10-Q 1 rfi01q2b.txt 10Q FOR QUARTER ENDED APRIL 28, 2001 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 April 28, 2001 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 8, 2001. This report consists of 11 pages. PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements RYMER FOODS INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) April 28, October 29, ASSETS 2001 2000 ------ ------ (in thousands) Current Assets Receivables, net $ 2,642 $ 2,770 Inventories 3,751 3,513 Other 153 196 ------ ------ Total Current Assets 6,546 6,479 Property, Plant and Equipment: Leasehold improvements 1,038 1,038 Machinery and equipment 1,969 1,752 ------ ------ 3,007 2,790 Less accumulated depreciation and amortization 1,700 1,503 ------ ------ 1,307 1,287 Other 1 15 ------ ------ $ 7,854 $ 7,781 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of Credit $ 3,801 $ 3,677 Accounts payable 1,920 1,499 Accrued liabilities 1,002 1,411 ------ ------ Total Current Liabilities 6,723 6,587 Deferred Employee Benefits 107 109 ------ ------ 6,830 6,696 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 4,862 4,862 Accumulated deficit (4,010) (3,949) ------ ------ Total Stockholders' Equity 1,024 1,085 ------ ------ $ 7,854 $ 7,781 ====== ====== See accompanying notes.

2. RYMER FOODS INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------- ---------------------- April 28, April 29, April 28, April 29, 2001 2000 2001 2000 ------ ------ ------- ------- (in thousands, except per share data) Net Sales $ 9,058 $ 9,890 $ 17,293 $ 19,131 Cost of Sales 8,188 8,789 15,638 17,131 ------ ------ ------- ------- Gross profit 870 1,101 1,655 2,000 Selling, general and administrative expenses 753 986 1,534 1,952 ------ ------ ------- ------- Operating profit (loss) 117 115 121 48 Interest expense 97 111 222 217 ------ ------ ------- ------- Income (loss) before income 20 4 (101) (169) Tax benefit (20) (20) (40) (40) ------ ------ ------- ------- Net income (loss) $ 40 $ 24 $ (61) $ (129) ====== ====== ======= ======= Per common share data: Basic Net loss $ 0.01 $ 0.01 $ (0.01) $ (0.03) ====== ====== ======= ======= Diluted Net loss $ 0.01 $ 0.01 $ (0.01) $ (0.03) ====== ====== ======= ======= See accompanying notes.

3. RYMER FOODS INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited) Twenty-Six Weeks Ended ---------------------- April 28, April 29, 2001 2000 ------ ------ (in thousands) CASH FLOWS FROM OPERATIONS Loss from continuing operations $ (61) $ (129) Non-cash adjustments to loss: Depreciation and amortization 197 207 Variable stock option - 18 Net decrease (increase) to accounts receivable 128 (396) Net (increase) to inventories (238) (10) Net decrease (increase) to other current and long-term assets 57 (35) Net increase to accounts payable and accrued expense 12 257 ------ ------ Net cash flows from operating activities of continuing operations 95 (88) Net cash flows from operating activities of discontinued operations (2) (4) ------ ------ Net cash flows from operating activities 93 (92) CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (217) (183) ------ ------ Net cash flows from investing activities (217) (183) CASH FLOWS FROM FINANCING ACTIVITIES Repayments under line-of-credit facility (17,899) (18,425) Borrowings under line-of-credit facility 18,023 18,700 ------ ------ Net cash flows from financing activities 124 275 Net change in cash and cash equivalents - - Cash and cash equivalents at beginning of year - - ------ ------ $ - $ - ====== ====== Supplemental cash flow information: Interest paid $ 222 $ 217 ====== ====== Income taxes paid, net of refunds $ - $ - ====== ====== See accompanying notes

4. 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 accounting principles generally accepted in the United States of America. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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 28, 2000. 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. INVENTORIES Inventories are stated principally at the lower of first-in, first-out cost or market. The composition of inventories at April 28, 2001 and October 28, 2000 was (in thousands): April 28, 2001 October 28, 2000 -------------- ---------------- Raw material $ 1,802 $ 1,565 Finished goods 1,949 1,948 ------ ------ Total $ 3,751 $ 3,513 ====== ====== 5. 3. BORROWINGS Current borrowings consist of the following (in thousands): April 28, October 28, 2001 2000 ------- ------- Banks, with interest of 4% & 2% over prime in 2001 and 2000 respectively $ 3,801 $ 3,677 Less current maturities 3,801 3,677 ------- ------- $ -0- $ -0- ======= ======= The prime rate applicable to the Company's outstanding bank notes payable was 7.5% at April 28, 2001 and 9.50% at October 28, 2000. The weighted average interest rate relating to these borrowings was 12.1% during the first half of 2001 and 11.09% during fiscal 2000. During the 2nd quarter the Company amended its line of credit with the bank. This amended loan provides for borrowings up to the lessor of $4.7 million or its borrowing based as determined as a percentage of certain inventory and accounts receivable and changes the maturity date of June 28, 2001. It also provides for a capital expenditure loan for authorized capital purchases, however this amended agreement prevents future borrowings on the capital expenditure loan. The Company had borrowings available of $3.8 million at April 28, 2001 and October 28, 2000, of which $2,000 and $100,000, respectively was unused. 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 Company was in violation of these covenants at October 28, 2000; however, these have been reset as part of an amended agreement. While the Company is in compliance with these new covenants at April 28, 2001 date there can be no assurance that they will remain in compliance. The Company's current loan agreement expires on June 28, 2001. If the loan should not be renewed, the Company will need to seek alternative financing. Substantially all of the Company's property, plant and equipment and certain current assets are pledged as collateral under bank agreements. 4. INCOME TAXES The Company's deferred tax asset is related primarily to its operating loss carryforward for tax reporting purposes which approximated $23.1 million at April 28, 2001 and October 28, 2000. 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. 6. 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 Management believes that the Company's future success is dependent on containing and reducing operating costs, changing its sales mix to include more products which generate higher margins, and being able to "forward buy" more inventory to reduce its material costs. 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.OB (OTCBB). First Half of 2001 versus First Half of 2000 Consolidated sales for the first half of fiscal 2001 of $ 17.3 million decreased from the first half of fiscal 2000 by $1.8 million or 9.6%. Sales decreased primarily due to the loss of a customer during the second quarter of 2000 and the change in the sales mix. As compared to 2000, consolidated cost of sales decreased by $1.5 million or 8.7%. As a percentage of sales, the gross margin decreased to 9.6% as compared to 10.4% in 2000. Gross profit decreased compared to 2000 by $345,000 mainly due to lower volume and gain on sale of raw material in the prior year. Selling, general and administrative expenses decreased by $418,000 in 2001 as compared to 2000 due to managements restructuring program initiated during the fourth quarter of 2000. Interest Expense Interest expense increased by $5,000 or 2.3% as compared to 2000. This increase is due to the Company's higher borrowings for the purchase of raw material inventory and the increase in the banks prime rate. Income Taxes In both 2001 and 2000, no provision for income taxes was recorded due to the loss from operations. In 2001 and 2000 the Company reduced the income tax liability by $40,000 thereby resulting in a tax benefit in the first half of 2001. 7. 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. During the 2nd quarter the Company amended its line of credit with the bank. This amended loan provides for borrowings up to the lessor of $4.7 million or its borrowing based as determined as a percentage of certain inventory and accounts receivable and changes the maturity date of June 28, 2001. It also provides for a capital expenditure loan for authorized capital purchases, however this amended agreement prevents future borrowings on the capital expenditure loan. The Company had borrowings available of $3.8 million at April 28, 2001 and October 28, 2000, of which $2,000 and $100,000, respectively was unused. 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 Company was in violation of these covenants at October 28, 2000; however, these have been reset as part of an amended agreement. While the Company is in compliance with these new covenants at April 28, 2001 date there can be no assurance that they will remain in compliance. The Company's current loan agreement expires on June 28, 2001. If the loan should not be renewed, the Company will need to seek alternative financing. Substantially all of the Company's property, plant and equipment and certain current assets are pledged as collateral under bank agreements. The Company anticipates spending approximately $385,000 for capital expenditures in 2001. 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. 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. EXHIBIT 11 COMPUTATION OF EARNINGS (LOSS) PER SHARE BASIC DILUTED ----- ------- Thirteen Twenty-Six Thirteen Twenty-Six Weeks Ended Weeks Ended Weeks Ended Weeks Ended April 28, April 28, April 28, April 28, 2001 2001 2001 2001 --------- --------- --------- --------- (In thousands, except per share amounts) 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* - - 617 - ------ ------ ------ ------ 3 Average number of common shares outstanding 4,300 4,300 4,917 4,300 ====== ====== ====== ====== EARNINGS (LOSSES) 4 Net (loss) income $ 40 $ (61) $ 40 $ (61) ====== ====== ====== ====== PER SHARE AMOUNTS Net income (loss) (line 4 / line 3) $ 0.01 $ (0.01) $ 0.01 $ (0.01) ====== ====== ====== ====== NOTE: Earnings per share have been calculated using the treasury stock method. Since there is a net loss for the twenty-six weeks ending April 28, 2001 common stock equivalents are excluded from the diluted earnings per share calculation since they would be antidilutive.

9. 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 29, 2000 (incorporated by reference). 21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 21 to the Annual Report of Form 10-K of Rymer Foods Inc. for the fiscal year ended October 29, 2000.) (b) Reports on Form 8-K: The Company filed a Report on Form 8-K dated January 25, 2001, wherein the Company under Item 5 other events relating to the Company's signing of a non-binding letter of intent to be acquired, via merger by Forest Lake Partners LLC. The Company filed a report on Form 8-K dated April 12, 2001, wherein the Company under item 5 other events relating to the Company's entering into an agreement and plan of merger, dated April 10, 2001 with FLP Holdings III LLC. 10. 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/ Paul D. Conti ------------------------ Paul D. Conti, President Date: June 15, 2001 11.

RYMER FOODS INC 10-Q