Incorporated by reference).
21.1 Subsidiaries of the Company.
(Incorporated by reference to Exhibit 22 to the
Annual Report of Form 10-K/A1 of Rymer Foods
Inc. for the fiscal year ended October 28,
1995.)
(b) Reports on Form 8-K:
None
<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/ Edward M. Hebert
Edward M. Hebert, Senior Vice President,
Chief Financial Officer and Treasurer
Date: July 23, 1996
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