UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 25, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from - to -
Commission File Number 1-6071
RYMER FOODS INC.
Incorporated in the State of Delaware IRS Employer Identification
No. 36-1343930
4600 South Packers Avenue
Suite 400
Chicago, Illinois 60609
773/927-7777
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
Registrant had 4,300,000 shares of common stock outstanding as of
September 2, 1998.
This report consists of 12 pages.
1.
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PART I - FINANCIAL INFORMATION
(Unaudited)
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 25, October 25,
1998 1997
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Receivables, net $ 1,893 $ 1,406
Inventories 3,194 4,304
Other 285 193
Total Current Assets 5,372 5,903
Property, Plant and Equipment:
Leasehold improvements 965 958
Machinery and equipment 839 811
1,804 1,769
Less accumulated depreciation
and amortization 451 44
1,353 1,725
Other:
Assets held for sale or lease - 800
Other 125 43
$ 6,850 $ 8,471
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 1,577 $ 1,394
Accounts payable 476 368
Accrued liabilities 1,320 1,669
Total Current Liabilities 3,373 3,431
Deferred Employee Benefits 128 130
3,501 3,561
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.04 par - 20,000,000 shares
authorized; 4,300,000 shares outstanding 172 172
Additional paid-in capital 4,851 4,851
Accumulated deficit ( 1,674) ( 113)
Total Stockholders' Equity 3,349 4,910
$ 6,850 $ 8,471
See accompanying notes.
2.
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RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Predecessor Predecessor
Company Company
July 25, July 26, July 25, July 26,
1998 1997 1998 1997
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $ 8,265 $ 8,295 $ 21,794 $ 26,011
Cost of sales 7,522 7,849 20,422 23,807
Gross profit 743 446 1,372 2,204
Selling, general and
administrative expenses 920 1,047 2,848 3,247
Restructuring Costs - 672 - 672
Operating loss (177) (1,273) (1,476) (1,715)
Interest expense 53 695 136 2,284
Other income (4) - (51) (18)
Net loss $ (226) $(1,968) $ (1,561) $ (3,981)
Per common share data:
Basic:
Net loss $ (0.05) $ * $ (0.36) $ *
Diluted:
Net loss $ (0.05) $ * $ (0.36) $ *
* Earnings per share as it relates to the predecessor company is not
meaningful due to the Company's reorganization.
See accompanying notes.
3.
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RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Thirty-Nine Weeks Ended
Predecessor
Company
July 25, 1998 July 26, 1997
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Loss from continuing operations $(1,561) $ (3,981)
Non-cash adjustments to loss:
Depreciation and amortization 407 498
Amortization of other assets - 58
Provision for bad debts 45 90
Payment-in-kind interest on Senior Notes - 523
Net (increase) decrease to accounts receivable (532) 1,012
Net decrease (increase) to inventories 1,110 (1,324)
Net (increase) to other current and
long-term assets (174) (52)
Net (decrease) increase to accounts
payable and accrued expenses (223) 1,629
Net cash flows from operating activities of
continuing operations (928) (1,547)
Net cash flows from operating activities of
discontinued operations (131) (184)
Net cash flows from operating activities (1,059) (1,731)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (36) (456)
Repayment on Note from the sale
of Rymer Seafood - 950
Proceeds from the sale of Plant City 800 -
Other - (20)
Net cash flows from investing activities 765 474
CASH FLOWS FROM FINANCING ACTIVITIES
Change in cash overdraft 111 (226)
Repayments under line-of-credit facility (24,878) (21,761)
Borrowings under line-of-credit facility 25,061 23,244
Net cash flows from financing activities 294 1,257
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of year - -
Cash and cash equivalents at end of third quarter $ - $ -
Supplemental cash flow information:
Interest paid $ 53 $ 79
Income taxes paid, net of refunds $ - $ 10
See accompanying notes.
4.
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RYMER FOODS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-Q and therefore do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally
accepted accounting principles. The year-end balance sheet data
was derived from audited financial statements, but does not
include all disclosures required by generally accepted
accounting principles. The Company operates on a fiscal year
which ends on the last Saturday in October. References in the
following notes to years and quarters are references to fiscal
years and fiscal quarters. For further information, refer to
the Consolidated Financial Statements and footnotes thereto
included in Rymer Foods Inc.'s (the Company's or Rymer's) Annual
Report on Form 10-K for the fiscal year ended October 25, 1997.
In accordance with the AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code, the Company adopted fresh-start reporting as of
September 20, 1997. In accordance with fresh-start accounting,
the gain on discharge of debt resulting from the bankruptcy
proceedings was reflected on the predecessor Company's financial
statements for the period ended September 20, 1997. In
addition, the accumulated deficit of the predecessor Company at
September 20, 1997, was eliminated, and at September 21, 1997,
the reorganized Company's financial statements reflected no
beginning retained earnings or deficit. In addition, the
Company's capital structure was recast in conformity with its
approved Plan.
Because of the application of fresh-start reporting, the
financial statements for the periods after the reorganization
are not comparable in any respect to the financial statements
for the periods prior to reorganization.
In management's opinion, the consolidated financial statements
include all normal recurring adjustments which the Company
considers necessary for a fair presentation of the results for
the period. Operating results for the fiscal period presented
are not necessarily indicative of the results that may be
expected for the entire fiscal year.
2. GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
In the fiscal year 1997, the Company reported a net loss from
continuing operations of $4.9 million, the fifth loss from
continuing operations before extraordinary item in the last six
years.
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These conditions raise substantial doubt about the Company's
ability to continue operating as a going concern. The 1998
consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Management believes that the Company's future success is
dependent upon reversing its sales decline and on the continual
containment of operating costs. The Company continues to
pursue new sales opportunities while controlling its operating
costs.
3. INVENTORIES
Inventories are stated principally at the lower of first-in,
first-out cost or market. The composition of inventories at
July 25, 1998 and October 25, 1997 was (in thousands):
July 25, 1998 October 25, 1997
Raw material $ 1,546 $ 2,651
Finished goods 1,648 1,653
Total $ 3,194 $ 4,304
4. BORROWINGS
Long-term debt consists of the following (in thousands):
July 25, October 25,
1998 1997
Banks, with interest of 2%
over prime in 1998 and 1 1/2% $ 1,577 $ 1,394
over prime in 1997
Other - -
1,577 1,394
Less amounts classified as current 1,577 1,394
$ - $ -
The prime rate applicable to the Company's outstanding bank note
payable was 8.5% at both July 25, 1998 and October 25, 1997.
The Company's Rymer Meat subsidiary had total lines of credit
available of $2.6 million at July 25, 1998 and $2.4 million at
October 25, 1997, of which $1.1 million and $1.0 million
respectively, was unused.
On April 23, 1998, the Company entered into a new loan agreement
with FINOVA Capital Corporation. The new agreement provides a
credit facility of up to $4 million for the Company based on
borrowing base availability calculations. The new agreement
replaces the credit facility previously outstanding with LaSalle
National Bank. The FINOVA credit agreement contains certain
restrictive covenants which, among other things, limit the
amount of indebtedness that can be incurred by the Company and
requires the maintenance of certain financial ratios. During
the quarter ending July 25, 1998, the Company was in default
under certain covenants. FINOVA has agreed to waive the event
of default as of July 25, 1998.
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Substantially all of the Company's property, plant and equipment
and current assets are pledged as collateral under the new loan
agreement
5. INCOME TAXES
The Company provides for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). The Company's
deferred tax asset is related primarily to its operating loss
carryforward for tax reporting purposes which approximated $18.0
million at July 25, 1998 and October 25, 1997. 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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Cautionary Statement
The statements in this Form 10-Q, included in this Management's
Discussion and Analysis, that are forward looking are based upon
current expectations and actual results may differ materially.
Therefore, the inclusion of such forward looking information should
not be regarded as a representation by the Company that the
objectives or plans of the Company will be achieved. Such statements
include, but are not limited to, the Company's expectations regarding
the operations and financial condition of the Company. Forward
looking statements contained in this Form 10-Q included in this
Management's Discussion and Analysis involve numerous risks and
uncertainties that could cause actual results to differ materially
including, but not limited to, the effect of changing general
economic conditions, business conditions and demand in the meat
industry, the Company's ability to maintain its lending arrangements,
or if necessary, access external sources of capital. In addition,
the Company's future results of operations and financial condition
may be adversely impacted by various factors primarily, the level of
the Company's sales. Certain of these factors are described in the
description of the Company's business, operations and financial
condition contained in this Form 10-Q. Assumptions relating to
budgeting, marketing, product development and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to
alter its marketing, capital expenditure or other budgets, which may
in turn affect the Company's financial position and results of
operations.
General
The Company's consolidated results from operations are generated by
its meat processing operation. The Company's common stock currently
trades under the symbol RFDS on the over-the-counter bulletin board.
<PAGE>
First Three Quarters of 1998 versus First Three Quarters of 1997
Consolidated sales for the first three quarters of 1998 of $21.8
million decreased from the first three quarters of 1997 by $4.2
million or 16%. Sales decreased primarily due to lower sales volume
as a result of increased competition and overall lower consumer
consumption in the Company's market segments.
As compared to 1997, consolidated cost of sales decreased by $3.4
million or 14%. As a percentage of sales, the gross margin decreased
to 6.3% as compared to 8.5% in 1997 due mainly to the decline in
sales.
The Company's hourly work force has declined by approximately 16% at
the end of the first three quarters of 1998 versus 1997.
Selling, general and administrative expenses decreased by $399,000 or
12.3% in 1998 as compared to 1997. Administrative expenses decreased
by $608,000. Reductions in salaries and related expenses due to
headcount reductions contributed to the majority of the decrease.
Selling expenses increased by $209,000 primarily due to increased
marketing expenditures and additions to the Company's sales force.
Interest Expense
Interest expense decreased by $2.1 million or 94% as compared to
1997. This decrease is due to the Company's eliminating its Senior
Notes. During the first three quarters of 1997, the Company incurred
Senior Note interest of $2.1 million. No Senior Note interest was
recorded during 1998 as the Notes were converted into equity during
the Company's Chapter 11 restructuring.
Income Taxes
In both 1998 and 1997, no provision for income taxes was recorded due
to the loss from continuing operations.
Third Quarter of 1998 versus Third Quarter of 1997
Consolidated sales for the third quarter of 1998 of $8.3 million
equalled those from the third quarter of 1997.
As compared to 1997, consolidated cost of sales decreased by $0.3
million or 4.2%. As a percentage of sales, the gross margin
increased to 9.0% as compared to 5.4% in 1997 due mainly to
operational efficiencies.
Selling, general and administrative expenses decreased by $127,000 or
12.1% as compared to 1997. Administrative expenses decreased by
$262,000 due to headcount reductions versus 1997. Selling expenses
increased by $135,000 primarily due to increased marketing
expenditures and additions to the Company's sales force.
Interest Expense
Interest expense decreased by $642,000 or 92.4% as compared to 1997.
This decrease is due to the Company's restructuring of its Senior
Notes. During the third quarter of 1997, the Company incurred Senior
Note interest of $0.6 million. No senior note was recorded during
1998 as the Notes were converted into equity during the
Company's restructuring.
<PAGE>
Income Taxes
In both 1998 and 1997, no provision for income taxes was recorded due
to the loss from continuing operations.
Liquidity and Capital Resources
The Company makes sales primarily on a seven to thirty day balance
due basis. Purchases from suppliers have payment terms generally
ranging from wire transfer at time of shipment to fourteen days.
On April 23, 1998, the Company entered into a new loan agreement with
FINOVA Capital Corporation. The new agreement provides a credit
facility of up to $4 million for the Company based on borrowing base
availability calculations. The new agreement replaces the credit
facility previously outstanding with LaSalle National Bank. The
FINOVA credit agreement contains certain restrictive covenants
which, among other things, limit the amount of indebtedness that can
be incurred by the Company and requires the maintenance of certain
financial ratios. During the quarter ending July 25, 1998, the
Company was in default under certain covenants. FINOVA has agreed to
waive the event of default as of July 25, 1998.
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.
The Company had total lines of credit available of $2.6 million at
July 25, 1998 and $2.4 million at October 25, 1997, of which $1.1
million and $1.0 million, respectively, was unused.
The Company anticipates spending approximately $300,000 for capital
expenditures in 1998. The expenditures are primarily for planned
improvements at the Meat operation. There are no specific
commitments outstanding related to these planned expenditures. Such
capital expenditures will be financed with cash from operations
and/or bank borrowings.
The Company's main computer system and software are not currently
Year 2000 compliant. The Year 2000 issue is the result of computer
programs being written using two digits rather than four to define
the applicable year. Any of the Company's computer programs that
have date sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations,
including, but not limited to, a temporary inability to process
transactions, invoices or other similar normal business activities.
Based on a recent assessment, the Company has determined that it will
need to modify a significant portion of its software so that its
computer system will properly utilize data beyond December 31, 1999.
The Company plans on completing its Year 2000 modifications by the
end of its fourth quarter of fiscal 1998 utilizing internal resources
for all program changes. As a result, the Company does not
anticipate any material costs to complete its Year 2000 program
modifications.
<PAGE>
Seasonality
The quarterly results of the Company are affected by seasonal
factors. Sales are usually lower in the fall and winter.
Impact of Inflation
Raw materials are subject to fluctuations in price. However, the
Company does not expect such fluctuations to materially impact its
competitive position.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed:
11 Computations of earnings per share are
included in the Notes to Condensed Consolidated
Financial Statements included in Item 1 of this Form 10-Q.
Exhibits incorporated by reference:
13.1 Annual Report on Form 10-K of Rymer Foods
Inc. for the fiscal year ended October 25, 1997
(incorporated by reference).
21.1 Subsidiaries of the Company. (Incorporated by
reference to Exhibit 22 to the Annual Report of
Form 10-K of Rymer Foods Inc. for the fiscal year
ended October 25, 1997.)
27 Financial Data Schedule (EDGAR filing)
(b) Reports on Form 8-K:
None
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RYMER FOODS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
RYMER FOODS INC.
(Registrant)
By /s/ Edward M. Hebert
Edward M. Hebert, Senior Vice
President, Chief Financial
Officer and Treasurer
Date: September 8, 1998
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EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
BASIC DILUTED
Thirteen Thirty-Nine Thirteen Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 25, July 25, July 25, July 25,
1998 1998 1998 1998
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Average shares outstanding 4,300 4,300 4,300 4,300
2 Net additional shares outstanding
assuming exercise of stock options* - - - -
3 Average number of common shares
and equivalent shares outstanding 4,300 4,300 4,300 4,300
EARNINGS (LOSSES)
Net loss $ (226) $(1,561) $ (226) $(1,561)
PER SHARE AMOUNTS
Net loss
(line 4 / line 3) $ (0.05) $ (0.36) $(0.05) $ (0.36)
Earnings per share amounts for all other reporting periods as it
relates to the predecessor company is not meaningful due to the
Company's reorganization.
* Since there is a net loss, common stock equivalents are excluded
from the diluted earnings per share calculations since they would
be antidilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-25-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,045
<ALLOWANCES> 152
<INVENTORY> 3,194
<CURRENT-ASSETS> 5,372
<PP&E> 1,804
<DEPRECIATION> 451
<TOTAL-ASSETS> 6,850
<CURRENT-LIABILITIES> 3,373
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 4,851
<TOTAL-LIABILITY-AND-EQUITY> 6,850
<SALES> 21,794
<TOTAL-REVENUES> 21,794
<CGS> 20,422
<TOTAL-COSTS> 2,848
<OTHER-EXPENSES> (51)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> (1,561)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,561)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
