SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/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 Annual
Report on Form 10-K for the fiscal year ended October 28, 1995
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.
By:
Edward M. Hebert, Senior Vice President,
Chief Financial Officer and Treasurer
Date: July 23, 1996
This report consists of 43 pages
<PAGE>
PART I
Item 1. Business
General
Rymer Foods Inc. (Rymer Foods or the Company) through its subsidiaries,
Rymer Meat Inc. (Rymer Meat) and Rymer International Seafood Inc. (Rymer
Seafood) is primarily engaged in the development and production of
frozen, pre-seasoned, portion controlled meat entrees and the importing
and distributing of various seafood products. The Company is engaged in
the production of such products for restaurants and other foodservice
customers and retail sales. Rymer Foods was incorporated under the laws
of Delaware in 1969 and is the outgrowth of a company organized in 1893.
Rymer Foods, then known as Kroehler Mfg. Co., acquired Rymer Meat in
1983. The Company subsequently changed its name to Rymer Foods Inc.
Rymer Meat, which was formed in 1979, is a producer of seasoned steaks
and other beef products developed for restaurant chains, foodservice
distributors and retail sales. Rymer Meat sales comprised 53%,
65% and 67% of consolidated sales from continuing operations in 1995,
1994 and 1993 respectively.
Rymer Seafood, which was formed in 1987, is primarily a seafood importer
and distributor serving major foodservice distributors, restaurant
chains, processors and retail customers. Sales of Rymer Seafood
comprised 47%, 35% and 33% of consolidated sales from continuing
operations in 1995, 1994 and 1993 respectively. 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 would be approximately
$12.7 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 $8.3 million in bank debt and $1.4 million of trade
payables. 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.
In 1992, Rymer Foods began marketing a new line of retail products under
the brand names "Menu Maker" and "Guest Ready". These brands consist of
specialty seasoned steaks and chicken breasts in high quality, flexible
laminated plastic packaging. Rymer Foods marketed these products to
retail chains and warehouse clubs. Sales of these retail products
comprised approximately 6.1%, 6.2% and 7.6% of Rymer Meat's revenues in
fiscal 1995, 1994 and 1993, respectively. Included within Meat sales
are chicken retail sales which comprised approximately 2% of Rymer Meat
sales for all years. These sales were made by the Company's
discontinued Rymer Chicken operation until December 10, 1993. They are
classified as sales from continuing operations because under the terms
of the supply agreement with Simmons, the Company continued to sell
these retail chicken products. Effective in December 1995, the Company
ceased marketing "Menu Maker" and "Guest Ready" products. Simmons now
sells both chicken and meat retail products directly to Rymer Meat's
former retail customers. Rymer Meat expects to be the sole supplier of
beef products to Simmons. In exchange for Simmons assuming certain
liabilities, Simmons owns the trademarks "Menu Maker" and "Guest Ready".
<PAGE>
Present Conditions and Background
In 1995, the Company reported a loss from continuing operations of $29.3
million, of which $20.4 million resulted from the writedown of goodwill.
This writedown eliminates all remaining goodwill of the Company. The
asset of goodwill was determined to have been impaired because of the
current financial condition of the Company and the Company's inability
to generate future operating income without substantial sales volume
increases which are uncertain. Moreover, anticipated future cash flows
of the Company indicate that the recoverability of the asset is not
reasonably assured.
In addition, due to the losses experienced in 1995, and as explained
more fully in Note 6 to the Consolidated Financial Statements, the
Company was not in compliance at October 28, 1995 and July 29, 1995 with
certain financial covenants contained in the loan agreement between the
Company and LaSalle National Bank (LaSalle). LaSalle agreed to waive
these covenant violations for the third quarter of 1995. On January 5,
1996, LaSalle and the Company entered into the Forbearance Agreement and
Amendment (Forbearance Agreement). Under this agreement, LaSalle agreed
to temporarily forbear from exercising its remedies under the Loan and
Security Agreement. 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 under the condition that no other events of default
existed under the loan agreement. As discussed below, the Company
subsequently determined that another event of default existed at the
time of the execution of these agreements. Accordingly, the Company
believes that these agreements are not valid and that at October 28,
1995, the Company is in violation of its loan agreement with LaSalle
and, by virtue of cross-default provisions, with the provisions of the
Senior Note Indenture.
LaSalle agreed to amend the loan agreement in order to revise the next
test date for the financial covenants to be as of February 24, 1996.
The Company expects to be in violation of these financial covenants as
of this date unless such covenants are modified. The Company is
continuing its negotiations with LaSalle. However, the Company has no
assurance that acceptable arrangements can be reached. The Company's
bank indebtedness and Senior Note indebtedness have been classified as
current liabilities at October 28, 1995.
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). The Company has deferred
payment of this debt in order to preserve cash for use in operation of
its business. The Company intends to continue to accrue interest on the
debt at 9.5% and plans to pay the debt plus accrued interest in the
future. The non-payment of the Affiliate Debt caused cross-defaults
under the Loan and Security Agreement with LaSalle and under the Senior
Note Indenture.
<PAGE>
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.
The Company is currently engaged in negotiations with certain of its
Senior Note holders to amend the Indenture in order to eliminate the
events of default under the Indenture. In the near future, the Company
expects to enter into Supplement No. 1 to the Indenture (Supplemental
Indenture) with Continental Stock Transfer and Trust Company as Trustee
for the Senior Notes. The Supplemental Indenture, which requires the
approval of a majority of the Senior Note holders, is expected to amend
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. While the Company believes that it will obtain the approvals
required for the Supplemental Indenture, there can be no assurance in
that regard.
As discussed in Note 2 to the Consolidated Financial Statements, there
is substantial doubt about the Company's ability to continue as a going
concern.
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
related expenses by approximately $4.0 million in 1996. In November
1995, the Company hired P. E. (Ed) Schenk as its President and Chief
Executive Officer, replacing the former Chairman and President. Mr.
Schenk has over twenty-two years of experience in meat processing
businesses.
Management believes that the Company's future success is dependent in
part upon reversing the meat company's sales decline experienced in
1995, 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, the Company is
continuing negotiations with its lenders. However, there can be no
assurance of the success of these programs. The Company may also seek
to restructure the terms of its 11% Senior Notes in an effort to improve
its liquidity and capital structure. There can be no assurances that
such a restructuring will occur.
On April 7, 1995, the Company replaced its credit facility of $20
million provided by BA Business Credit, Inc. (BABC) for Rymer Meat and
$12.5 million provided by LaSalle for Rymer International Seafood with a
$25 million credit facility provided by LaSalle, consisting of a $12.5
million credit line for Rymer Meat and a $12.5 million credit line for
Rymer International Seafood. The credit 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.
<PAGE>
Products, Markets and Distribution
Rymer Meat's principal products are frozen, pre-seasoned, portion-
controlled beef entrees. Major beef products include commercial and
choice cut steaks. Rymer Meat also produces other meat products such as
specialty ground and breaded products and certain cooked products (e.g.,
pot roast). Rymer Meat engages in the development and production of
proprietary "signature" recipes for chain restaurant customers. Rymer
Meat also offers its customers services such as menu planning, new
product development and other marketing services, such as handling and
cooking procedures. These programs, products and services are custom-
designed for each chain restaurant customer.
The primary product of Rymer Seafood consists of shrimp which is
purchased in bulk quantities and sold to specifically targeted
customers. Rymer Seafood also supplies processed seafood products to
chain restaurants, foodservice distributors and retail outlets. In some
cases, Rymer Seafood arranges for seafood processing to be performed by
third parties offshore where it can be done more promptly and more cost
effectively than in the United States.
The markets served by the Company include family-style restaurant chains
and distributors. Products are primarily sold through the Company's own
marketing staff, as well as through independent brokers and
distributors.
Backlogs are not material.
Raw Materials
The Company's primary raw materials are beef and seafood which are
available in adequate supply. The Company is not dependent upon any one
source for its primary raw material.
The Company has agreements with certain of its suppliers to purchase raw
materials. These agreements extend for up to one year and specify the
price and quantity of materials to be purchased. The aggregate
commitment for future purchases as of October 28, 1995 was approximately
$2.9 million.
Customers
The Company's customers consist primarily of family-style restaurants,
restaurant chains and foodservice distributors. Sales to three
restaurant chains owned by Darden Restaurants (formerly, General Mills)
comprised approximately 12% of the Company's revenues from continuing
operations in 1995 and 13% in 1994. During the first quarter of 1996,
Rymer Meat was informed by Darden Restaurants that its supply contracts
would not be renewed for 1996. Rymer Meat sales to these restaurants
chains comprised approximately 14% and 16% of net sales from its
processing segment in 1995 and 1994 respectively.
<PAGE>
Sales to one of the Company's retail customers, Country Fed Meat
Company, Inc. (CFM), accounted for approximately 8% and 10% of the
Company's revenues from continuing operations in fiscal 1994 and 1993,
respectively. At the end of the first quarter of 1995, certain issues
between the Company and CFM, resulted in certain lawsuits being filed.
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. All terms of the settlement
are confidential. The Company does not expect to have a supply
relationship in the future with CFM.
Sales to two groups of the Company's other customers, Bonanza and
Ponderosa, together accounted for approximately 12%, 11% and 14% of the
Company's revenues from continuing operations in fiscal 1995, 1994 and
1993, respectively. Franchise rights for both Bonanza and Ponderosa
restaurants are owned by Metromedia, Inc. The Bonanza and certain of
the Ponderosa restaurants are independently owned and operated. The
loss of any of the Company's major customers, or a substantial portion
of these accounts, could have a material adverse effect on the Company.
The Company is pursuing new sales opportunities. However, there can be
no assurance of the success of these sales efforts.
The Company believes that it has satisfactory ongoing relationships with
its remaining customers.
The Company has agreements with certain of its customers to sell
products over the next year for specified prices. The Company's
aggregate commitments under sales agreements at October 28, 1995
approximated $4.1 million.
Trademarks, Patents and Research Activities
The Company has several trademarks or trade names such as "Rymer",
"Ocean Prize", "Imperial Sampan", "Imperial Gardens", "Guest Ready" and
"Menu Maker" which the Company considers important in marketing its food
products. Two trade names, "Sportsman's Ice" and "Chick'n Easy", were
conveyed to Simmons as part of the Sale of Rymer Chicken. "Ocean
Prize", "Imperial Sampan" and "Imperial Gardens" will be sold as part of
the Sale of Rymer Seafood. "Guest Ready" and "Menu Maker" were sold to
Simmons during the first quarter of 1996.
Research and development expenses are charged to operations as incurred.
Expenditures for the three fiscal years ending October 28, 1995 were not
material.
<PAGE>
Competitive Conditions
The Company's business is highly competitive, with a substantial number
of competitors. A large number of companies process and sell meat
products to restaurants. Every year new companies are formed and enter
the meat industry, some becoming sizeable competitors in a short period
of time. Steakhouse sales, which now comprise approximately 25% of
Rymer Meat sales, continued to decline during fiscal 1995 due to the
ongoing consolidation within that segment of the restaurant market along
with increasing competitive pressures. The segment of retail sales
which represents home delivery sales declined significantly in 1995 to
15% of total Rymer Meat sales versus 25% in 1994, due primarily to the
loss of a large customer. See "Customers" above.
Some of the competitors in the Company's markets are larger than the
Company and have greater resources. A number of companies compete
directly with the Company. The Company believes that in the markets it
serves it provides its customers with a broader line of quality products
and services than many of its competitors. Competition in the markets
served by the Company is based primarily on quality, service and price.
Management believes that the Company's primary bases for competing are
its reputation for quality, service, its broad menu of products, its
willingness to develop proprietary recipes for specific customers and
competitive pricing.
Environmental Matters
The Company believes that it is substantially in compliance with all
applicable federal, state and local provisions regulating the discharge
of materials into the environment, or otherwise relating to the
protection of the environment. No significant costs were incurred by
the Company to comply with environmental regulations during the three
fiscal years ended October 28, 1995. The Company has not received
notice of, and is not aware of, any claims of a material nature arising
under any federal or state environmental laws.
Employees
At October 28, 1995, Rymer Foods and its subsidiaries had approximately
349 employees, of whom approximately 268 were covered by union
contracts. In January 1995, the Company and its union reached agreement
on a new four year labor contract effective retroactively to December 1,
1994.
The Company has not received notice of, and is not aware of, any claims
of a material nature arising under any federal or state labor laws.
Seasonality
The quarterly results of the Company are affected by seasonal factors.
Sales are usually lower in the fall and winter.
<PAGE>
Item 2. Properties
At October 28, 1995, the principal physical properties of Rymer Foods
and its subsidiaries consisted of the following:
Footage Ownership Expiration Facility Use
Chicago, Illinois 2,600 Leased April 1997 Offices
Chicago, Illinois 30,500 Leased July 1996 Offices/Production/
Warehouse
Plant City, Florida 42,000 Owned Not Held for sale or
Applicable lease
The above facilities are considered suitable and adequate to meet the
needs of the Company. The owned facility is used as collateral for the
Company's bank credit agreements. The lease for the Chicago meat
processing facility, which expires in July 1996, includes a provision
for a two-year extension under certain conditions. The Company is also
considering relocating its meat processing operation to another
facility. See Note 7 to the Consolidated Financial Statements for a
summary of the Company's rental expense for leased facilities and for
production and office equipment.
Item 3. Legal Proceedings
See Note 14 to the Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Common Stock is listed on the New York Stock Exchange (the NYSE)
(Symbol: RYR). The following table sets forth, for the fiscal quarters
indicated, the high and low sales prices of the Common Stock as reported
on the NYSE-Composite Tape. As of February 12, 1996, there were
approximately 750 holders of record of Common Stock and 12 holders of
record of the Senior Notes.
High Low
1995
First Quarter $4 $2-3/4
Second Quarter 3-1/8 1-3/4
Third Quarter 2-3/8 1-1/2
Fourth Quarter 2-1/2 1-1/4
1994
First Quarter 3-1/4 2
Second Quarter 2-3/8 1-3/4
Third Quarter 3-3/8 1-3/4
Fourth Quarter(1) 4-3/8 2-5/8
(1) On October 28, 1994, a $376,000 note payable to a former Senior
Note holder was converted into 232,507 shares of the Company's
common stock.
Rymer Foods is required by the Indenture governing its Senior Notes (the
Indenture) to use reasonable efforts to maintain its listing on the NYSE
or obtain a listing on the National Association of Securities Dealers
Automated Quotation System National Market System (the NASDAQ/NMS) and
continue to maintain its status as a reporting company under the
Securities Exchange Act of 1934, as amended. However, there can be no
assurance that it will continue to be listed on the NYSE or meet the
listing requirements of the NASDAQ/NMS.
Dividends
No dividends have been paid on the Common Stock since prior to 1983.
The ability of Rymer Foods to pay dividends on the Common Stock is
substantially limited by its bank credit agreements. The Indenture also
prohibits the payment of dividends on the Common Stock at any time that
any of the Senior Notes remain outstanding. Rymer Foods does not
anticipate that it will be able to pay any dividend on the Common Stock
in the foreseeable future.
<PAGE>
Item 6. Selected Financial Data
(in thousands, except per share amounts)
Fiscal Years Ended
Oct. 28, Oct. 29, Oct. 30, Oct. 31, Oct. 26,
1995 1994 1993 1992 1991
Results from continuing operations:
Net sales $150,297 $162,256 $147,850 $159,427 $152,509
Income (loss) from
continuing operations
before extraordinary
item (29,330) 2,470 (23,810) (3,609) (5,779)
Income (loss) from
discontinued operations - (466) 720 (6,214) 1,394
Gain (loss) on dispositions
of discontinued operations - 4,474 261 400 9
Net income (loss) (29,330) 6,478 (11,441) (9,423) (4,376)
Working capital (deficit) (10,566) 15,980 20,620 (41,962) 24,707
Total assets 35,524 58,492 72,865 90,289 100,234
Long-term liabilities 842 19,994 45,968 2,462 64,544
Stockholders' equity
(deficit) (6,858) 22,464 15,590 18,109 26,630
Primary per share common
stock data:
Income (loss) from continuing
operations $ (2.69) $ .23 $ (3.49) $ (1.82) $ (2.57)
Net income (loss) $ (2.69) $ .61 $ (1.68) $ (3.80) $ (2.09)
Cash dividends - - - - -
See Notes 3 and 4 to the Consolidated Financial Statements for
information regarding the Restructuring and discontinued operations.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's consolidated results from continuing 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.
<PAGE>
Going Concern
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, certain conditions
raise substantial doubt about the Company's ability to continue
operating as a going concern. The accompanying 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, 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.
In addition, the completion of the Sale of Rymer Seafood is expected to
improve the Company's liquidity position. The cash infusion from such
sale will allow the Company to pay down a portion of debt and may
provide working capital flexibility to help the Company operate more
efficiently. However, there can be no assurances that the proceeds of
the Sale, if consummated, will be available to the Company for any
specific purpose.
Fiscal 1995 Compared with Fiscal 1994
1995 1994
(in thousands)
Net Sales:
Processing $ 79,921 $106,251
Seafood Importing &
Distributing 70,376 56,005
Total $150,297 $162,256
Gross Profit:
Processing $ 3,872 $ 14,299
Seafood Importing &
Distributing 3,291 3,048
Total $ 7,163 $ 17,347
Operating Income (Loss):
Processing $ (4,439) $ 6,005
Seafood Importing &
Distributing 15 457
(4,424) 6,462
Corporate expenses (20,702) (576)
Total $(25,126) $ 5,886
Income (loss) from con-
tinuing operations be-
fore extraordinary item $ (29,330) $ 2,470
<PAGE>
Consolidated sales for 1995 of $150.3 million decreased from 1994 by
$12.0 million or 7.4%. Sales decreased by $26.3 million or 24.8% at the
Meat operation. Sales increased at the Seafood operation by $14.4
million or 25.7%.
At the Meat operation, sales volume accounted for approximately 90% of
the sales decrease with lower prices and changes in the sales mix
accounting for the remaining decrease. Sales decreased primarily due to
termination of sales to a major customer during the second quarter of
1995. The Company also experienced a significant decline of
approximately 22% in unit sales to national restaurant chains. This
decrease was primarily due to reduced sales volume 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. The sales decrease to national
restaurant chains was partially offset by an increase of 29% in
unit sales to distributors. The Company experienced a decline of 3.2%
in the average selling price primarily due to a lower priced mix of
products sold in 1995 as compared to 1994.
The increase in sales at the Seafood operation was due to increased
volume. In 1995, the Seafood operation started buying shrimp from
Ecuador which provided a new product line that accounted for the
increases in sales.
As compared to 1994, consolidated cost of sales decreased by $1.8
million or 1.2%. At the Meat operation, compared to 1994, cost of sales
decreased by $15.9 million or 17.3% while gross profit decreased by
$10.4 million or 73%. As a percentage of sales, the gross margin
decreased to 4.8% as compared to 13.5% in 1994.
At the Seafood operation, cost of sales increased by $14.1 million or
26.7%. The increased cost of sales was proportionate to the increased
sales volume from the Ecuadorian shrimp.
As compared to 1994, the gross profit decreased by $10.2 million or
58.7%. At the Meat operation, gross profit decreased compared to 1994
primarily due to decreased unit sales along with mix changes in sales to
national restaurant chain accounts and higher raw material costs. In
addition, the Meat operation experienced inefficiencies in production
related to changes in personnel. These inefficiencies were addressed in
connection with the reorganization of operations and personnel
implemented by the Company in October 1995.
At the Seafood operation, the gross profit increased by $.2 million or
8%. The increase in profit is attributable to the increased volume.
Selling, general and administrative expenses decreased by $310,000 or
3%. Administrative expenses remained approximately equal to 1994 as
decreases in salaries and related expenses were
offset by increased bad debt and legal expenses.
<PAGE>
Selling expenses decreased primarily due to a reduction in expenses
related to the Company's retail products sold in grocery and wholesale
club stores which were partially offset by increased salary expenses.
At the end of the first quarter of 1995, certain issues between the
Company and CFM resulted in certain lawsuits being filed. 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. All terms of the settlement are confidential.
The Company does not expect to have 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 1995, CFM accounted for approximately 2% of the Company's sales.
Restructuring Charge
On October 5, 1995, the Company announced that it had retained the
financial advisory and turnaround firm of Kirkland Messina, Inc. (KM) to
assist the Company in developing a comprehensive financial and operating
plan designed to return the Company to profitability. KM was engaged
for a three month period for a monthly fee plus expenses. In addition,
as part of KM's compensation, the Company issued KM 500,000 warrants to
purchase common stock of the Company at an exercise price in cash of
$1.675 per share.
The Company announced on October 10, 1995 that it had begun
implementation of a comprehensive reorganization plan of its operations
and personnel in order to return to profitability. As part of the
reorganization, the Company announced an approximate 20 percent
reduction of its work force.
During the fourth quarter of 1995, the Company recorded a restructuring
charge of $761,000 for severance payments and fees and expenses of the
financial advisory firm of KM.
Interest Expense
Interest expense increased by $703,000 or 17.7% as compared to 1994. 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
increased by $518,000 compared to 1994.
<PAGE>
This increase was primarily 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. Accordingly, the Company recorded an additional
interest charge of approximately $470,000 in the fourth quarter of 1995
related to this interest payment. This increase in Senior Note interest
was partially offset by a reduction in Senior Note interest of
approximately $289,000 related to reductions 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. After considering the increase in Senior Note interest
of approximately $181,000, interest expense increased by approximately
$377,000 compared to 1994 due primarily to higher borrowings under bank
lines of credit and increases in the prime lending rate charged by banks
as compared to 1994.
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.
Other Income
The Company earned other income of $461,000 in 1995 which was comprised
primarily of consulting fees.
Restructuring Expense Resulting from Goodwill Writedown
During the fourth quarter of 1995, the Company recorded a goodwill
writedown of $20,377,000 (See Note 1).
This writedown eliminates all remaining goodwill of the Company. The
asset of goodwill was determined to have been impaired because of the
current financial condition of the Company and the Company's inability
to generate future operating income without substantial sales volume
increases which are uncertain. Moreover, anticipated future cash flows
of the Company indicate that the recoverability of the asset is not
reasonably assured.
<PAGE>
Proposed Sale of Rymer 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 would be approximately $12.7 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 $8.3 million in bank debt
and $1.4 million of trade payables. 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 1996.
The Company, in its originally filed 1995 Annual Report on Form 10-K,
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 and has reversed the previously recorded expected loss on the
Sale of Rymer Seafood of approximately $1.5 million, since absent the
proposed sale, the carrying value of the Seafood assets is recoverable
in the course of normal operations. Such restatement resulted in a
corresponding decrease in 1995 stockholders' deficit and loss amounts
previously reported.
Discontinued Operations
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. 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.
Income Taxes
In 1995, no provision for income taxes was recorded due to the Company's
loss.
Effective with the first quarter of 1994, the Company adopted the
provisions of SFAS 109. (See Notes 1 and 8 to the Consolidated
Financial Statements.)
The Company recognizes the deferred tax benefit related to its deferred
tax asset within its income tax provision as income is earned and the
benefits are realized.
<PAGE>
Fiscal 1994 Compared With Fiscal 1993
The Company's consolidated results by business segment are summarized as
follows:
1994 1993
(in thousands)
Net Sales:
Processing $106,251 $ 99,642
Seafood Importing &
Distributing 56,005 48,208
Total $162,256 $147,850
Gross Profit:
Processing $ 14,299 $ 12,487
Seafood Importing &
Distributing 3,048 2,405
Total $ 17,347 $ 14,892
Operating Income:
Processing $ 6,005 $ 4,088
Seafood Importing &
Distributing 457 (476)
6,462 3,612
Corporate expenses (576) (2,823)
Total $ 5,886 $ 789
Income (loss) from con-
tinuing operations be-
fore extraordinary item $ 2,470 $(23,810)
Consolidated sales for 1994 of $162.3 million increased from 1993 by
$14.4 million or 9.7%. Sales increases were experienced by both the
Meat processing operation and the Seafood operation.
On a consolidated basis, sales volume accounted for approximately 12% of
the sales increase while higher prices along with changes in the sales
mix account for approximately 88% of the sales increase.
The Meat operation comprised approximately $6.6 million of the sales
increase. Sales volume for the Meat operation increased from 1993 by
approximately 6.8% while average selling prices increased by
approximately 6.2%. A significant increase in sales to certain
foodservice customers and increased sales of retail products were
partially offset by a decline in steakhouse sales. Home delivery sales
increased by 3% compared to a year ago while other retail sales
approximately doubled as compared to 1993.
The Seafood operation experienced an increase in sales of $7.8 million
or 16.2%. This sales increase was primarily due to higher average
selling prices which resulted from a supply shortage. Shortages were
especially acute from China, which produces primarily smaller sized
shrimp. Larger sized shrimp, which are more expensive, were in adequate
supply and thus comprised a larger percentage of sales. In addition, a
4% increase in sales volume accounted for approximately 25% of the sales
increase. Stronger distributor sales offset decreased sales to
restaurants.
<PAGE>
As compared to 1993, consolidated cost of sales increased by $12.0
million or 9.0% while total gross profit increased by $2.5 million or
16.5%. As a percentage of sales, the consolidated gross margin
increased to 10.7% as compared to 10.1% in 1993.
Gross profit for the Meat operation increased by $1.8 million or 14.5%
primarily due to higher selling prices along with lower raw material
costs. The Company's improved liquidity position in 1994 as compared to
1993 enabled management to purchase raw materials at favorable prices
primarily due to the improved timing of inventory purchases. The gross
profit margin earned by Meat rose to 13.5% in 1994 from 12.5% in 1993.
Gross profit increased for the Seafood operation by $0.6 million or 27%
compared to 1993 as shown by an increase in the gross profit percentage
earned to 5.4% from 5.0% in 1993. The increase in the gross profit
margin percent earned was primarily due to rising selling prices coupled
with slower rising supply costs.
Selling, general and administrative expenses decreased in total by $0.6
million or 5.1% compared to 1993. Administrative expenses decreased by
$1.3 million primarily resulting from lower bad debt expense and lower
legal and other professional consulting fees. Selling expenses
increased by $0.7 million primarily due to higher brokerage expense and
increased travel expenses related to increased sales revenues.
The Company incurred charges during 1993 of $2.0 million relating to the
1993 financial restructuring. Restructuring charges consisted primarily
of professional fees of the Company's investment advisors, legal counsel
and accountants.
Restructuring Expense Resulting From Goodwill Writedown
In connection with the 1993 Restructuring, goodwill was adjusted to its
estimated fair value at April 7, 1993 of approximately $29.1 million.
This resulted in a writedown of $20.8 million of goodwill. (See Note 3
to the Consolidated Financial Statements.)
Interest Expense
Interest expense related to continuing operations increased by $147,000
or 3.9% in 1994 as compared to 1993. The increase in interest expense
was primarily attributable to a greater allocation of interest to the
Company's discontinued Chicken operations in 1993.
In connection with the reclassification of the operating results of the
Company's chicken processing operations to discontinued operations, a
portion of interest expense related to the Company's unsecured debt was
allocated to discontinued operations. Interest expense on unsecured
debt allocated to discontinued operations amounted to approximately
$185,000 in 1994 versus $1,218,000 in 1993.
After giving effect to the allocation described above, interest expense
decreased by $886,000 compared to 1993 reflecting primarily the effect
of lower borrowings under the Company's bank lines of credit offset
partially by the effect of increases in the prime lending rate charged
by banks in 1994.
<PAGE>
Borrowings decreased significantly due to the use of proceeds from the
Sale of Rymer Chicken during the first quarter of 1994 to reduce
borrowings under lines of credit.
Other Income
The Company earned other income of $621,000 in 1994 which was comprised
primarily of consulting fees.
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 in 1994 of $4.5 million after
income taxes. (See Note 4 to the Consolidated Financial Statements.)
The Company incurred losses related to its discontinued chicken
processing operations during 1994 of $0.5 million compared to income of
$0.7 million in 1993. The 1994 loss reflects operating results through
the sale date of December 10, 1993 while the 1993 results are for the
entire fiscal year. The decrease in income reflects a decrease in sales
of $76 million or 89% compared to 1993 as well as increased raw material
costs and increased operating expenses in preparation for the sale of
the operation.
During 1992, the Company decided to place its idle Plant City, Florida
chicken facility and equipment for sale.
During the fourth quarter of 1993, the Company recognized a loss of
$344,000 to reduce the carrying value of the Plant City property to its
estimated net realizable value of $1.6 million. This loss was partially
offset by income of $272,000 from the elimination of reserves
established during 1992 for Plant City expenses. The net loss related
to the Plant City facility of $72,000 is included within the gain on
dispositions of discontinued operations on the Consolidated Statement of
Operations for 1993.
Other Discontinued Operations
The Company eliminated reserves relating to other discontinued
operations totalling $333,000 in 1993 with $250,000 of this amount
reflecting a reduction in the reserve for Murry's, a business sold in
1989.
Income Taxes
The 1994 provision for income taxes amounted to $0.3 million which
related primarily to the gain arising from the Sale of Rymer Chicken in
the first quarter. In 1993, no provision for income taxes was recorded
due to the loss from operations.
<PAGE>
Extraordinary Item - Restructuring of Debentures
In connection with the Restructuring recorded during the second and
fourth quarters of 1993, the Company recorded the exchange of Debentures
(net of unamortized debt discount) of $36,962,000 for approximately
$20,000,000 principal amount of Senior Notes and 4,661,150 shares of
common stock valued at $1.64 per share. This transaction resulted in an
extraordinary gain on Restructuring of $11,388,000. After issuance of
these additional shares, the former Debentureholders received
approximately 45% of the common stock of the Company.
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 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 both 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.
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.
<PAGE>
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 under the
condition that no other events of default existed under the loan
agreement. As discussed below, the Company subsequently determined that
another event of default existed at the time of the execution of these
agreements. Accordingly, the Company believes that these agreements are
not valid and that at October 28, 1995, the Company is in violation of
its loan agreement with LaSalle and, by virtue of cross-default
provisions, with the provisions of the Senior Note Indenture.
LaSalle 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. The Company expects to be in violation of these
financial covenants as of this date unless such covenants are modified.
The Company is seeking to renegotiate such covenants, but there is no
assurance that it will be successful in this regard.
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 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). The Company has
deferred payment of this debt in order to preserve cash for use in
operation of its business. The Company intends to continue to accrue
interest on the debt at 9.5% and plans to pay the debt plus accrued
interest in the future. 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.
The Company is currently engaged in negotiations with certain of its
Senior Note holders to amend the Indenture in order to eliminate the
events of default under the Indenture. In the near future, the Company
expects to enter into Supplement No. 1 to the Indenture (Supplemental
Indenture) with Continental Stock Transfer and Trust Company as Trustee
for the Senior Notes. The Supplemental Indenture, which requires the
approval of a majority of the Senior Note holders, is expected to amend
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. While the Company believes that it will obtain the approvals
required for the Supplemental Indenture, there can be no assurance in
that regard.
<PAGE>
At October 28, 1995, the Company had a bank loan of $8.1 million
outstanding under its line of credit with LaSalle for Rymer Meat. In
addition, $8.2 million was outstanding under the LaSalle line of credit
for Rymer International Seafood.
At October 29, 1994, there was no loan outstanding under the Company's
primary credit line with BABC and the Company had a balance of cash and
cash equivalents of $1.8 million. The Company had a bank loan
outstanding at October 29, 1994 of $5.8 million under its line of
credit 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.
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. 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 intends to accrue
interest expense on the Senior Notes at a rate of 18% for fiscal 1996.
The Company had a net working capital deficit at October 28, 1995 of $11
million which is a decrease of $27 million as compared to working
capital of $16 million at October 29, 1994. The decrease was primarily
due to an increase in current liabilities of $26 million. Decreases in
cash, accounts receivable and an increase in inventories net to a $1
million decrease.
Current liabilities increased primarily due to an increase in current
maturities of long term debt of $27.1 million. The classification of
the Company's Senior Notes of $18.1 million as current contributed $15.9
million of the increase. Senior Notes of $2.2 million were classified
as current at October 29, 1994.
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. The remaining increase was due
primarily to an increase in bank loans of $8.1 million. 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.
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.
<PAGE>
The Company's use of the proceeds from the Sale of Rymer Chicken reduced
debt and increased the Company's availability under bank lines of
credit.
The Company's Rymer Meat subsidiary had total lines of credit available
under notes payable of $11.7 million at October 28, 1995 and $10.8
million at October 29, 1994, of which $3.6 million and $10.5 million,
respectively, was unused.
The Company's Rymer International Seafood subsidiary had total lines of
credit available under notes payable of $10.8 million at October 28,
1995 and $9.3 million at October 29, 1994, of which $1.1 million and
$2.0 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
International Seafood had letters of credit outstanding totalling
approximately $1.5 million at both October 28, 1995 and October 29,
1994. Rymer Meat had a letter of credit of $0.3 million outstanding at
October 29, 1994.
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 $4.1
million at October 28, 1995. 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 October 28, 1995.
In the first quarter of 1994, the immediate families of certain former
members of senior management purchased certain raw material. This
inventory was sold to the Company as it was needed by the Company to
fulfill sales commitments. In the first quarter of 1994, the Company
purchased all remaining inventory held by these persons of approximately
$1 million using proceeds from the Sale of Rymer Chicken.
<PAGE>
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 for expiration dates of the
carryforwards. The utilization of operating loss carryforwards will
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.
Fourth Quarter Adjustments
1995
During the fourth quarter of 1995, the Company recorded a goodwill
writedown of $20.4 million. (See Note 1). This writedown eliminates
all remaining goodwill of the Company.
During the fourth quarter of 1995, the Company recorded a Restructuring
charge of $761,000 related to the restructuring plan commenced in
October of 1995 to reduce operating costs, improve efficiencies, and
return the Company to profitability (See Note 3). Of this amount,
approximately $200,000 represents fees and expenses of financial and
turnaround consultants while the remaining amount represents primarily
severance payments.
During the fourth quarter of 1995, the Company recorded an additional
interest charge of approximately $470,000. This charge 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.
1994
None
<PAGE>
1993
During the fourth quarter of 1993, the Company recorded a charge of
$661,000 related to the restructuring of the Debentures which reduced
the extraordinary gain on Restructuring previously reported for a
revised gain of $11,388,000. The charge related to the issuance of an
additional 402,960 shares to the holders of the Debentures in order to
eliminate the dilutive effect of the issuance of common shares in
payment of certain Restructuring expenses.
During the fourth quarter of 1993, the Company recorded an additional
Restructuring charge of approximately $600,000 consisting primarily of
professional fees of the Company's legal counsel, accountants, and
various other professional fees.
The Company eliminated reserves related to discontinued operations
totalling $333,000 in the fourth quarter of 1993 with $250,000 of this
amount reflecting a reduction in the reserve for Murry's, a business
sold in 1989. In addition, an additional loss of $72,000 was recorded
related to the disposition of the Plant City facility.
New Accounting Pronouncements
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" in fiscal
1997. Management believes that the adoption of these provisions will
not have a material impact on the financial conditions or results of the
operations of the Company.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
(SFAS #123) in fiscal 1997. The Company is currently reviewing its
implementation options under SFAS #123.
Item 8. Financial Statements and Supplementary Data
<PAGE>
Index to Consolidated Financial Statements and Supplementary
Financial Data
Pages
Report of Independent Accountants 19
Financial Statements:
Consolidated Statements of Operations for the years ended
October 28, 1995, October 29, 1994 and October 30, 1993 20
Consolidated Balance Sheets as of October 28, 1995 and
October 29, 1994 21
Consolidated Statements of Cash Flows for the years ended
October 28, 1995, October 29, 1994 and October 30, 1993 22
Consolidated Statements of Stockholders' Equity for the years
ended October 28, 1995, October 29, 1994 and October 30, 1993 23
Notes to Consolidated Financial Statements 24-36
Supplementary Financial Data:
Schedule II - Valuation and Qualifying Accounts and Reserves 39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Rymer Foods Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Rymer Foods Inc. and subsidiaries listed in the
index on page 18 of this Form 10-K/A1. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Rymer Foods Inc. and subsidiaries as of October 28, 1995 and October 29,
1994 and the consolidated results of their operations and their cash
flows for the three years in the period ended October 28, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming that Rymer Foods Inc.
will continue as a going concern. As more fully described in Notes 2
and 6 to the Consolidated Financial Statements, the Company has reported
recurring losses from continuing operations, has experienced a
significant decrease in net sales from its processing segment in 1995,
and at October 28, 1995 has a stockholders' deficit of $6.9 million.
Additionally, in 1995 the Company violated certain debt covenants under
various loan agreements. Without future amendments, the Company expects
to be in violation of its loan agreements in 1996. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
As discussed in Note 8 to the consolidated financial statements, during
1994 Rymer Foods Inc. adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
The accompanying consolidated financial statements have been restated as
discussed in Note 4.
Chicago, Illinois COOPERS & LYBRAND L.L.P.
February 12, 1996 except for Note 4
as to which the date is July 1, 1996
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal years ended October 28, 1995, October 29, 1994 and
October 30, 1993
(in thousands except per share amounts)
1995 1994 1993
<S> <C> <C> <C>
Net sales $150,297 $162,256 $147,850
Cost of sales 143,134 144,909 132,958
Gross profit 7,163 17,347 14,892
Selling, general and administrative
expenses 11,151 11,461 12,083
Restructuring charge 761 - 2,020
Goodwill writedown 20,377 - 20,828
Operating income (loss) (25,126) 5,886 (20,039)
Interest expense 4,665 3,962 3,815
Other income (461) (621) (44)
Income (loss) from continuing
operations before income taxes (29,330) 2,545 (23,810)
Provision for income taxes - 75 -
Income (loss) from continuing
operations before extraordinary item (29,330) 2,470 (23,810)
Income (loss) from discontinued
operations, net - (466) 720
Gain (loss) on dispositions of
discontinued operations, net - 4,474 261
Income (loss) before
extraordinary item (29,330) 6,478 (22,829)
Extraordinary item resulting from
restructuring of subordinated
debentures - - 11,388
Net income (loss) $(29,330) $ 6,478 $(11,441)
Per common share:
Primary:
Income (loss) from continuing
operations $ (2.69) $ .23 $ (3.49)
Income (loss) before
extraordinary item $ (2.69) $ .61 $ (3.35)
Net income (loss) $ (2.69) $ .61 $ (1.68)
Fully diluted:
Income (loss) from continuing
operations $ (2.69) $ .23 $ (3.49)
Income (loss) before
extraordinary item $ (2.69) $ .61 $ (3.35)
Net income (loss) $ (2.69) $ .61 $ (1.68)
Weighted average shares of common stock outstanding:
Primary 10,888,000 10,662,000 6,821,000
Fully dilute 10,888,000 10,782,000 6,875,000
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
October 28, 1995 and October 29, 1994
ASSETS
1995 1994
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 2,492
Receivables, net of allowance
for doubtful accounts of
$568,000 in 1995 and $731,000 in 1994 11,214 11,847
Inventories 18,985 16,951
Other 775 724
Total current assets 30,974 32,014
Property, plant and equipment:
Buildings and improvements 1,441 1,195
Machinery and equipment 6,761 6,173
8,202 7,368
Less accumulated depreciation
and amortization 6,172 5,399
2,030 1,969
Goodwill, net of accumulated amortization
and writedown of $56,930,000 in 1995
and $35,386,000 in 1994 - 21,544
Assets held for sale or lease 1,600 1,600
Other 920 1,365
$ 35,524 $ 58,492
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt,
including amounts to related parties $ 35,178 8,120
Accounts payable 1,909 2,953
Accrued liabilities 4,453 4,961
Total current liabilities 41,540 16,034
Long term debt, including amounts to
related parties 70 18,843
Deferred employee benefits 772 810
Other noncurrent liabilities - 341
42,382 36,028
Commitments and contingencies (Note 13)
Stockholders' equity (deficit)
Preferred stock, none outstanding - -
Common stock, $1 par, 20,000,000 shares
authorized; 10,753,934 and 10,741,451
shares outstanding in 1995 and 1994
after deducting treasury shares of
225,183 in 1995 and 237,666 in 1994 10,754 10,741
Additional paid-in capital 44,363 44,344
Retained deficit (61,569) (32,239)
Notes receivable from sale of common
shares to related parties (406) (382)
Total stockholders' equity (deficit) (6,858) 22,464
$ 35,524 $ 58,492
See accompanying notes.
</TABLE>
<TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended October 28, 1995, October 29, 1994 and
October 30, 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations
before extraordinary item $(29,330)$ 2,470 $(23,810)
Non-cash adjustments to income (loss):
Depreciation 786 637 667
Amortization of other assets 1,577 1,822 1,753
Writedown of goodwill 20,377 - 20,828
Restructuring charge 761 - 2,020
(Gain) loss on disposal of properties (3) 20 -
Deferred compensation expense (income) (24) 1 219
Provision for bad debts 789 461 391
Amortization of debt discount - - 226
Payment in kind interest on Senior Notes 1,206 - 1,456
Stock issued in payment of
restructuring expenses - - 891
Interest expense - - 33
Net (increase) decrease to
accounts receivable (157) (3,466) 1,704
Net (increase) to inventories (2,035) (1,227) (3,342)
Net (increase) decrease to other
current and other long-term assets (16) 5 (417)
Net increase (decrease) to accounts
payable and accrued expenses (3,356) 563 (919)
Net cash flows from operating activities
of continuing operations (9,425) 1,286 1,700
Net cash flows from operating activities
of discontinued operations (515) (1,524) 624
Net cash flows from operating
activities (9,940) (238) 2,324
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 (848) (504) (516)
Other (21) (14) (35)
Net cash flows from investing activities
of discontinued operations - (628) (972)
Net cash flows from investing activities (869) 23,927 (1,523)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line-of-credit facilities 10,529 (14,580) (3,736)
Principal payments on debt (2,292) (6,679) (1,709)
Proceeds from borrowings 48 45 6,696
Proceeds from employee stock purchases 32 17 7
Recording of debt issuance costs - - (2,059)
Net cash flows from financing activities 8,317 (21,197) (801)
Net change in cash (2,492) 2,492 -
Cash and cash equivalents balance at
beginning of year 2,492 - -
Cash and cash equivalents balance at
end of year $ - $ 2,492 $ -
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended October 28, 1995, October 29, 1994 and October 30,
1993
$1.175 Pre- Additional Notes Receivable from Sale of Total
ferred Stock Common Paid-In Retained Common Stock and Deferred Stockholders'
Class A Stock Capital Deficit Unearned Compensation Equity (Deficit)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992 $ 14,947 $ 2,962 $28,206 $(27,276) $ (730) $ 18,109
Net loss (11,441) (11,441)
Exchange of preferred stock (14,947) 2,242 12,705
- -
Exchange of Subordinated
Debentures 4,661 2,983 7,644
Shares issued in payment of
restructuring expenses 612 279 891
Shares issued in payment
of bank interest 20 13 33
Shares issued under employee
stock purchase plan 5 2 7
Amortization of notes receivable
from sale of common shares and
deferred unearned compensation
agreement 242 242
Interest charged on notes
receivable (22) (22)
Stock price reduction under amended
stock purchase agreements 127 127
Balance at October 30, 1993 - 10,502 44,188 (38,717) (383) 15,590
Net income 6,478 6,478
Shares issued from conversion
of note payable 233 146 379
Shares issued under employee
stock purchase plan 6 10 16
Amortization of deferred
unearned compensation
agreement 23 23
Interest charged on notes
receivable (22) (22)
Balance at October 29, 1994 - 10,741 44,344 (32,239) (382) 22,464
Net loss (29,330) (29,330)
Shares issued under employee
stock purchase plan 13 19 32
Interest charged on notes
receivable (24) (24)
Balance at October 28, 1995 $ - $10,754 $44,363 $ (61,569) $ (406) $ (6,858)
See accompanying notes.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Fiscal Year
The fiscal year of the Company ends the last Saturday in October. For
all years, the fiscal year was 52 weeks.
Consolidation
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries after elimination of all significant
intercompany accounts and transactions.
Cash Equivalents
The Company considers short-term investments with original maturities of
ninety days or less to be cash equivalents.
Inventories
Inventories are stated at the lower of first-in, first-out cost or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
recognized on a straight-line basis over the estimated useful lives of
the related assets. Expenditures for maintenance and repairs are
charged to operations as incurred. Gains or losses on the disposition
of assets are reflected in income.
Goodwill
In October of 1995, the Company recorded a goodwill writedown of $20.4
million. This writedown eliminates all remaining goodwill of the
Company. The asset of goodwill was determined to have been impaired
because of the current financial condition of the Company and the
Company's inability to generate future operating income without
substantial sales volume increases which are uncertain. Moreover,
anticipated future cash flows of the Company indicate that the
recoverability of the asset is not reasonably assured.
Prior to October, goodwill was amortized using the straight-line method
over twenty years. In connection with the financial restructuring
completed in 1993, goodwill was adjusted to its estimated fair value at
that time of approximately $29.1 million which resulted in a writedown
of $20.8 million of goodwill.
<PAGE>
The Company is required to analyze the value of its recorded intangible
assets on an ongoing basis to determine that the recorded amounts are
reasonable and are not impaired. The Company's management considers the
Company's financial condition and expected future operating income in
determining if goodwill is impaired at each balance sheet date. Upon
determination that goodwill was impaired at October 28, 1995, the amount
of the impairment was calculated by determining that portion of the
goodwill which would not be expected to be recovered against operating
income during the remaining amortization period.
Profit Sharing and Savings Plans
The Company sponsors a 401(k) savings plan. The Company matches
employee contributions up to 5% of an employees' annual salary. Accrued
benefits are funded on a current basis (See Note 12).
Revenue Recognition
The Company recognizes sales revenues at the time of shipment.
Income Taxes
Effective with the first quarter of 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Adoption of this standard did not
materially impact the Company's operating results. The Company
recognizes the deferred tax benefit related to its deferred tax asset
within its income tax provision as income is earned and the benefits are
realized (See Note 8).
Reclassification
Certain reclassifications have been made to the 1993 and 1994
Consolidated Financial Statements to conform to the 1995 presentation.
2. Going Concern
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern.
In 1995, the Company reported a decrease in net sales from its
processing segment as compared to 1994 of 25% principally due to the
loss of a major customer. Also 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 early 1996, Rymer Meat was informed that its supply contracts with
restaurants owned by Darden Restaurants (formerly, General Mills) would
not be renewed. Rymer Meat's sales to these restaurant chains comprised
approximately 14% of net sales from its processing segment in 1995. At
October 28, 1995, the Company had a stockholders' deficit of $6.9
million.
<PAGE>
As explained more fully in Note 6, the Company was not in compliance at
July 29, 1995 and October 28, 1995 with certain financial covenants
contained in the loan agreement between the Company and LaSalle National
Bank (LaSalle). It appears that in 1996 the Company will be in
violation of certain covenants contained in the loan agreement, unless
such covenants are modified or waived. The Company is seeking to
renegotiate such covenants, but there is no assurance that it will be
successful in this regard. In addition, events of default under the
LaSalle Agreement and under the Senior Note Indenture exist at October
28, 1995 due to the non-payment of certain notes in January 1996 (See
Note 6).
These conditions raise substantial doubt about the Company's ability to
continue operating as a going concern. The 1995 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 in
part upon reversing the sales decline experienced in 1995, 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. Restructuring and Restructuring Charges
1995 Restructuring
During the fourth quarter of 1995, the Company recorded a Restructuring
charge of $761,000 related to the restructuring plan commenced in
October of 1995 to reduce operating costs, improve efficiencies, and
return the Company to profitability. Of this amount, approximately
$200,000 represents fees and expenses of financial and turnaround
consultants. The remaining amount represents primarily severance
payments related to the reduction of sixteen non-union employees. Four
of these employees were executive officers, six were selling and
administrative positions, and six were related to operations. In
addition, the Company eliminated approximately 80 union positions. No
severance costs were incurred related to the union reductions. In
total, the restructuring resulted in an approximate 20% reduction of the
Company's work force.
1993 Restructuring
As of October 31, 1992, the Company had a substantial portion of its
bank debt due currently, had not paid a $2.5 million interest payment on
its 13% Senior Subordinated Sinking Fund Debentures (Debentures) due on
October 15, 1992, and had received written notification from its primary
lender that its credit line would not be extended or renewed beyond its
maturity date of March 31, 1993.
<PAGE>
The Company announced on February 3, 1993 that it had received the
necessary approvals from its creditors and stockholders for confirmation
of a prepackaged plan of reorganization under Chapter 11 of the
Bankruptcy Code (the Plan). The Plan, as confirmed by the United States
Bankruptcy Court, became effective on April 7, 1993 and implemented the
financial restructuring proposed in a Registration Statement filed by
the Company with the Securities and Exchange Commission on December 17,
1992. Rymer Foods' operating subsidiaries were not parties to the
Chapter 11 proceedings.
Immediately following consummation of the Plan, but prior to dilution by
exercise of certain employee stock options issued in connection with the
restructuring, (a) holders of Debentures received an aggregate of
approximately 45% of the outstanding Common Stock and approximately $20
million principal amount of Senior Notes, (b) holders of Preferred Stock
received an aggregate of approximately 21.5% of the outstanding Common
Stock, and (c) existing holders of Common Stock retained an aggregate of
approximately 28.4% of the outstanding Common Stock.
On April 7, 1993, in connection with the consummation of the Prepackaged
Plan, the Company's former credit facility was replaced by a $23,700,000
credit facility with BA Business Credit, Inc. (BABC).
Liabilities compromised by the Plan were stated at the present values of
amounts to be paid and forgiveness of debt was reported as an
extraordinary item. In addition, the Company recorded an adjustment in
connection with the Restructuring to adjust goodwill to its estimated
fair value.
The Common Stock issued in exchange for the Debentures and Preferred
Stock pursuant to the Plan was valued at $1.64 per share based on the
terms of the Plan.
The following summarizes the adjustments related to the recording of the
Restructuring:
1. The Debentures (net of unamortized debt discount) of $36,962,000
were exchanged for approximately $20,000,000 in Senior Notes and
4,661,150 shares of common stock valued at $1.64 per share. This
transaction resulted in an extraordinary gain on Restructuring of
$11,388,000.
2. The Preferred Stock with a par value of $14,947,000 was exchanged
for 2,242,050 shares of Common Stock. This transaction resulted in a
total increase to Additional Paid-In Capital of approximately $12.7
million.
3. Goodwill was adjusted to its estimated fair value at April 7, 1993
of approximately $29.1 million. This resulted in a writedown of $20.8
million of goodwill.
1993 Restructuring Charge
The Company incurred restructuring charges during 1993 of $2,020,000.
Restructuring charges consisted primarily of professional fees of the
Company's financial advisors, legal counsel and accountants.
<PAGE>
4. Discontinued Operations and Proposed Sale of Rymer International
Seafood
The accompanying consolidated financial statements reflect the
operations of the Company's Rymer 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 of approximately $4.0
million in the first quarter of 1994. The calculation of such gain
reflects all actual expenses and estimated future expenses associated
with the Sale of Rymer Chicken assets and is net of the writeoff of
approximately $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.
During 1993, the Company recognized a loss of $344,000 to reduce the
carrying value of the Plant City property to its estimated net
realizable value of $1.6 million. This loss was partially offset by
income of $272,000 from the elimination of reserves established during
1992 for Plant City losses. The net loss related to the Plant City
facility of $72,000 is included within Gain on Dispositions of
Discontinued Operations on the Consolidated Statement of Operations for
1993.
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 October 28, 1995 and October 29, 1994.
Reserves established in 1992 and 1993 are considered adequate to
maintain the idle facility through the expected date of disposition.
The Company incurred costs related to maintaining the idle facility of
approximately $66,000 during 1995, $92,000 during 1994 and $715,000
during 1993 which were charged to the reserve established for such
losses during fiscal 1992 and 1993.
<PAGE>
Other Discontinued Operations
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). During the fourth quarter of 1993,
a reserve established for possible future payments related to the sale
of Murry's was reduced by $250,000, as these reserves were deemed to no
longer be needed.
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 and the Company
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. The Company
recognized consulting income during 1995 and 1994 of $300,000 and
$250,000, respectively.
<PAGE>
The following summarizes the results of the various discontinued
operations reflected in the accompanying Consolidated Statements of
Operations:
Fiscal Years Ended
Oct. 28, Oct. 29, Oct. 30,
1995 1994 1993
(in thousands)
Sales:
Rymer Chicken $ - $ 9,468 $85,516
Income (loss) from
discontinued
operations:
Rymer Chicken $ (492) $ 720
Credit equivalent
to benefit for
income tax - 26 -
- $ (466) $ 720
Gain (loss) on
dispositions of
discontinued
operations:
Rymer Chicken - $ 4,017 $ (72)
Rymer Shrimp - - 25
Murry's - 670 250
Kroehler - - 58
Provision for
income taxes - (213) -
$ - $ 4,474 $ 261
The above discontinued operations include the following allocation of
interest expense on debt not attributable to specific operations of the
Company. The allocation was based on the proportion of net assets sold
to total net assets of the Company.
Oct. 28, Oct. 29, Oct. 30,
1995 1994 1993
(in thousands)
Interest allocated $ - $ 185 $ 1,218
In addition, the above discontinued operations also include an
allocation of interest expense which specifically related to the
operations of the discontinued segment.
<PAGE>
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 will be approximately $12.7 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 $8.3 million in bank debt
and $1.4 million of trade payables. 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 it receives them, will record a
loss of approximately $1.5 million at that time. If the approvals are
received, it is anticipated that the sale of Rymer Seafood will be
completed in the fourth quarter of 1996.
The net assets of Rymer Seafood expected to be sold are as follows as of
October 28, 1995 (in thousands):
Receivables $ 6,537
Inventories 6,866
Other current assets 8
Net property, plant and equipment 43
Total assets 13,454
Less: Current liabilities (9,451)
$ 4,003
The following summarizes the results of Rymer Seafood reflected in the
accompanying consolidated statements of operations (in thousands):
1995 1994 1993
Net Sales $70,377 $56,004 $48,208
Income from Operations $ 290 $ 587 $ 57
The following presents the pro forma unaudited condensed consolidated
balance sheet of the Company as if the sale of substantially all of the
assets of Rymer Seafood was consummated as of October 28, 1995 (in
thousands):
Assets
Total current assets $17,563
Plant, property and equipment, net 1,988
Note receivable, net 983
Other long-term assets 2,520
$23,054
Liabilities and Stockholders' Equity (Deficit)
Total current liabilities $30,590
Long-term debt 70
Other 772
Stockholders' deficit (8,378)
$23,054
<PAGE>
The following presents the pro forma unaudited condensed consolidated
statement of continuing operations of the Company as if the sale of
substantially all of the assets of Rymer Seafood was consummated as of
October 30, 1994 (in thousands):
Net sales $79,920
Cost of sales 76,048
Gross profit 3,872
Selling, general and administrative
expenses 9,042
Restructuring charge 761
Goodwill 20,377
(26,308)
Interest expense 3,666
Other income (594)
Loss from continuing operations $29,380
The Company, in its originally filed 1995 Annual Report on Form 10-K,
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 and has reversed the previously recorded expected loss on the
Sale of Rymer Seafood of approximately $1.5 million, since absent the
proposed sale, the carrying value of the Seafood assets is recoverable
in the course of normal operations. Such restatement resulted in a
corresponding decrease in 1995 stockholders' deficit and loss amounts
previously reported.
5. Inventories
Inventories consist of the following (in thousands):
Oct. 28, Oct. 29,
1995 1994
Raw materials $ 6,415 $ 5,339
Finished goods 12,570 11,612
$18,985 $16,951
<PAGE>
6. Long-Term Debt and Lines of Credit
Long-term debt consists of the following (in thousands):
1995 1994
Banks, with interest of 1/2%
over prime in 1995 and from
1%-2% over prime in 1994 $16,372 $ 5,844
Senior Notes due December 15,
2000, with interest at 18%
in 1995 and at 11% in 1994 18,133 20,383
Other, including capitalized
leases and amounts to
related parties:
Due to executives under re-
structured employment and
consulting agreements 656 611
Other 87 125
35,248 26,963
Less current maturities 35,178 8,120
$ 70 $18,843
The prime rate applicable to the Company's outstanding bank notes
payable was 8.75% at October 28, 1995 and 7.75% at October 29, 1994.
On April 7, 1995, the Company replaced its credit facility of $20
million provided by BABC for Rymer Meat and $12.5 million provided by
LaSalle for Rymer Seafood with a $25 million credit facility provided by
LaSalle consisting of a $12.5 million credit line for Rymer Meat and a
$12.5 million credit line for Rymer International Seafood. Availability
under credit lines is subject to certain borrowing base computations.
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 both 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.
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.
<PAGE>
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 under the
condition that no other events of default existed under the loan
agreement. As discussed below, the Company subsequently determined that
another event of default existed at the time of the execution of these
agreements. Accordingly, the Company believes that these agreements are
not valid and that at October 28, 1995, the Company is in violation of
its loan agreement with LaSalle and, by virtue of cross-default
provisions, with the provisions of the Senior Note Indenture.
LaSalle 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. The Company expects to be in violation of these
financial covenants as of this date unless such covenants are modified.
The Company is seeking to renegotiate such covenants, but there is no
assurance that it will be successful in this regard. 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 October 28, 1995.
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).
The Company has deferred payment of this debt in order to preserve cash
for use in operation of its business. The Company intends to continue
to accrue interest on the debt at 9.5% and plans to pay the debt plus
accrued interest in the future. 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 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. The Company is
currently engaged in negotiations with certain of its Senior Note
holders to amend the Indenture in order to eliminate the events of
default under the Indenture. In the near future, the Company expects to
enter into Supplement No. 1 to the Indenture (Supplemental Indenture)
with Continental Stock Transfer and Trust Company as Trustee for the
Senior Notes. The Supplemental Indenture, which requires the approval
of a majority of the Senior Note holders, is expected to amend 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. While the Company believes that it will obtain the approvals
required for the Supplemental Indenture, there can be no assurance in
that regard.
<PAGE>
The Company's Rymer Meat subsidiary had total lines of credit available
of $11.7 million at October 28, 1995 and $10.8 million at October 29,
1994, of which $3.6 million and $10.5 million, respectively, was unused.
At October 28, 1995, the Company had a bank loan outstanding under this
facility of $8.1 million.
The Company's Rymer Seafood subsidiary had total lines of credit
available under notes payable of $10.8 million at October 28, 1995 and
$9.3 million at October 29, 1994, of which $1.1 million and $2.0
million, respectively, was unused. The Company had a bank loan
outstanding related to its Rymer Seafood operation of $8.2 million and
$5.8 million at October 28, 1995 and October 29, 1994, respectively.
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 $1.5 million at
both October 28, 1995 and October 29, 1994. Rymer Meat had a letter of
credit of $0.3 million outstanding at October 29, 1994.
On both lines of credit, interest is payable monthly on the unpaid
principal at an interest rate of 1/2% over prime.
The Company's bank agreements contain certain restrictive covenants
which, among other things, limit the amount of indebtedness incurred by
the Company and its subsidiaries and require the maintenance of certain
financial ratios by the Company and its subsidiaries. The most
restrictive covenants under the Company's bank agreements include a
tangible net worth requirement, a minimum coverage ratio of earnings to
interest expense requirement, and a limitation as to capital
expenditures.
Substantially all of the Company's property, plant and equipment and
certain current assets are pledged as collateral under its lines of
credit.
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.
<PAGE>
The following summarizes the most restrictive covenants of the
Indenture. The Company is restricted from paying cash dividends on its
capital stock. In addition, the Company is limited as to the incurrance
of additional debt and as to capital expenditures and other
acquisitions. The Indenture requires that Available Cash, as defined
and under certain circumstances, be applied to the prepayment of the
outstanding principal of the Senior Notes. The Indenture also contains
certain other covenants including limitations on liens, requirements to
maintain its status as a reporting company under the Securities Exchange
Act and to maintain a stock exchange listing, restrictions on
transactions with affiliates and related persons, and covenants to
maintain assets and pay taxes. The Indenture also contains provisions
whereby the Company is considered to be in default under the Indenture
if it is in default under the terms of any of its other debt agreements.
The Company elected to make the June 15, 1993 interest payment due on
the Senior Notes by issuing additional Senior Notes totalling $1,456,000
in accordance with the terms of the Indenture.
Under the Indenture, the Company made mandatory redemptions of its
Senior Notes of $1,050,000 in June 1994 and $2,250,000 in December 1994.
The following table summarizes 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
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. 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 intends to accrue
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>
In accordance with Statement of Financial Accounting Standards No. 107
"Disclosures About Fair Value of Financial Instruments", the Company has
determined the fair value of its bank debt at October 28, 1995, to
approximate the market value as the interest rates that are utilized are
similar to those that are currently available for issuance of debt with
similar terms and maturities. The fair value of the Company's Senior
Notes is estimated based on recent transactions. The estimated fair
market value of the Company's Senior Notes at October 28, 1995 was 60%
of the face amount of the Senior Notes or approximately $10.9 million.
The notes payable to executives under the restructured employment and
consulting agreements (See Note 11) were amended in connection with the
Restructuring. 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
against, notes receivable owed to the Company by
the executives under stock purchase agreements (See Note 11). The notes
receivable also bore interest at 9.5% per annum and were due January 2,
1996.
At October 28, 1995, aggregate maturities of long-term debt and
capitalized leases for each of the next five years and thereafter were
as follows (in thousands):
1996 $35,178
1997 70
1998 -
1999 -
2000 -
Thereafter -
Total long-term debt $35,248
7. Leases
The Company and its subsidiaries lease certain buildings and equipment
used for offices and manufacturing. Total rental expense from
continuing operations under all operating leases was approximately
$1,012,000, $998,000 and $1,172,000 in 1995, 1994 and 1993,
respectively. The above lease costs do not include the costs of taxes,
insurance, maintenance and utilities which the Company and its
subsidiaries are required to pay.
The lease for the Chicago meat processing facility, which expires in
July 1996, includes a provision for a two year extension under certain
conditions.
<PAGE>
Property, plant and equipment recorded under capital leases and the
related amortization are as follows (in thousands):
1995 1994
Machinery and equipment $178 $205
Less accumulated amortization 150 137
$ 28 $ 68
Capital leases are principally related to production and office
equipment. Lease commitments under non-cancelable leases as of October
28, 1995 are as follows (in thousands):
Capital Operating
Leases Leases
1996 $ 20 $ 657
1997 - 30
1998 - 11
1999 - 11
2000 - 4
Net future minimum lease payments $ 20 $ 713
Less amount representing interest 3
Present value of net future minimum
lease payments under capital
leases $ 17
8. Income Taxes
Effective with the first quarter of 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Adoption of this standard did
not materially impact the Company's operating results. The Company's
deferred tax asset is related primarily to its operating loss
carryforward for tax reporting purposes which approximated $31.2 million
at October 28, 1995. The Company recorded a valuation allowance
amounting to the entire deferred tax asset balance because the Company's
financial condition, its lack of a history of consistent earnings,
possible limitations on the use of carryforwards, and the expiration
dates of certain of the net operating loss carryforwards give rise to
uncertainty as to whether the deferred tax asset is realizable.
The Company recognizes the deferred tax benefit related to its deferred
tax asset within its income tax provision as income is earned and the
benefits are realized.
<PAGE>
The components of the net deferred tax asset recorded in the
accompanying consolidated balance sheets as of October 28, 1995 and
October 29, 1994 are as follows (in thousands):
1995 1994
Deferred tax assets:
Accounts receivable $ 514 $ 325
Inventories 67 29
Property, plant and equipment 846 2,325
Other liabilities and reserves 845 901
Alternative minimum tax credits 98 119
Net operating loss carryforwards 10,652 11,228
Investment tax credi ts 512 512
Capital loss carryforwards - 262
Total deferred tax assets 13,534 15,701
Less: Valuation allowance (13,534) (15,701)
Net deferred tax asset $ - $ -
<PAGE>
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 income before income taxes.
Fiscal Years Ended
October 28, October 29,
1995 1994
(in thousands)
Income (loss) before
income taxes:
Income (loss) from con-
tinuing operations $ (29,330) $ 2,545
Loss from dis-
continued operations - (492)
Income (loss) on dis-
positions of dis-
continued operations - 4,687
Total income (loss) before
income taxes $ (29,330) $ 6,740
Total benefit computed
by applying the U.S.
statutory rate (34%) $ (9,972) $ 2,292
Increases in taxes due to:
Goodwill written off 6,936 1,847
Goodwill amortization 391 411
Other differences, net 8 (349)
Losses which provide
no current tax
benefit 2,637 -
Utilization of net
operating loss and
capital loss
carryforwards - (3,939)
Actual tax provision $ - $ 262
The tax provision recorded in the Consolidated Statement of Operations
for the year ended October 29, 1994 is as follows:
Provision for income
taxes for:
Income from continuing
operations $ 75
Gain on disposal of
discontinued operations 213
Credit equivalent to
benefit for income taxes
related to loss from
discontinued operations (26)
Net provision for income
taxes $ 262
<PAGE>
The Company's Federal income tax returns are subject to review by the
Internal Revenue Service, the results of which cannot be predicted with
certainty. At October 28, 1995, the Company had an operating loss
carryforward for tax reporting purposes approximating $31,230,000;
(expiring $2,500,000 in 1996; $1,600,000 in 1997; $12,700,000 in 1998;
$700,000 in 2000; $2,800,000 in 2001; $100,000 in 2002, $100,000 in
2003; $300,000 in 2004; and $2,800,000 in 2007; $130,000 in 2009; and
$7,500,000 in 2010) which is available to offset future Federal taxable
income.
Upon consummation of the Restructuring in 1993, the amount of the net
operating loss carryforward for tax purposes was reduced by
approximately $12.8 million.
9. Capital Stock
The Company has authorized 400,000 shares of preferred stock with a par
value of $10 per share. The Company's Board of Directors may establish
the dividend rates, liquidation preferences, redemption, conversion and
voting rights, and any further limitations or restrictions of such a
preferred stock upon issuance.
Treasury common stock is recorded at cost and is reflected in the
accompanying balance sheet as a direct reduction of stockholders'
equity.
At October 28, 1995, 918,000 shares of common stock were reserved for
the exercise of stock options including 118,500 shares reserved for
future grants of options.
10. Stock Options and Warrants
On April 7, 1993, in connection with consummation of the Plan (See Note
3), all outstanding options were cancelled and the Company adopted the
1993 Stock Option Plan (the 1993 Plan). The 1993 Plan permitted the
issuance to key employees and directors of options to purchase shares of
common stock.
Options granted under the 1993 Plan are exercisable at a price of $1.88
per share, the fair market value of the Common Stock on April 7, 1993,
the date the options were granted. The right of an optionee to exercise
options granted is dependent upon a combination of time vesting and the
price performance of the common stock as indicated below. Failure to
meet the performance criteria would not result in any change in the
exercise price or the number of shares subject to the option.
<PAGE>
Options generally vest, as to time, at the rate of 25% for each year of
service by the optionee following the option grant date. The number of
options within an option grant which may be exercised during any
calendar quarter will equal the lesser of: (a) the number of options
time vested or (b) the number of options determined by multiplying the
performance percentage (Performance Percentage) and the total number of
options held within such option grant by an optionee. The Performance
Percentage is based on the average trading price per share of the common
stock during the last fifteen trading days of the preceding calendar
quarter as follows: $3.00 - 40%, $4.00 - 80%, $5.00 - 100%. At October
29, 1994, 338,000 options were outstanding under the 1993 Plan. All
options expire on April 7, 1998.
In 1994, the Company adopted the 1994 Stock Plan (the 1994 Plan). The
1994 Plan succeeds the 1993 Plan. The 1994 Plan permits the issuance to
key employees and directors of options to purchase up to 580,000 shares
of common stock.
Options granted under the 1994 Plan are exercisable at the fair market
value of the Common Stock on the date the option is granted. The term
during which each option may be exercised is determined by the Company
at each grant date. In no event will the option be exercisable more
than ten years from the grant date. There is no performance vesting
aspect of the 1994 Plan. Options time vest as designated in the
individual grant. Options currently outstanding vest in one to three
years. At October 28, 1995, 527,000 options were outstanding under the
1994 Plan.
A summary of stock option transactions and other related information is
as follows:
1995 1994 1993
Shares under option at
beginning of year 755,000 570,500 34,130
Options granted (at
prices of $1.63 to $3.25
in 1995, at $1.38 to
$2.88 in 1994 and $1.88
in 1993) 101,000 417,000 570,500
Options exercised at
$1.88 in 1994 (1,000)
Options cancelled and
expired (56,500) (231,500) (34,130)
Shares under option at
the end of the year (at
prices ranging from
$1.38 to $3.25) - 407,000
shares exercisable at
October 28, 1995 799,500 755,000 570,500
Shares available for
option at end of year 118,500 163,000 580,191
<PAGE>
In October 1995, the Company engaged the financial advisory and
turnaround firm of Kirkland Messina, Inc. (KM) to assist the Company in
developing a plan to return the Company to profitability. As part of
KM's compensation, the Company issued KM 500,000 warrants to purchase
common stock of the Company at an exercise price in cash of $1.675 per
share.
On November 8, 1995, the Company announced that it had hired P. E. (Ed)
Schenk as its President and Chief Executive Officer. As part of Mr.
Schenk's compensation, he was issued 750,000 warrants to purchase common
stock of the Company at an exercise price of $1.00 per share.
11. Stock Purchase Agreements
On April 11, 1989, the stockholders approved the sale and issuance of
180,000 shares of common stock for $9.00 per share to three former
executives for recourse promissory notes, commitments, and in one case,
to provide consulting services to the Company. The notes due the
Company bear 9.5% interest and were originally due on February 24,
1994. In fiscal years 1991, 1992 and 1993, the Board of Directors
approved amendments to the employment, consulting and stock purchase
agreements. In these amendments, the former executives accepted annual
salary reductions and reductions in the amount of additional
compensation payable under the employment agreements. In consideration
for these reductions, the former executives received notes in settlement
for all future obligations for additional compensation under the
employment and consulting agreements. Concurrently, the contractual
purchase obligations of the former executives under the 1989 stock
purchase agreements were reduced by a total of $7.75 per share.
The notes payable and notes receivable related to these amended
agreements matured in January 1996. As described in Note 6, on January
2, 1996, notes payable of approximately $406,000 were offset against
notes receivable of approximately the same amount. The notes receivable
were classified as a reduction of Stockholders' equity as they related
to stock purchase agreements. Notes payable to the former executives
totalling $255,000 were due on January 2, 1996. The Company has
deferred payment of this debt in order to preserve cash for use in
operation of its business. The Company intends to continue to accrue
interest on the debt at 9.5% and plans to pay the debt plus accrued
interest in the future. The non-payment of this debt resulted in cross-
defaults under the Company's loan agreement with LaSalle and under its
Senior Note Indenture (See Note 6).
12. Employee Benefit Plans
Prior to 1995, the Company's Rymer Meat operation sponsored a non-
contributory profit sharing plan (the Rymer Meat Plan) covering certain
salaried personnel at the Company's Chicago, Illinois meat processing
plant and the Company's corporate headquarters who had completed one
year of service. Annual contributions to the Rymer Meat Plan were at
the discretion of the Company's management. In 1994 and 1993, the
Company contributed approximately 5% of each participant's compensation
to the Rymer Meat Plan. Contributions and costs expensed under the
Rymer Meat Plan for the 1994 and 1993 fiscal years amounted to
approximately $202,000 and $160,000, respectively.
<PAGE>
Prior to 1995, the Company's Rymer Seafood operation sponsored a 401(k)
savings plan for eligible employees employed at the Rymer Seafood
operation (the Savings Plan). Contributions and costs expensed under
the Savings Plan for the 1994 and 1993 fiscal years amounted to
approximately $14,000 and $13,000, respectively.
Effective November 1, 1994, the Rymer Meat Plan was amended to include a
Company-wide 401(k) savings plan (Company-wide Savings Plan). At the
same time, the Rymer Seafood Savings Plan was eliminated and those
employees joined the Company-wide Savings Plan. The Company makes
matching contributions to the Company-wide Savings Plan of up to 5% of
each participant's compensation. Contributions and costs expensed under
the Company-wide Savings Plan amounted to approximately $201,000.
Under terms of a deferred compensation agreement with a former
officer/director of the Company, the present value of future payments
under the agreement has been included in deferred employee benefits,
amounting to $603,000 at October 28, 1995 and $627,000 at October 29,
1994.
13. Commitments and Contingencies
The amounts of liability, if any, for claims and actions against the
Company and its subsidiaries at October 28, 1995 are not determinable
but, in the opinion of management, such liability, if any, would not
have a material effect upon the Company's financial position or results
of operations.
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 $4.1
million at October 28, 1995. The Company also has agreements with
certain of its suppliers to provide 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 $2.9
million as of October 28, 1995.
14. EEOC Settlement
On April 26, 1990, United States District Court for the Northern
District of Illinois, Eastern Division dismissed EEOC v Rymer Foods
Inc., No. 88 C 10680; an action brought by the Equal Employment
Opportunity Commission against the Company on December 21, 1988,
alleging certain discriminatory employment practices by the Company at
its Chicago meat processing facility.
The present value of the cost of the settlement and estimated additional
legal fees relating to such dismissal was included in the net loss for
fiscal 1990. The remaining liability related to this settlement
approximated $380,000 at October 28, 1995. This liability is classified
as current and the Company's final settlement payment is payable in
February 1996.
<PAGE>
15. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
1995 1994 1993
Cash paid for:
Interest $2,763 $3,668 $2,200
Federal, state and local
income taxes (net of
tax refunds) $ 613 $ 219 $ 6
Non-cash transactions:
In connection with the retirement of a note payable due to a former
Senior Note holder on October 28, 1994, by conversion into common stock,
the following non-cash transaction was recorded:
1994
Decrease in notes payable $(376)
Decrease in accrued interest payable (3)
Issuance of common shares:
Common stock at par 233
Additional paid-in capital 146
$ -
In connection with the 1993 Restructuring (See Note 3), the Company
recorded the following transactions (in thousands):
1993
Retirement of subordinated debentures of
$38,565,000 net of original issue
discount of $1,603,000 $(36,962)
Reduction in accrued interest payable
resulting from restructuring of
subordinated debentures (2,506)
Reduction of debt issuance costs related
to subordinated debentures 436
Issuance of new Senior Notes 19,972
Increase in accrued liabilities for
Senior Notes yet to be issued 5
Issuance of common shares 7,644
Extraordinary gain resulting from re-
structuring of subordinated debentures 11,388
Cash paid for fractional shares of debentures $ (23)
<PAGE>
In connection with the Restructuring, which was recorded in the
Company's 1993 second quarter, the Preferred Stock with a par value of
$14,947,000 was exchanged for 2,242,050 shares of common stock. This
transaction resulted in a total increase to Additional Paid-In Capital
of approximately $12.7 million. The effect of this transaction is
summarized as follows (in thousands):
1993
Exchange of Preferred Stock:
Elimination of Preferred Stock $(14,947)
Issuance of Common Shares 2,242
Increase in additional paid-in capital 12,705
$ -
16. Supplemental Sales Information
Sales to customers outside the United States were less than 10% of
consolidated sales in each year presented. Sales to three restaurant
chains owned by Darden Restaurants (formerly, General Mills) comprised
approximately 12% and 13% of the Company's revenues from continuing
operations in 1995 and 1994, respectively. During the first quarter of
1996, Darden Restaurants informed Rymer Meat that certain supply
contracts would not be renewed for 1996. Rymer Meat sales to this
customer comprised approximately 14% and 16% of net sales from its
processing segment in 1995 and 1994 respectively.
Sales to one of the Company's retail customers, Country Fed Meat
Company, Inc. (CFM), accounted for approximately 8% and 10% of the
Company's revenues from continuing operations in fiscal 1994 and 1993
respectively. At the end of the first quarter of 1995, certain issues
between the Company and CFM resulted in certain lawsuits being filed.
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 have a
supply relationship with CFM in the future.
Sales to two groups of the Company's other customers, Bonanza and
Ponderosa, together accounted for approximately 12%, 11% and 14% of the
Company's consolidated revenues from continuing operations in fiscal
1995, 1994 and 1993, respectively. Franchise rights for both Bonanza
and Ponderosa are owned by Metromedia, Inc. The Bonanza and certain of
the Ponderosa restaurants are independently owned and operated.
The loss of any of the Company's major customers, or a substantial
portion of these accounts, could have a material adverse effect on the
Company.
<PAGE>
17. Earnings (Loss) Per Share
Earnings (loss) per share are calculated by the treasury stock method.
For all years, primary earnings (loss) per common share is computed by
dividing earnings (loss) by the weighted average number of common shares
outstanding plus common stock equivalents calculated using the average
market price. Fully diluted earnings (loss) per common share for all
years is computed on the same basis except the ending market price is
utilized to calculate common stock equivalents.
18. Fourth Quarter Adjustments
1995
During the fourth quarter of 1995, the Company recorded a goodwill
writedown of $20.4 million (See Note 1). This writedown eliminates all
remaining goodwill of the Company. The asset of goodwill was determined
to have been impaired because of the current financial condition of the
Company and the Company's inability to generate future operating income
without substantial sales volume increases which are uncertain.
Moreover, anticipated future cash flows of the Company indicate that the
recoverability of the asset is not reasonably assured.
During the fourth quarter of 1995, the Company recorded a Restructuring
charge of $761,000 related to the restructuring plan commenced in
October of 1995 to reduce operating costs, improve efficiencies, and
return the Company to profitability (See Note 3). Of this amount,
approximately $200,000 represents fees and expenses of financial and
turnaround consultants while the remaining amount represents primarily
severance payments.
During the fourth quarter of 1995, the Company recorded an additional
interest charge of approximately $470,000. This charge 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.
1994
None
1993
During the fourth quarter of 1993, the Company recorded a charge of
$661,000 related to the restructuring of the Debentures which reduced
the extraordinary gain on Restructuring previously reported for a
revised gain of $11,388,000. The charge related to the issuance of an
additional 402,960 shares to the holders of the Debentures in order to
eliminate the dilutive effect of the issuance of common shares in
payment of certain Restructuring expenses.
<PAGE>
During the fourth quarter of 1993, the Company recorded an additional
Restructuring charge of approximately $600,000 consisting primarily of
professional fees of the Company's legal counsel, accountants and
various other professional fees.
During the fourth quarter of 1993, the Company recognized an additional
loss of $344,000 to reduce the carrying value of the Plant City facility
to its estimated net realizable value of $1.6 million. This loss was
partially offset by income of $272,000 from the elimination of reserves
established during 1992 for losses expected to operate the plant through
the date of disposal.
19. Business Segment Information
The Company designates two business segments for reporting its financial
position and result of operations: the Processing segment and the
Seafood Importing and Distributing segment. The Processing segment
consists of the Meat processing operation. The Seafood operation
comprises the Seafood Importing and Distributing segment. The Company's
consolidated results by business segment are summarized as follows (in
thousands):
1995 1994 1993
Net Sales:
Processing $ 79,921 $106,251 $ 99,642
Seafood Importing
& Distributing 70,376 56,005 48,208
Total $150,297 $162,256 $147,850
Operating Income:
Processing $ (4,439)$ 6,005 $ 4,088
Seafood Importing
& Distributing 15 457 (476)
(4,424) 6,462 3,612
Corporate expenses (20,702) (576) (23,651)
Total $(25,126)$ 5,886 $(20,039)
<PAGE>
1995 1994 1993
Earnings (loss) from
continuing operations
before income taxes:
Processing $ (4,166)$ 6,271 $ 4,059
Seafood Importing
& Distributing (866) (159) (1,078)
(5,032) 6,112 2,981
Corporate expenses (24,298) (3,567) (26,791
Total $(29,330)$ 2,545 $(23,810)
Identifiable Assets:
Processing $ 19,080 $42,625 $ 40,367
Seafood Importing
& Distributing 13,454 12,501 10,165
Corporate 1,390 1,766 2,196
Assets held for sale 1,600 1,600 20,137
Total $ 35,524 $58,492 $ 72,865
Capital Expenditures:
Processing $ 816 $ 472 $ 555
Seafood Importing
& Distributing 33 26 9
Corporate - 6 5
849 504 569
Discontinued Operations - 628 1,269
Total $ 849 $ 1,132 $ 1,838
Depreciation and
Amortization of Plant
and Equipment and
Other Assets:
Processing $ 987 $ 1,743 $ 1,864
Seafood Importing
& Distributing 22 26 24
Corporate 21,730 690 21,355
22,739 2,459 23,243
Discontinued Operations - 145 1,263
Total $ 22,739 $ 2,604 $ 24,506
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The disclosure required by Item 10 is set forth in, and is incorporated
by reference to, the Company's Proxy Statement relating to the 1995
Annual Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission on or before February 28, 1996 (the 1996 Proxy
Statement).
Item 11. Executive Compensation
The disclosure required by Item 11 is set forth in, and is incorporated
by reference to, the 1996 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The disclosure required by Item 12 is set forth in, and is incorporated
by reference to, the 1996 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The disclosure required by Item 13 is set forth in, and is incorporated
by reference to, the 1996 Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
Page
(a) 1. The following audited consolidated financial
statements of the Company are included in Part II, Item 8:
Consolidated Statements of Operations for the years ended
October 28, 1995, October 29, 1994 and October 30, 1993 19
Consolidated Balance Sheets as of October 28, 1995 and
October 29, 1994 20
Consolidated Statements of Cash Flows for the years ended
October 28, 1995, October 29, 1994 and October 30, 1993 21
Consolidated Statements of Stockholders' Equity for the
years ended
October 28, 1995, October 29, 1994 and October 30, 1993 22
Notes to Consolidated Financial Statements 23-35
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves 38
Schedules, other than those listed above, are omitted as they are
not applicable or required or equivalent information has been
included in the financial statements or notes thereto.
<PAGE>
3. Exhibits:
10.1 Loan and Security Agreement dated as of April 7, 1995
among Rymer Meat Inc., Rymer International Seafood
Inc., Rymer Foods Inc., and LaSalle National Bank
(Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the period ended
April 29, 1995.)
10.2 Forbearance Agreement and Amendment dated as of
January 5, 1996 among Rymer Meat Inc., Rymer
International Seafood Inc., Rymer Foods Inc. and
LaSalle National Bank.
10.3 Letter Agreement and Amendment dated February 7, 1996
among Rymer Meat Inc., Rymer International Seafood Inc.,
Rymer Foods Inc. and LaSalle National Bank.
11 Computation of Earnings Per Share 40
22 Subsidiaries of the Company 41
24 Consent of Independent Accountants 42
(b) The Company filed the following Form 8-K during the fourth
quarter of its fiscal year ended October 28, 1995:
Form 8-K dated October 10, 1995 regarding the announcement of a
reorganization plan including an approximate 20% reduction in the
work force. The Company also announced that it had retained the
financial advisory and turnaround firm of Kirkland Messina, Inc.
NOTE: With the exception of Exhibit Nos. 11, 22 and 24, the
registrant will furnish copies of such other Exhibits upon
written request to the Secretary at the address on the cover of
the Form 10-K Annual Report. A reasonable copying and handling
fee will be charged.
<PAGE>
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994 AND OCTOBER 30,
1993
RYMER FOODS INC. AND SUBSIDIARIES
Additions
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions end
Description of Year Expenses (describe) (describe) of Year
(in thousands)
<S> <C> <C> <C> <C> <C>
Deducted in the balance sheets
from the assets to which
they apply:
Allowance for doubtful
accounts-current:
For the year ended
October 28, 1995 $ 731 $ 789 $ 952 (a) $ 568
For the year ended
October 29, 1994 475 461 205 (a) 731
For the year ended
October 30, 1993 330 391 246 (a) 475
(a) Accounts written off, net of recoveries
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ P. Edward Schenk
P. Edward Schenk, Chairman of the Board,
Chief Executive Officer, and President
Date: July 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
/s/ Edward Schenk Chairman of the Board, 7/23/96
P. Edward Schenk Chief Executive Officer and
President (Principal Executive
Officer)
/s/ Edward M. Hebert Senior Vice President, Chief Financial 7/23/96
Edward M. Hebert Officer and Treasurer
/s/ Samuel I. Bailin Director 7/23/96
Samuel I. Bailin
/s/ Joseph Colonnetta Director 7/23/96
Joseph Colonnetta
/s/ David E, Jackson Director 7/23/96
David E. Jackson
/s/ Hannah H. Strasser Director 7/23/96
Hannah H. Strasser
<TABLE>
Exhibit 11
Rymer Foods Inc.
Computation of Earnings Per Share
for the years ended October 28, 1995,
October 29, 1994 and October 30, 1993
(in thousands, except per share amounts)
1995 1994 1993
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
<S> <C> <C> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Average shares outstanding 10,748 10,748 10,506 10,506 6,821 6,821
2 Net additional shares assuming
stock options and warrants
exercised and proceeds used
to purchase treasury shares 140 140 156 276 54 3
Net additional shares assuming
conversion of preferred stock
not considered a common stock
equivalent at issuance
4 Average number of common
shares outstanding 10,888 10,888 10,662 10,782 6,821 6,875
EARNINGS
5 Income (loss) from continuing
operations $(29,330) $(29,330) $ 2,470 $2,470 $(23,810) $(23,810)
6 Income (loss) before
extraordinary item $(29,330) $(29,330) $ 6,478 $6,478 $(22,829) $(22,829)
7 Net income (loss) $(29,330) $(29,330) $ 6,478 $6,478 $(11,441) $(11,441)
PER SHARE AMOUNTS
Income (loss) from continuing operations
(line 5 / line 4) $ (2.69) $ (2.69) $ .23 $ .23 $ (3.49) $ (3.46)
(a)
Income (loss) before extraordinary item
(line 6 / line 4) $ (2.69) $ (2.69) $ .61 $ .60 $ (3.35) $ (3.32)
(a) (a)
Net income (loss)
(line 7 / line 4) $ (2.69) $ (2.69) $ .61 $ .60 $ (1.68) $ (1.66)
(a) (a)
Note: In all years, earnings per share has been calculated using the
treasury stock method.
(a) Amounts are anti-dilutive; accordingly, primary earnings per share
is disclosed for reporting purposes in accordance with generally
accepted accounting principles.
</TABLE>
Exhibit 22
RYMER FOODS INC.
SUBSIDIARIES OF THE COMPANY
OCTOBER 28, 1995
State of Percent
Subsidiary Name Incorporation Owned Owner
Rymer Meat Inc. Illinois 100 Rymer Foods Inc.
Rymer Chicken Inc. (1) Arkansas 100 Rymer Meat Inc.
Rymer International
Seafood Inc. (2) Illinois 100 Rymer Meat Inc.
Rymer Chicken Inc.
- Plant City Florida 100 Rymer Meat Inc.
Queen City Foods Inc. Georgia 100 Rymer Meat Inc.
(1) Substantially all of the assets of Rymer Chicken Inc. were sold on
December 10, 1993. See Item 1 and Note 4 to the Consolidated
Financial Statements.
(2) The Company announced on January 5, 1996 that it had signed an
agreement in principle to sell the assets of Rymer International
Seafood Inc. See Item 1 and Note 4 to the Consolidated Financial
Statements.
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Rymer Foods Inc. on Form S-8 (File No. 33-79346) and on
Form S-2 (File No. 33-86062) of our report which includes explanatory
paragraphs regarding the uncertainty of the Company's ability to
continue as a going concern and the Company's adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
and the restatement of the consolidated financial statements, dated
February 12, 1996 except for Note 4 as to which the date is July 1,
1996, on our audits of the consolidated financial statements and
financial statement schedule of Rymer Foods Inc. and subsidiaries as of
October 28, 1995 and October 29, 1994 and for the three years in the
period ended October 28, 1995, which report is included on page 19 in
this Annual Report on Form 10-K/A1.
Chicago, Illinois COOPERS & LYBRAND L.L.P.
July 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-END> OCT-28-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,782
<ALLOWANCES> 568
<INVENTORY> 18,985
<CURRENT-ASSETS> 30,974
<PP&E> 8,202
<DEPRECIATION> 6,172
<TOTAL-ASSETS> 35,524
<CURRENT-LIABILITIES> 41,540
<BONDS> 0
0
0
<COMMON> 10,754
<OTHER-SE> (17,612)
<TOTAL-LIABILITY-AND-EQUITY> 35,524
<SALES> 150,297
<TOTAL-REVENUES> 150,297
<CGS> 143,134
<TOTAL-COSTS> 32,289
<OTHER-EXPENSES> (461)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,665
<INCOME-PRETAX> (29,330)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,330)
<EPS-PRIMARY> (2.69)
<EPS-DILUTED> (2.69)
</TABLE>
