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 May 1, 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 June
15, 1999.
This report consists of 11 pages.
1.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
May 1, October 31,
1999 1998
------- -------
<S> <C> <C>
ASSETS (in thousands)
Current Assets:
Receivables, net $ 2,933 $ 1,956
Inventories 4,538 3,266
Other 200 113
------- -------
Total Current Assets 7,671 5,335
Property, Plant and Equipment:
Leasehold improvements 997 989
Machinery and equipment 1,109 1,001
------- -------
2,106 1,990
Less accumulated depreciation and
amortization 795 567
------- -------
1,311 1,423
Other 68 122
------- -------
$ 9,050 $ 6,880
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ 3,308 $ 1,851
Accounts payable 1,008 667
Accrued liabilities 1,877 1,343
------- -------
Total Current Liabilities 6,193 3,861
Deferred Employee Benefits 123 126
------- -------
6,316 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 ( 2,289) ( 2,130)
------- -------
Total Stockholders' Equity 2,734 2,893
------- -------
$ 9,050 $ 6,880
======= =======
See accompanying notes.
2.
</TABLE>
<PAGE>
<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
May 1, April 25, May 1, April 25,
1999 1998 1999 1998
------ ------ ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $11,134 $ 7,530 $ 18,237 $ 13,529
Cost of sales 9,829 7,061 16,239 12,900
------ ------ ------- -------
Gross profit 1,305 469 1,998 629
Selling, general and
administrative expenses 1,086 999 2,006 1,928
------ ------ ------- -------
Operating income(loss) 219 (530) (8) (1,299)
Interest expense 83 43 150 83
Other (income)expense (1) (24) 1 (47)
------ ------ ------- -------
Net income(loss) $ 137 $ (549) $ (159) $ (1,335)
====== ====== ======= =======
Per common share data:
Basic:
Net income(loss) $ .03 $ (.13) $ (.04) $ (.31)
====== ====== ======= =======
Diluted:
Net income(loss) $ .03 $ (.13) $ (.04) $ (.31)
====== ====== ======= =======
See accompanying notes.
3.
</TABLE>
<PAGE>
<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Twenty-Six Weeks Ended
May 1, 1999 April 25, 1998
------- -------
<S> <C> <C>
(in thousands)
CASH FLOWS FROM OPERATIONS
Loss from continuing operations $ (159) $ (1,335)
Non-cash adjustments to loss:
Depreciation and amortization 228 273
Provision for bad debts 15 30
Net (increase) to accounts receivable (992) (367)
Net (increase) decrease to inventories (1,272) 1,095
Net (increase) to other current and
long-term assets (33) (31)
Net (decrease) increase to accounts
payable and accrued expenses 491 (128)
------- -------
Net cash flows from operating activities of
continuing operations (1,722) (463)
Net cash flows from operating activities of
discontinued operations (3) (120)
------- -------
Net cash flows from operating activities (1,725) (583)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (116) (23)
Proceeds from the sale of Plant City - 800
------- -------
Net cash flows from investing activities (116) 777
CASH FLOWS FROM FINANCING ACTIVITIES
Change in cash overdraft 384 51
Repayments under line-of-credit facility (32,689) (16,443)
Borrowings under line-of-credit facility 34,146 16,198
------- -------
Net cash flows from financing activities 1,841 (194)
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 $ 150 $ 83
======= =======
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 second quarter of 1999, the Company reported an increase in
net sales from continuing operations as compared to the second
quarter of 1998 of 47.9%, 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 May 1, 1999
and October 31, 1998 was (in thousands):
May 1, 1999 October 31, 1998
------ ------
Raw material $ 2,990 $ 2,166
Finished goods 1,548 1,100
------ ------
Total $ 4,538 $ 3,266
====== ======
5.
<PAGE>
4. BORROWINGS
Current borrowings consist of the following (in thousands):
May 1, October 31,
1999 1998
------- -------
Credit Company, with interest of 2%
over prime in 1999 and 1 1/2%
over prime in 1998 $ 3,308 $ 1,851
======= =======
The prime rate applicable to the Company's outstanding credit
company notes payable was 7.75% at May 1, 1999 and 8.0% at October
31, 1998. The weighted average interest rate relating to these
borrowings was 9.75% during the first six months of 1999 and 10.1%
during fiscal 1998.
The Company's Rymer Meat subsidiary had total lines of credit
available of $4.0 million at May 1, 1999 and $2.6 million at October
31, 1998, of which $0.7 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 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 May 1, 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 May 1,
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 411,000 and 348,000
shares of common stock with weighted average exercise prices of
$0.77 and $0.87 were outstanding at May 1, 1999 and October 31, 1998
respectively. These options were included in the computation of
common share equivalents for the three months ended May 1, 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).
First Half of Fiscal 1999 versus First Half of Fiscal 1998
Consolidated sales for the first half of fiscal 1999 of $18.2 million
increased from the first half of fiscal 1998 by $4.7 million or 34.8%.
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 $3.3
million or 25.9%. As a percentage of sales, the gross margin
increased to 11.0% as compared to 4.6% in 1998.
Gross profit increased compared to 1998 by $1.4 million mainly due to
the efficiencies associated with the higher volume. The Company's
hourly work force has increased by approximately 15% from fiscal 1998
to fiscal 1999.
Selling, general and administrative expenses increased by $78,000 in
1999 as compared to 1998 due primarily to increased sales related
expenditures.
Interest Expense
Interest expense increased by $67,000 or 80.7% 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.
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 May 1, 1999, the
Company was in compliance with the loan covenant.
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 at May
1, 1999 and $2.6 million at October 31, 1998, of which $0.7 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 $350,000 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 mid-1999 is the final
testing of each area of exposure to ensure compliance. 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 Y2K compliant, but are scheduled for upgrade in the third quarter
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 the third
calendar quarter of 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.
<PAGE>
<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
BASIC DILUTED
Thirteen Twenty-Six Thirteen Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
May 1, May 1, May 1, May 1,
1999 1999 1999 1999
----- ----- ----- -----
(In thousands, except per share amounts)
<C> <C> <C> <C>
<S>
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* - - 63 -
----- ----- ----- -----
3 Average number of common shares
outstanding 4,300 4,300 4,363 4,300
===== ===== ===== =====
EARNINGS (LOSSES)
Net income (loss) $ 137 $ (159) $ 137 $ (159)
===== ===== ===== =====
PER SHARE AMOUNTS
Net income (loss)
(line 4 / line 3) $ .03 $ (.04) $ .03 $ (.04)
===== ===== ===== =====
* 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 three months ended May 1, 1999 but were
excluded from all other periods presented because they were
antidilutive.
</TABLE>
9.
<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 thereunto duly authorized.
RYMER FOODS INC.
(Registrant)
By /s/ Edward M. Hebert
----------------------------------------
Edward M. Hebert, President,
Chief Financial Officer and Treasurer
Date: June 15, 1999
11.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> MAY-01-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,933
<ALLOWANCES> 200
<INVENTORY> 4,538
<CURRENT-ASSETS> 7,671
<PP&E> 2,106
<DEPRECIATION> 795
<TOTAL-ASSETS> 9,050
<CURRENT-LIABILITIES> 6,193
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 4,851
<TOTAL-LIABILITY-AND-EQUITY> 9,050
<SALES> 18,237
<TOTAL-REVENUES> 18,237
<CGS> 16,239
<TOTAL-COSTS> 2,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150
<INCOME-PRETAX> (159)
<INCOME-TAX> 0
<INCOME-CONTINUING> (159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
