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 January 30, 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 March
12, 1999.
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<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
January 30, October 31,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Receivables, net $ 1,691 $ 1,956
Inventories 3,614 3,266
Other 129 113
------- -------
Total Current Assets 5,434 5,335
Property, Plant and Equipment:
Leasehold improvements 991 989
Machinery and equipment 1,038 1,001
------- -------
2,029 1,990
Less accumulated depreciation
and amortization 680 567
------- -------
1,349 1,423
Other 122 122
------- -------
$ 6,905 $ 6,880
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of borrowings, $ 2,313 $ 1,851
Accounts payable 261 667
Accrued liabilities 1,606 1,343
------- -------
Total Current Liabilities 4,180 3,861
Deferred Employee Benefits 128 126
------- -------
4,308 3,987
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.04 par, 20,000,000 shares
authorized; 4,300,000 shares outstanding 172 172
Additional paid-in capital 4,851 4,851
Accumulated deficit (2,426) (2,130)
------- -------
Total Stockholders' Equity 2,597 2,893
------- -------
$ 6,905 $ 6,880
======= =======
See accompanying notes.
</TABLE>
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<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Thirteen Weeks Ended
January 30, January 24,
1999 1998
------ ------
(in thousands, except per share data)
<S> <C> <C>
Net sales $ 7,103 $ 5,999
Cost of sales 6,410 5,839
------ ------
Gross profit 693 160
Selling, general and
administrative expenses 920 929
------ ------
Operating loss (227) (769)
Interest expense 67 40
Other income
(Expense) 2 (23)
------ ------
Net loss $ (296) $ (786)
====== ======
Per common share data:
Basic:
Loss from continuing operations $ (.07) $ (.18)
====== ======
Net loss $ (.07) $ (.18)
====== ======
Diluted:
Loss from continuing operations $ (.07) $ (.18)
====== ======
Net loss $ (.07) $ (.18)
====== ======
See accompanying notes.
</TABLE>
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<TABLE>
RYMER FOODS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Thirteen Weeks Ended
Jan. 30, 1999 Jan. 24, 1998
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Loss from continuing operations $ (296) $ (786)
Non-cash adjustments to loss:
Depreciation and amortization 113 136
Provision for bad debts 15 15
Net decrease to accounts receivable 250 107
Net (increase) decrease to inventories (348) 802
Net (increase) to other current and
long-term assets (16) (6)
Net increase to accounts payable and
accrued expenses 294 56
------- -------
Net cash flows from operating activities of
continuing operations 12 324
Net cash flows from operating activities of
discontinued operations 2 (17)
------- -------
Net cash flows from operating activities 14 307
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (39) (4)
------- -------
Net cash flows from investing activities (39) (4)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in cash overdraft (437) (129)
Repayments under line-of-credit facility (6,562) (6,909)
Borrowings under line-of-credit facility 7,024 6,735
------- -------
Net cash flows from financing activities 25 (303)
Net change in cash and cash equivalents - -
Cash and cash equivalents balance at
beginning of year - -
------- -------
Cash and cash equivalents balance at
end of first quarter $ - $ -
======= =======
Supplemental cash flow information:
Interest paid $ 60 $ 40
======= =======
Income taxes paid, net of refunds $ - $ -
======= =======
See accompanying notes.
</TABLE>
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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 first quarter of 1999, the Company reported an increase in
net sales from continuing operations as compared to the first
quarter of 1998 of 18.4% principally due to the Company's expansion
of its customer base. In fiscal 1998, the Company reported a net
loss from continuing operations of $2.0 million, the sixth loss
from continuing operations before extraordinary item in the
last seven years, an improvement of $2.9 from the prior year. This
situation raises 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 January 30,
1999 and October 31, 1998 was (in thousands):
January 30, 1999 October 31, 1998
------ ------
Raw material $ 2,318 $ 2,166
Finished goods 1,296 1,100
------ ------
Total $ 3,614 $ 3,266
====== ======
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4. BORROWINGS
Long-term debt consist of the following (in thousands):
January 30, October 31,
1999 1998
------ ------
Banks, with interest of 2%
over prime in 1999 and 1 1/2%
over prime in 1998 $ 2,313 $ 1,851
====== ======
The prime rate applicable to the Company's outstanding bank notes
payable was 8.0% at both January 30, 1999 and October 31, 1998.
The weighted average interest rate relating to these borrowings was
10% during the first quarter of 1999 and 10.1% during fiscal 1998.
The Company's Rymer Meat subsidiary had total lines of credit
available of $2.7 million at January 30, 1999 and $2.6 million at
October 31, 1998, of which $0.4 million and $0.7 million,
respectively, was unused.
The Company on April 23, 1998 entered into a loan agreement with
FINOVA that replaced the loan agreement with LaSalle. 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 January 30, 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
January 30, 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.
<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 Quarter of 1999 versus First Quarter of 1998
Consolidated sales for the first quarter of 1999 of $7.1 million
increased from the first quarter of 1998 by $1.1 million or 18.4%.
Sales increased primarily due to the Company's expansion of its
customer base.
As compared to 1998, consolidated cost of sales increased by $0.6
million or 9.8%. As a percentage of sales, the gross margin increased
to 9.8% as compared to 2.7% in 1998.
Gross profit increased compared to 1998 by $0.5 million mainly due to
the efficiencies associated with the higher volume. The Company's
hourly work force has remained constant from 1998 to 1999.
Selling, general and administrative expenses were unchanged in 1999 as
compared to 1998.
<PAGE>
Interest Expense
Interest expense increased by $27,000 or 68% as compared to 1998. This
increase is due to the Company's higher borrowings on the Company's line
of credit.
Income Taxes
In both 1999 and 1998, no provision for income taxes was recorded due to
the loss from operations.
Liquidity and Capital Resources
The Company makes sales primarily on a seven to thirty day balance due
basis. Purchases from suppliers have payment terms generally ranging
from wire transfer at time of shipment to fourteen days.
In conjunction with its bankruptcy filing, the Company, on August 29,
1997, entered into a revised loan agreement with LaSalle. The revised
agreement provides a credit facility of up to $4 million for the
Company through April 30, 1998 based on borrowing base availability
calculations. The agreement revised certain loan covenants and waived
all prior events of default as of the quarter ended July 25, 1997. At
January 24, 1998, the Company had a bank loan of $1.2 million
outstanding under its line of credit with LaSalle. At quarter-end, the
Company was in violation of certain loan covenants with LaSalle.
LaSalle agreed to waive such covenants. The Company on April 23, 1998
entered into a loan agreement with FINOVA that replaced the loan
agreement with LaSalle. 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 January
30, 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 $2.7 million at
January 30, 1999 and $2.6 million at October 31, 1998, of which
$0.4 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.
<PAGE>
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 early 1999. The Company has contacted
most of its major third party customers and suppliers, all of whom have
advised the Company that they intend 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.
<PAGE>
<TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
BASIC DILUTED BASIC DILUTED
Thirteen Thirteen Thirteen Thirteen
Weeks Weeks Weeks Weeks
January 30, January 30, January 24, January 24,
1999 1999 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 - 348 - 268
------ ------ ------ ------
3 Average number of common
shares outstanding 4,300 648 4,300 4,586
====== ====== ====== ======
EARNINGS (LOSSES)
4 Loss from continuing
operations $ (295) $ (295) $ (786) $ (786)
====== ====== ====== ======
5 Net loss $ (295) $ (295) $ (786) $ (786)
====== ====== ====== ======
PER SHARE AMOUNTS
Loss from continuing
operations (line 4/line 3) $ (.07) $ (.07) $ (.18) $ (.18)
====== ====== ====== ======
Net loss
(line 5/line 3) $ (.07) $ (.07) $ (.18) $ (.18)
====== ====== ====== ======
NOTE - Earnings per share has been calculated using the treasury stock
method.
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.
</TABLE>
<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 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
<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, Senior Vice President,
Chief Financial Officer, Secretary and Treasurer
Date: March 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,691
<ALLOWANCES> 175
<INVENTORY> 3,614
<CURRENT-ASSETS> 5,434
<PP&E> 2,029
<DEPRECIATION> 680
<TOTAL-ASSETS> 6,905
<CURRENT-LIABILITIES> 4,180
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 4,851
<TOTAL-LIABILITY-AND-EQUITY> 6,905
<SALES> 7,103
<TOTAL-REVENUES> 7,103
<CGS> 6,410
<TOTAL-COSTS> 920
<OTHER-EXPENSES> 67
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
