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 27, 1996
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 10,753,934 shares of common stock outstanding as of
August 2, 1996.
This report consists of 17 pages.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
July 27, October 28,
1996 1995
<S> <C> <C>
(in thousands)
ASSETS
CURRENT ASSETS:
Receivables, net $ 7,937 $11,214
Inventories 7,770 8,985
Other 534 775
TOTAL CURRENT ASSETS 16,241 30,974
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 1,735 1,441
Machinery and equipment 6,906 6,761
8,641 8,202
Less accumulated depreciation and amort. 6,975 6,172
1,666 2,030
OTHER:
Assets held for sale or lease 1,600 1,600
Other 671 920
$ 20,178 $ 35,524
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt:
Banks $ 6,542 $ 16,372
Senior Notes
21,544 18,133
Other, primarily amounts to related parties 66 673
Accounts payable 1,430 1,909
Accrued liabilities 2,185 4,453
TOTAL CURRENT LIABILITIES 31,767 41,540
LONG-TERM DEBT:
Other 70 70
OTHER NON-CURRENT LIABILITIES 743 772
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par - 20,000,000 shares
authorized; 10,754,086 shares outstanding
in 1996 and 10,753,934 shares outstanding
in 1995 after deducting treasury shares of
225,033 in 1996 and 225,183 in 1995 10,754 10,754
Additional paid-in capital 44,363 44,363
Retained deficit (67,519) (61,569)
Notes receivable from sale of common shares
to related parties - (406)
TOTAL STOCKHOLDERS' DEFICIT (12,402) (6,858)
$ 20,178 $ 35,524
See accompanying notes.
</TABLE)
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</TABLE>
<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Thirty-Nine
Weeks Ended Weeks Ended
July 27, July 29, July 27, July 29,
1996 1995 1996 1995
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $26,237 $39,118 $ 80,284 $111,223
Cost of sales 24,549 37,074 77,086 103,197
Gross profit (loss) 1,688 2,044 3,198 8,026
Selling, general and
administrative expenses 1,804 2,693 5,493 8,547
Operating loss (116) (649) (2,295) (521)
Interest expense 1,173 979 3,659 3,151
Other income (3) (78) (4) (385)
Net loss $(1,286) $(1,550) $ (5,950) $ (3,287)
Per common share data:
Primary:
Net loss $ (.12) $ (.14) $ (.55) $ (.30)
Fully diluted:
Net loss $ (.12) $ (.14) $ (.55) $ (.30)
Average shares outstanding
Primary 10,754,000 10,756,000 10,754,000 10,901,000
Fully diluted 10,754,000 10,756,000 10,754,000 10,901,000
See accompanying notes.
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<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Thirty-Nine Weeks Ended
July 27, 1996 July 29, 1995
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(5,950) $ (3,287)
Non-cash adjustments to income (loss):
Depreciation 803 444
Amortization of other assets 143 1,245
Other non-cash expense (income) - (18)
Provision for bad debts 229 649
Payment-in-kind interest on Senior Notes 3,411 -
Net decrease (increase) to accounts receivable 3,048 (2,465)
Net decrease (increase) to inventories 11,216 (3,369)
Net decrease to other current and
long-term assets 347 (139)
Net decrease to accounts payable and accrued
expenses (2,343) (2,476)
Net cash flows from operating activities of
continuing operations 10,904 (9,416)
Net cash flows from operating activities of
discontinued operations (9) (529)
Net cash flows from operating activities 10,895 (9,945)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (439) (427)
Other (19) (13)
Net cash flows from investing activities (458) (440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line-of-credit facilities (10,253) 10,109
Principal payments on debt (184) (2,280)
Proceeds from borrowings - 37
Proceeds from issuance of common stock - 27
Net cash flows from financing activities (10,437) 7,893
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 third quarter $ - $ -
Supplemental cash flow information:
Interest paid $ 925 $ 2,311
Income taxes paid, net of refunds $ 15 $ 648
See accompanying notes.
</TABLE>
<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/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.
<PAGE>
2. GOING CONCERN
The accompanying condensed consolidated financial statements have
been prepared assuming the Company will continue as a going
concern.
In the first three quarters of 1996, the Company reported a
decrease in net sales from its meat processing segment as compared
to the first three quarters of 1995 of 46% principally due to the
loss of certain major customers and increased competition. In
1995, the Company reported a net loss from continuing operations of
$29.3 million, its 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 5.1% and 19.6% of net sales from its meat processing
segment in the first three quarters of 1996 and 1995, respectively.
At July 27, 1996, the Company had a stockholders' deficit of $12.4
million.
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). In 1996, the Company
continued to be in violation of certain covenants contained in the
loan agreement. However, the Company received a waiver for the
events of default in regard to its loan covenants on August 28,
1996 which coincides with a revised loan agreement with LaSalle
Bank in conjunction with its sale of Rymer Seafood. 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. The payment terms
of these notes to former affiliates were revised during the second
quarter of 1996.
These conditions raise 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 continuing to reverse the sales decline experienced in 1995
and the first three quarters of 1996 and the continued reduction of
operating costs. The Company is pursuing new sales opportunities
while continuing to streamline its production process and reduce
other costs. 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 direct labor, salary and other expenses by approximately
$4.0 million in 1996.
<PAGE>
3. RECEIVABLES
Receivables are net of allowances for doubtful accounts of $580,000
at July 27, 1996 and $353,000 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:
July 27, 1996 October 28, 1995
(in thousands)
Raw materials $ 2,011 $ 6,415
Finished goods 5,759 12,570
Total $ 7,770 $18,985
5. DISCONTINUED OPERATIONS AND 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.
In January 1996, the Company entered into an 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
July 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 $25,000 during the
first three quarters of 1996 and $34,000 during the first three
quarters of 1995 which were charged to the reserve established for
such losses during fiscal 1992 and 1993.
<PAGE>
Rymer International Seafood
On August 28, 1996, the Company completed the sale of substantially
all of the assets of its Seafood subsidiary to BGL I, Inc. The
Company's shareholders approved the transaction at a special
meeting on August 28, 1996. Consummation of the sale was subject
to certain conditions, including approval by the holders of 66 2/3%
of the outstanding Common Stock of the Company and approval of
Rymer's outstanding 11% Senior Notes. Senior noteholder approval
was received prior to the shareholder meeting of August 28, 1996.
Based on balances as of July 27,1996, the sales price was
approximately $9.5 million, consisting of $1.5 million in cash,
$1.5 million in a ten year subordinated note from the buyer and the
assumption by the buyer of $4.2 million in bank debt and $1.3
million of other current liabilities. The Company will record a
loss on the sale of Rymer Seafood of approximately $1.5 million,
which will be recorded as of the measurement date (August 28, 1996)
in the fourth quarter of 1996.
The net assets of Rymer Seafood that were sold are as follows:
July 27, October 28,
1996 1995
(in thousands)
Receivables $ 5,312 $ 6,537
Inventories 3,919 6,866
Other current assets 35 8
Net property, plant and
equipment 32 43
Total assets 9,298 13,454
Less: current liabilities (5,295) (9,451)
$ 4,003 $ 4,003
The following summarizes the results of Rymer Seafood reflected in
the accompanying condensed statements of operations for the thirty-
nine weeks ended July 27, 1996 and July 29, 1995:
1996 1995
(in thousands)
Net sales $47,315 $49,680
Income from operations $ 188 $ 415
<PAGE>
6. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consists of the following (in thousands):
July 27, October 28,
1996 1995
Banks, with interest varying from
1/2% to 1 1/2% over prime in
1996 and 1995 $ 6,542 $16,372
Senior Notes due December 15, 2000,
with interest at 18% 21,544 18,133
Other, including capitalized leases
and amounts to related parties - -
Due to former executives under
restructured employment and
consulting agreements 66 656
Other 70 87
28,222 35,248
Less amounts classified as current 28,152 35,178
$ 70 $ 70
As previously reported, at certain times during fiscal years 1995
and 1996, the Company was in violation of certain covenants under
its Loan and Security Agreement ("Loan Agreement") with LaSalle.
LaSalle has agreed to waive certain such violations, temporarily
forbear from exercising remedies under the Loan Agreement with
respect to certain violations and amend the Loan Agreement to
modify, among other things, certain covenants relating to financial
amounts and ratios. In addition, as previously reported, the
Company did not make certain required payments under notes payable
to former executives ("Affiliate Debt"). The non-payment of
Affiliate Debt caused cross defaults under the Loan Agreement and
under the Company's Indenture with Continental Stock Transfer and
Trust Company under which the Company's 11% Senior Notes are issued
(the "Indenture"). While LaSalle has not waived this default, it
has not taken any action as a result of this default. The
Indenture has been amended to exclude such non-payment of 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. On August 28,
1996, LaSalle agreed to waive all violations and events of default
as of July 27, 1996 under its revised Loan Agreement.
<PAGE>
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 July 27, 1996 and October 28, 1995,
the Company had a bank loan of $2.3 million and $8.1 million,
respectively, outstanding under its line of credit with LaSalle for
Rymer Meat. In addition, as of July 27, 1996 and October 28, 1995,
$4.2 million and $8.2 million, respectively, was outstanding under
the LaSalle line of credit for Rymer Seafood. Under the agreement
to sell Rymer Seafood, the loan balance for Rymer Seafood has been
assumed by the buyers of Rymer Seafood.
The Company's Rymer Meat subsidiary had total lines of credit
available under notes payable of $3.3 million at July 27, 1996 and
$11.7 million at October 28, 1995 of which $1.0 million and $3.6
million, respectively, was unused.
The Company's Seafood subsidiary had total lines of credit
available under notes payable of $8.3 million at July 27, 1996 and
$10.8 million at October 28, 1995 of which $1.7 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 $2.4 million and $1.5 million at July 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
Interest payment-in-kind on July 15, 1996 1,779
Senior Note principal outstanding at July 27, 1996 $21,544
<PAGE>
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 such
Senior Notes by issuing additional Senior Notes in a principal
amount equal to the interest payment due of $1,632,000. Under 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 and approximately $690,000 in June 1996 related to
this interest payment. The Company does not expect to have funds
available to pay its December 15, 1996 Senior Note interest payment
in cash. Accordingly, the Company is accruing interest expense on
the Senior Notes at a rate of 18% for fiscal 1996.
The Company intends to restructure the terms of its 11% Senior
Notes in an effort to improve its liquidity. This restructuring
could involve the conversion of some or all of the Company's senior
notes into equity. Such conversion could result in substantial
ownership dilution of current shareholders. There can be no
assurances, however, that such a restructuring will occur.
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. As discussed previously, the Company
did not make the required payments under these notes on January 2,
1996. However, the Company negotiated revised payment terms and
made partial payments under these notes in the second and third
quarters of 1996.
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 July 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 half 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 July 27, 1996 and October 28, 1995 is
zero.
<PAGE>
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 $2.5
million and $4.1 million at July 27, 1996 and October 28, 1995,
respectively. The Company also has agreements with certain of its
suppliers to purchase raw materials. The agreements may extend for
up to one year and provide the price and quantity of materials to
be supplied. The Company had purchase commitments of approximately
$0.5 million and $2.9 million at July 27, 1996 and October 28,
1995, respectively.
RYMER FOODS INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The statements in this Form 10-Q, including in this Management's
Discussion and Analysis, that are forward looking are based upon current
expectations and actual results may differ materially. Therefore, the
inclusion of such forward looking information should not be regarded as
a representation by the Company that the objectives or plans of the
Company will be achieved. Such statements include, but are not limited
to, the Company's expectations regarding future expenses, capital
liquidity position, plans to restructure, reductions in inventory and
outstanding debt, compliance with financial covenants and use of
proceeds. Forward looking statements contained in this Form 10-Q
including in this Management's Discussion and Analysis, involve numerous
risks and uncertainties that could cause actual results to differ
materially, including but not limited to the effect of changing economic
conditions, business conditions and growth in the meat industry, the
Company's ability to maintain its lending arrangements, or if necessary,
access external sources of capital, implementing current restructuring
plans and accurately forecasting capital expenditures. In addition, the
Company's future results of operations and financial condition may be
adversely impacted by various factors. Certain of these factors are
described in the description of the Company's business, operations and
financial condition contained in this Form 10-Q. Assumptions relating
to budgeting, marketing, product development and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to
alter its marketing, capital expenditure or other budgets, which may in
turn affect the Company's financial position and results of operations.
General
The Company's consolidated results from operations are generated by its
meat processing operation.
<PAGE>
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 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 Three Quarters of 1996 versus First Three Quarters of 1995
Consolidated sales for the first three quarters of 1996 of $80.3 million
decreased from the first three quarters of 1995 by $30.9 million or 28%.
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 processing segment
decreased by $28.6 million or 46% and sales of its seafood importing and
distribution segment decreased by $2.4 million or 4.8%.
The Company experienced a decline in unit sales of approximately 43% in
its Meat segment primarily due to the loss of certain major customers
and 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 during the first quarter of 1996. The Company's meat segment
experienced a decrease of 6.8% in the average selling price primarily
due to price reductions and sales mix.
As compared to 1995, consolidated cost of sales decreased by $26.1
million or 25% while total gross profit decreased by $4.8 million or
60.2%. As a percentage of sales, the gross margin decreased to 4.0% as
compared to 7.2% in 1995.
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 39% as compared to a 43% 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
negotiating a new lease for its existing facility. The Company is
currently on a month-to-month basis with its lessor until such time that
a new lease agreement can be finalized. Management is also pursuing the
possibility of relocating in the future. Management is continuing to
streamline its operations. The hourly work force has declined by
approximately 43% at the end of the first three quarters of 1996 versus
1995.
<PAGE>
Selling, general and administrative expenses decreased by $3.1 million
or 36% in 1996 as compared to 1995. Administrative expenses decreased
by $2.2 million. A reduction in goodwill amortization of $0.9 million
was experienced as compared to the first three quarters 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 $1.3 million.
Selling expenses decreased by $0.9 million 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.
Interest Expense
Interest expense increased by $508,000 or 16% as compared to 1995. This
increased was attributable to increased interest expense on the
Company's 11% Senior Notes. On December 15, 1995 and June 15, 1996, 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 and June 15, 1996 interest payment on such Senior Notes by issuing
additional Senior Notes in a principal amount equal to the interest
payment due. Under 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 December 15, 1996 Senior Note
interest payment 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 Senior Note interest of approximately
$1,067,000 in the first three quarters of 1996 primarily due to the
increase in the interest rate on the Senior Notes. After giving effect
to the increase in Senior Note interest of approximately $1,067,000,
interest expense decreased by approximately $560,000 compared to 1995
due primarily to lower interest rates on the credit line facility and
lower interest expense related to the replacement of the higher-cost
former credit facility with BA Business Credit Inc. with the LaSalle
credit facility on April 7, 1995 and a lower loan balance versus 1995.
The Company intends to restructure the terms of its 11% Senior Notes in
an effort to improve its liquidity. This restructuring could involve
the conversion of some or all of the Company's Senior Notes into equity.
Such conversion could result in substantial ownership dilution of
current stockholders. There can be no assurances, however, that such a
restructuring will occur.
Other Income
The Company earned other income of $307,000 in 1995 which was comprised
primarily of consulting fees. The Company earned other income in 1996
of $1,000 consisting primarily of interest income.
<PAGE>
Third Quarter of 1996 versus Third Quarter of 1995
Consolidated sales for the third quarter of 1996 of $26.2 million
decreased from the third quarter of 1995 by $12.9 million or 33%. 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, and the loss of Darden Restaurants in the first
quarter of 1996. Sales of the Company's meat processing segment
decreased by $9.7 million or 48% and sales of its seafood importing and
distribution segment decreased by $3.1 million or 17%.
The Company experienced a decline in unit sales of approximately 42% in
its meat segment primarily due to increased competition. The Company
experienced a decrease of 14.3% in the average selling price primarily
due to price reductions and a lower priced mix of products sold in the
third quarter of 1996 versus 1995.
As compared to 1995, consolidated cost of sales decreased by $12.5
million or 34% while total gross profit decreased by $0.4 million or
17.4%. As a percentage of sales, the gross margin increased to 6.4% as
compared to 5.2% in 1995.
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 29% as compared to a 34% 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
negotiating a new lease for its existing facility. Management is also
pursuing the possibility of relocating. Management is continuing to
streamline its operations. The hourly work force has declined by
approximately 43% at the end of the third quarter of 1996 versus 1995.
Selling, general and administrative expenses decreased by $0.9 million
or 33% as compared to 1995. Administrative expenses decreased by $0.4
million. A reduction in goodwill amortization of $0.3 million was
experienced as compared to the third 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. Selling expenses decreased
by $0.5 million 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.
<PAGE>
Interest Expense
Interest expense increased by $193,000 or 19.7% as compared to 1995.
This increase was attributable to increased interest expense on the
Company's 11% Senior Notes. On June 15, 1996, the Company announced
that, as permitted by the terms of its 11% Senior Notes due December 15,
2000, it had elected to make its June 15, 1996 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
December 15, 1996 Senior Note interest payment 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 $377,000 in the third 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
$377,000, interest expense decreased by approximately $184,000 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 and a lower loan balance versus 1995.
The Company intends to restructure the terms of its 11% Senior Notes in
an effort to improve its liquidity. The restructuring could involve the
conversion of some or all of the Company's Senior Notes into equity.
Other Income
The Company earned other income of $3,000 in the third quarter of 1995
which was comprised primarily of a prior year's insurance claim payment.
Discontinued Operations and 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 an 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.
<PAGE>
On August 28, 1996, the Company completed the sale of substantially all
of the assets of its Seafood subsidiary to BGL I, Inc. The Company's
shareholders approved the transaction at a special meeting on August 28,
1996. Consummation of the sale was subject to certain conditions,
including approval by the holders of 66 2/3% of the outstanding Common
Stock of the Company and approval of Rymer's outstanding 11% Senior
Notes. Senior noteholder approval was received prior to the shareholder
meeting of August 28, 1996. Based on balances as of July 27,1996, the
sales price was approximately $9.5 million, consisting of $1.5 million
in cash, $1.5 million in a ten year subordinated note from the buyer and
the assumption by the buyer of $4.2 million in bank debt and $1.3
million of other current liabilities. The Company will record a loss on
the sale of Rymer Seafood of approximately $1.5 million, which will be
recorded as of the measurement date (August 28, 1996) in the fourth
quarter of 1996.
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.
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. 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 July 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.
See Note 6 to the Consolidated Financial Statements included in this
Form 10-Q for a description of the Company's non-compliance with certain
covenants under its Loan and Security Agreement with LaSalle National
Bank and under its Senior Note Indenture with Continental Stock Transfer
& Trust Company and the agreements between the Company and LaSalle with
respect thereto.
<PAGE>
At July 27, 1996 and October 28, 1995, the Company had a bank loan of
$2.3 million and $8.1 million, respectively, outstanding under its line
of credit with LaSalle for Rymer Meat. In addition, as of July 27, 1996
and October 28, 1995, $4.2 million and $8.2 million, respectively, was
outstanding under the LaSalle line of credit for Rymer Seafood.
According to the agreement to sell Rymer Seafood, the loan balance for
Rymer Seafood will 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 and June 15, 1996 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<PAGE>
December 15, 1996 Senior Note interest payment in cash. Accordingly,
the Company is accruing interest expense on the Senior Notes at a rate
of 18% for fiscal 1996.
The Company had a net working capital deficit at July 27, 1996 of $15.5
million which is a decrease in working capital of $4.9 million as
compared to a working capital deficit of $10.6 million at October 28,
1995. The decrease was due to a decrease in current assets of $14.7
million partially offset by a decrease in current liabilities of $9.8
million.
Accounts receivable decreased by $3.3 million primarily due to decreased
sales. Inventories decreased by $11.2 million due to decreased
purchasing along with efforts by the Company to reduce inventories in
order to reduce debt. Other assets decreased by $0.2 million due to the
amortization of prepaid expenses.
Current liabilities decreased due to a decrease in bank loans of $9.8
million, a decrease in accrued liabilities of $2.3 million, and
decreases in accounts payable and other long-term debt of $0.5 million
and $0.6 million, respectively. These decreases were partially offset
by an increase in the principal amount of Senior Notes of $3.4 million.
Assuming the necessary sales increases and cost improvements are
achieved, management expects LaSalle to continue to provide the Company
with a credit line facility. Availability under the LaSalle credit
line, together with cash flows from operations, are 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 intends to restructure
the terms of its 11% Senior Notes. Furthermore, if a Senior Note
restructuring should occur, it would likely affect the equity
capitalization of the Company.
<PAGE>
The Company's Meat subsidiary had total lines of credit available under
notes payable of $3.3 million at July 27, 1996 and $11.7 million at
October 28, 1995 of which $1.0 million and $3.6 million, respectively,
was unused. Proceeds from the Rymer Seafood sale will be used to repay
a portion of the LaSalle bank loan.
The Company's Seafood subsidiary had total lines of credit available
under notes payable of $8.3 million at July 27, 1996 and $10.8 million
at October 28, 1995 of which $1.7 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 $2.4 million and
$1.5 million at July 27, 1996 and October 28, 1995, respectively.
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 $2.5
million and $4.1 million at July 27, 1996 and October 28, 1995,
respectively. The Company also has agreements with certain of its
suppliers to purchase raw materials. The agreements may extend for up
to one year and provide the price and quantity of materials to be
supplied. The Company had purchase commitments of approximately $0.5
million as of July 27, 1996 and $2.9 million as of 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 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders held on August 28, 1996, the
stockholders of the Company approved the sale of substantially all
of the assets of Rymer International Seafood, Inc. ("Rymer Seafood
Sale") by a vote of 7,554,424 shares for, 79,161 shares against,
and 43,797 shares abstained. Also, in connection with the Rymer
Seafood Sale, the Company obtained the consent of a majority of the
holders of the Company's 11% Senior Notes ("Senior Notes") to amend
the Indenture between the Company and Continental Stock Transfer &
Trust Company to permit the Rymer Seafood Sale. The Rymer Seafood
Sale was approved by holders of $15,677,072 aggregate principal
amount of the Senior Notes representing approximately 79% of the
$19,764,970 principal amount of such Senior Notes outstanding.
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.
Exhibits incorporated by reference:
13.1 Annual Report on Form 10-K 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 on 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
Senior Vice President,
Chief Financial Officer
and Treasurer
<PAGE>
Date: September 10, 1996
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
ASSUMING PRIMARY DILUTION
Thirteen Thirty-Nine
Weeks Ended Weeks Ended
July 27, July 29, July 27, July 29
1996 1995 1996 1995
(In thousands, except per share amounts)
AVERAGE SHARES OUTSTANDING
1 Average shares outstanding 10,754 10,750 10,754 10,747
2 Net additional shares outstanding
assuming exercise of stock options - 6 - 154
3 Average number of common shares
outstanding 10,754 10,756 10,754 10,901
EARNINGS
4 Net loss $(1,286) $(1,550) $(5,950) $(3,287)
PER SHARE AMOUNTS
Net loss
(line 4 / line 3) $(.12) $(.14) $(.55) $(.30)
NOTE 1 - Loss per share for all periods was calculated using the
Treasury Stock Method.
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<PERIOD-START> APR-28-1996
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0
<COMMON> 10,754
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