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 31, 1999
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 14, 1999.
This report consists of 11 pages.
1.
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
July 31, October 31,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Receivables, net $ 2,695 $ 1,956
Inventories 4,947 3,266
Other 164 113
------- -------
Total Current Assets 7,806 5,335
Property, Plant and Equipment:
Leasehold improvements 1,001 989
Machinery and equipment 1,139 1,001
------- -------
2,140 1,990
Less accumulated depreciation
and amortization 911 567
------- -------
1,229 1,423
Other 60 122
------- -------
$ 9,095 $ 6,880
======= =======
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 3,525 $ 1,851
Accounts payable 736 667
Accrued liabilities 1,853 1,343
------- -------
Total Current Liabilities 6,114 3,861
Deferred Employee Benefits 120 126
------- -------
6,234 3,987
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 ( 2,162) ( 2,130)
------- -------
Total Stockholders' Equity 2,861 2,893
------- -------
$ 9,095 $ 6,880
======= =======
See accompanying notes.
2.
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<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
July 31, July 25, July 31, July 25,
1999 1998 1999 1998
------ ------ ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $10,573 $ 8,265 $ 28,810 $ 21,794
Cost of sales 9,209 7,522 25,448 20,422
------ ------ ------- -------
Gross profit 1,364 743 3,362 1,372
Selling, general and
administrative expenses 1,141 920 3,147 2,848
------ ------ ------- -------
Operating income(loss) 223 (177) 215 (1,476)
Interest expense 96 53 246 136
Other (income)expense - (4) 1 (51)
------ ------ ------- -------
Net income(loss) $ 127 $ (226) $ (32) $ (1,561)
====== ====== ======= =======
Per common share data:
Basic:
Net income(loss) $ .03 $ (.05) $ (.01) $ (.36)
====== ====== ======= =======
Average Number of Common
Stock Outstanding 4,300 4,300 4,300 4,300
====== ====== ======= =======
Diluted:
Net income(loss) $ .03 $ (.05) $ (.01) $ (.36)
====== ====== ======= =======
Average Number of Common
Stock Outstanding 4,722 4,300 4,300 4,300
====== ====== ======= =======
See accompanying notes.
3.
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<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Thirty-Nine Weeks Ended
July 31, 1999 July 25, 1998
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Loss from continuing operations $ (32) $ (1,561)
Non-cash adjustments to loss:
Depreciation and amortization 344 407
Provision for bad debts 49 45
Net (increase) to accounts receivable (788) (532)
Net (increase) decrease to inventories (1,681) 1,110
Net decrease (increase) to other current and
long-term assets 11 (174)
Net increase (decrease) to accounts payable
and accrued expenses 584 (223)
------- -------
Net cash flows from operating activities of
continuing operations (1,513) (928)
Net cash flows from operating activities of
discontinued operations (6) (131)
------- -------
Net cash flows from operating activities (1,519) (1,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (150) (35)
Proceeds from the sale of Plant City - 800
------- -------
Net cash flows from investing activities (150) 765
CASH FLOWS FROM FINANCING ACTIVITIES
Change in cash overdraft (5) 111
Repayments under line-of-credit facility (47,872) (24,878)
Borrowings under line-of-credit facility 49,546 25,061
------- -------
Net cash flows from financing activities 1,669 294
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of year - -
------- -------
Cash and cash equivalents at end of second quarter $ - $ -
======= =======
Supplemental cash flow information:
Interest paid $ 238 $ 136
======= =======
Income taxes paid, net of refunds $ - $ -
======= =======
See accompanying notes.
4.
</TABLE>
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions to
Form 10-Q and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations, and cash flows in conformity with generally
accepted accounting principles. The year-end condensed 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 31, 1998.
In management's opinion, the condensed consolidated financial
statements include all normal recurring adjustments which the
Company considers necessary for a fair presentation of the results
for the period. Operating results for the fiscal period presented
are not necessarily indicative of the results that may be expected
for the entire fiscal year.
2. GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
In the third quarter of 1999, the Company reported an increase in
net sales from continuing operations as compared to the third
quarter of 1998 of 27.9%, principally due to the Company's expansion
of its customer base and the acquisition of a complementary line of
business. In fiscal 1998, the Company reported a net loss from
continuing operations of $2.0 million, the sixth loss from
continuing operations before extraordinary items in the last seven
years, an improvement of $2.9 million from fiscal 1997. Historical
operating losses raise substantial doubt about the Company's ability
to continue as a going concern.
3. INVENTORIES
Inventories are stated principally at the lower of first-in, first-
out cost or market. The composition of inventories at July 31, 1999
and October 31, 1998 was (in thousands):
July 31, 1999 October 31, 1998
------ ------
Raw material $ 2,895 $ 2,166
Finished goods 2,052 1,100
------ ------
Total $ 4,947 $ 3,266
====== ======
5.
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4. BORROWINGS
Current borrowings consist of the following (in thousands):
July 31, October 31,
1999 1998
------- -------
Credit Company, with interest of 2%
over prime in 1999 and 1 1/2%
over prime in 1998 $ 3,525 $ 1,851
======= =======
The prime rate applicable to the Company's outstanding credit
company notes payable was 8.00% at July 31, 1999 and 8.0% at October
31, 1998. The weighted average interest rate relating to these
borrowings was 9.79% during the first nine months of 1999 and 10.1%
during fiscal 1998.
The Company's Rymer Meat subsidiary had total lines of credit
available of $3.7 million at July 31, 1999 and $2.6 million at
October 31, 1998, of which $0.2 million and $0.7 million,
respectively, was unused.
The Company on April 23, 1998 entered into a loan agreement with
FINOVA Capital Corporation ("FINOVA"). The credit facility provides
up to $4 million of availability based upon an asset based lending
formula for the Company through April 23, 2001. The FINOVA
agreement contains loan covenants that the Company must meet. At
October 31, 1998, the Company was in violation of a covenant which
FINOVA waived. At July 31, 1999 the Company was in compliance with
the loan covenants.
Substantially all of the Company's property, plant and equipment and
certain current assets are pledged as collateral under bank
agreements.
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 $9.0 million at July
31, 1999 and October 31, 1998. 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. Additional restrictions under
Section 382 may apply to limit the amount of net operating loss
carryforward which can be utilized in the future.
6. Net Income (Loss) Per Share
On October 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 - "Earnings per Share". All
current and prior year income (loss) per share date have been
restated to conform to the provisions of SFAS 128.
The Company's basic and diluted net income (loss) per share was
computed by dividing the net income (loss) by the weighted average
number of outstanding common shares, after giving effect to the
assumed exercise of outstanding stock options, except where the
effects are antidilutive. Options to purchase 422,000 and 348,000
shares of common stock with weighted average exercise prices of
$0.24 and $0.87 were outstanding at July 31, 1999 and October 31,
1998 respectively. On March 12, 1999 all of the 411,000 previous
options were cancelled, and subsequently reissued at an exercise
price of $0.22 a share. These options were included in the
computation of common share equivalents for the three months ended
July 31, 1999 but were excluded from all other periods presented
because they were antidilutive.
6.
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
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 Managements Discussion and Analysis, involve numerous
risks and uncertainties that could cause actual results to differ
materially including, but not limited to, the effect of changing economic
conditions, business conditions and growth in the meat industry, the
Company's ability to maintain its lending arrangements, or if necessary,
access external sources of capital, implementing current restructuring
plans and accurately forecasting capital expenditures. In addition, the
Company's future results of operations and financial condition may be
adversely impacted by various factors including, 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company's consolidated results from operations are generated by its
meat processing operation. The Company's common stock currently trades
under the symbol RFDS (OTCBB).
Three Quarters of Fiscal 1999 versus Three Quarters of Fiscal 1998
Consolidated sales for three quarters of fiscal 1999 of $28.8 million
increased from three quarters of fiscal 1998 by $7.0 million or 32.2%.
Sales increased primarily due to the Company's expansion of its customer
base and the acquisition in January 1999 of a small, complementary line
of business.
As compared to 1998, consolidated cost of sales increased by $5.0 million
or 24.6%. As a percentage of sales, the gross margin increased to 11.7%
as compared to 6.3% in 1998.
Gross profit increased compared to 1998 by $2.0 million primarily due to
the efficiencies associated with the higher volume. The Company's hourly
work force has increased by approximately 20% from fiscal 1998 to fiscal
1999.
Selling, general and administrative expenses increased by $300,000 in
1999 as compared to 1998 due primarily to increased sales related
expenditures.
Interest Expense
Interest expense increased by $110,000 or 80.9% as compared to fiscal
1998. This increase is due to the Company's higher borrowings on the
Company's line of credit as a result of higher sales volume, increases in
the Company's borrowing rate and an increase in the prime rate.
Income Taxes
In both fiscal 1999 and fiscal 1998, no provision for income taxes was
recorded due to the loss from operations.
7.
<PAGE>
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.
The Company on April 23, 1998 entered into a loan agreement with FINOVA.
The credit facility provides up to $4 million for the Company through
April 23, 2001. The FINOVA agreement contains loan covenants that the
Company must meet. At October 31, 1998, the Company was in violation of
a covenant which FINOVA waived. At July 31, 1999, the Company was in
compliance with the loan covenants.
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 $4.0 million based
upon an asset based lending formula at July 31, 1999 and $2.6 million at
October 31, 1998, of which $0.2 million and $0.7 million, respectively,
was unused. The Company anticipates that the existing line of credit
will supply sufficient cash to meet the Company's requirements.
The Company anticipates spending approximately $250,000 for capital
expenditures in 1999. 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.
Y2000 Compliance
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in operations. In 1997, the Company developed a three-phase
program for the Y2K information systems compliance. Phase I is to
identify those systems which the Company has exposure to Y2K issues.
Phase II is the development and implementation of action plans to be Y2K
compliant in all areas by early 1999. Phase III, to be completed by late
September is the final testing of each area of exposure to ensure
compliance scheduled for September 25, 1999. The Company has identified
two major areas determined to be critical for successful Y2K compliance:
(1) financial and informational systems applications and (2) third-party
relationships.
In accordance with Phase I of the program, the Company has conducted its
review and has determined all major areas which need to be upgraded. In
the financial and information systems area, a number of applications have
been identified as Y2K compliant due to their recent implementation. The
Company's core financial reporting systems are not fully Y2K compliant,
but are scheduled for upgrade in late September 1999. The Company has
contacted most of its major third party customers and suppliers, all of
whom have advised the Company that they expect to be Y2K compliant by
2000.
The Company believes that the cost to update its systems is not
significant. The Company plans on completing the work with existing
personnel. The Company anticipates completion no later than October 1,
1999.
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.
8.
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<TABLE>
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 31, July 31, July 31, July 31,
1999 1999 1999 1999
----- ----- ----- -----
(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* - - 422 -
----- ----- ----- -----
3 Average number of common shares
outstanding 4,300 4,300 4,722 4,300
===== ===== ===== =====
EARNINGS (LOSSES)
Net income(loss) $ 127 $ (32) $ 127 $ (32)
===== ===== ===== =====
PER SHARE AMOUNTS
Net income(loss)
(line 4 / line 3) $ .03 $ (.01) $ .03 $ (.01)
===== ===== ===== =====
* The Company's basic and diluted net income (loss) per share was
computed by dividing the net income (loss) by the weighted average number
of outstanding common shares, after giving effect to the assumed exercise
of outstanding stock options, except where the effects are antidilutive.
These options were included in the computation of common share
equivalents for the thirteen weeks ended July 31, 1999 but were excluded
from all other periods presented because they were antidilutive.
9.
</TABLE>
<PAGE>
RYMER FOODS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Items 1-5. Not Applicable
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 31, 1998 (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 31,
1998.)
27 Financial Data Schedule (EDGAR filing)
(b) Reports on Form 8-K:
None
10.
<PAGE>
RYMER FOODS INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
RYMER FOODS INC.
(Registrant)
By /s/ Edward M. Hebert
Edward M. Hebert, President,
Chief Financial Officer and Treasurer
Date: September 14, 1999
11.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,900
<ALLOWANCES> 205
<INVENTORY> 4,947
<CURRENT-ASSETS> 7,806
<PP&E> 2,140
<DEPRECIATION> 911
<TOTAL-ASSETS> 9,095
<CURRENT-LIABILITIES> 6,114
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 4,851
<TOTAL-LIABILITY-AND-EQUITY> 9,095
<SALES> 28,810
<TOTAL-REVENUES> 28,810
<CGS> 25,448
<TOTAL-COSTS> 3,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> (32)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
