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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 27,1996
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Commission File Number 0-4485
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WESTERN BEEF, INC
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3266114
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(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
47-05 Metropolitan Avenue, Ridgewood, NY 11385
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (718) 417-3770
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
As of October 19, 1996, 5,463,317 shares of Common Stock, par value $.05 per
share were issued and outstanding.
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WESTERN BEEF, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial statements:
Condensed consolidated balance sheets as of
September 27, 1996 and December 29, 1995. 2
Condensed consolidated statements of income
for the thirty-nine weeks and the thirteen
weeks ended September 27, 1996 and
September 29, 1995. 3
Condensed consolidated statements of cash flows
for the thirty-nine weeks ended
September 27, 1996 and September 29, 1995. 4
Notes to the condensed consolidated financial
statements. 5
Item 2. Management discussion and analysis of financial
condition and results of operations. 6
PART II - OTHER INFORMATION 7
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE 8
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
September 27, 1996 December 29, 1995
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $5,544 $2,431
Accounts receivable, net of allowance for doubtful
accounts ($755 and $326) 8,300 8,754
Inventories 18,566 15,959
Prepaid expenses and other current assets 1,527 2,020
Deferred income taxes 996 702
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Total current assets 34,933 29,866
Property, plant and equipment, net of accumulated
depreciation and amortization ($15,934 and $15,026) 39,396 31,733
Other assets 1,716 1,714
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Total assets $76,045 $63,313
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $2,399 $1,997
Current portion of obligations under capital leases 169 193
Accounts payable 18,167 13,134
Accrued expenses and other liabilities 3,477 3,190
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Total current liabilities 24,212 18,514
Deferred income taxes payable 1,823 1,249
Long-term debt, net of current portion 8,543 6,280
Obligations under capital leases, net of current portion 1,279 1,411
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Total liabilities 35,857 27,454
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Shareholders' equity:
Preferred stock, $.05 par value; 2000 shares
authorized; none issued - -
Common stock, $.05 par value; 15,000 shares
authorized; 5,463 shares issued and outstanding 273 273
Capital in excess of par value 11,379 11,379
Retained earnings 28,675 24,371
Deferred compensation (139) (164)
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Total shareholders' equity 40,188 35,859
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Total liabilities and shareholders' equity $76,045 $63,313
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirty-nine weeks ended Thirteen weeks ended
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September 27, September 29, September 27, September 29,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $248,696 $219,039 $85,167 $78,407
Cost of sales 188,413 166,599 64,487 59,198
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Gross profit on sales 60,283 52,440 20,680 19,209
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Operating expenses:
Rent expense - affiliates 1,910 2,089 660 690
Interest expense 733 586 252 198
Selling, general and administrative expenses 49,651 43,703 16,947 15,930
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Total operating expenses 52,294 46,378 17,859 16,818
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Income before provision for income taxes 7,989 6,062 2,821 2,391
Provision for income taxes 3,685 2,751 1,299 1,031
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Net income $4,304 $3,311 $1,522 $1,360
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Weighted average number of common shares
outstanding 5,501 5,463 5,505 5,463
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Earnings per common share $.78 $.61 $.28 $.25
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
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September 27, September 29,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $4,304 $3,311
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,337 1,998
Deferred income tax benefit 280 (253)
Provision for losses on accounts receivable 430 390
(Increase) decrease in assets:
Accounts receivable 24 (1,332)
Inventories (2,607) (1,876)
Prepaid expenses and other current assets 493 630
Other assets (2) 6
(Decrease) increase in liabilities:
Accounts payable 5,033 902
Accrued expenses and other liabilities 287 786
Income taxes payable - 326
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Net cash provided by operating activities 10,579 4,888
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Cash flows from investing activities:
Capital expenditures (9,975) (7,153)
Low income housing investment - (907)
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Net cash used in investing activities (9,975) (8,060)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 4,224 1,603
Payments on long-term debt and capital leases (1,715) (1,652)
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Net cash provided by (used in)
financing activities 2,509 (49)
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Net increase (decrease) in cash and cash equivalents 3,113 (3,221)
Cash and cash equivalents, beginning of period 2,431 4,311
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Cash and cash equivalents, end of period $5,544 $1,090
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Cash paid during the thirty-nine weeks for:
Interest $733 $586
Income taxes $3,103 $3,311
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the thirty-nine weeks
ended September 27, 1996 are not necessarily indicative of the results that may
be expected for the year ending January 3, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 29, 1995.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 established a fair value method for
accounting for stock-based compensation plans either through recognition or
disclosure. The Company adopted the employee stock-based compensation provisions
of SFAS No. 123, and will disclose the pro forma net income and pro forma net
income per share amounts assuming the fair value method for fiscal year 1996 at
year-end. The adoption of this standard will not impact the Company's
consolidated results of operations, financial position or cash flows. Stock
arrangements with non-employees, as applicable, will be recorded at fair value.
NOTE 2 - LITIGATION
There has been no material change in litigation from the year ended
December 29, 1995. See Part II of this report for further disclosure.
5
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WESTERN BEEF, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the third fiscal quarter of 1996 were $85,167,000, an
increase of $6,760,000 from the comparable quarter of 1995. On a year-to-date
basis, net sales were $248,696,000, an increase of $29,657,000 from 1995. The
sales increase continues to be generated primarily from the new stores opened in
1995 and 1996. The nineteenth retail outlet was opened on September 25, 1996 and
management is pleased with the early results. Same store sales increased 4.0%
for the third fiscal quarter of 1996 versus 1995 and increased 1.6% for the
year-to-date period. The overall sales increase for the quarter was the result
of a positive response to the renovations of several older stores.
Gross profit, as a percentage of sales, was 24.3% in the third fiscal
quarter of 1996 and was consistent with the 24.5% in the same quarter of 1995.
On a year-to-date basis, gross profit increased to 24.2% as compared with 23.9%
last year. The increase in gross profit on a year-to-date basis profit is
attributable to higher sales of Western Beef brand products and purchasing
efficiencies.
Operating expenses, including selling, general and administrative
expenses, rent expense-affiliates and interest expense, as a percentage of
sales, were 21.03% in the third fiscal quarter of 1996 as compared to 21.44% in
the same quarter of 1995. On a year-to-date basis, operating expenses, including
selling, general and administrative expenses, rent expense-affiliates and
interest expense, were 21.03% as compared to 21.17% in 1995. The selling,
general and administrative cost category includes payroll, bonuses and operating
costs. The increase in operating expenses of $5,916,000 and $1,041,000 for the
comparable nine month and three month periods respectively in 1996 are mainly
attributable to the operations of the new retail outlets.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $10,579,000 for the thirty-nine weeks
ended September 27, 1996 as compared to $4,888,000 for the comparable period of
1995. The increase in inventory was offset by increases in accounts payable and
accrued expenses. The increases in inventory and accounts payable resulted from
the two new stores that opened during 1996. Ongoing store improvements will be
financed by capital leases expected to be drawn down during the fourth quarter
of 1996. Cash flows from operations plus cash on hand will be sufficient to pay
for capital expenditures and long-term debt requirements.
Equipment purchases and improvements for the two new stores,
renovations of several older stores and the exercise of a $3,000,000 purchase
option for one of the Company's retail locations (previously leased from a
non-affiliated entity) accounted for a majority of capital expenditures. The
Company believes that cash on hand and its $3,000,000 bank line of credit, which
expires on July 31, 1997, will be sufficient to meet its operational needs. The
Company also has financial institutions that would be available to refinance new
store equipment, usually over a five-year period.
6
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WESTERN BEEF, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company has various outstanding litigation matters which it
considers to be in the ordinary course of business. In the opinion of
management, the outcome of these litigation matters will not materially,
adversely affect the Company's financial position.
In April 1991, in New York Supreme Court, Putnam County, an action was
commenced against the Company to prevent a scheduled foreclosure of certain
collateral held by the Company as security for its loan to one of the plaintiffs
in the original principal amount of $85,000, of which approximately $65,000 was
outstanding. Thereafter, in a complaint served in March 1992, plaintiffs
interposed three causes of action on behalf of themselves and a previously
unnamed plaintiff, C.B. Foods, Inc., which was owned by the plaintiffs and was a
customer of the Company's wholesale business, seeking (1) a declaration that the
loan had been repaid; (2) compensatory damages of $30,000,000 and exemplary
damages of $10,000,000 for fraud allegedly committed by the Company; and (3)
compensatory damages of $2,000,000 and exemplary damages of $10,000,000 for
abuse of process allegedly committed by the Company. In its answer, the Company
denied liability and all material allegations of the complaint. Following a
motion by the Company, the court ordered plaintiff's third cause of action for
abuse of process dismissed for failure to state a claim and ordered all claims
of C.B. Foods, Inc. struck from the complaint on the ground that it was not a
party to the action. Plaintiffs have appealed the court's order. By order made
on the record on January 19, 1994, the court dismissed the complaint for
plaintiff's disobedience of prior court orders and their failure to prosecute
their claims. Plaintiffs have moved to modify the January 19, 1994 order. If
they are not successful, an appeal is anticipated, which the Company would
vigorously defend. The Company believes the resolution of this matter will not
adversely affect its financial position.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Registrant has not filed a report on Form 8-K during the quarter
just ended.
7
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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.
WESTERN BEEF, INC.
by:/s/Robert C. Ludlow
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Robert C. Ludlow
Senior Vice-President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: October 22, 1996
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WESTERN
BEEF, INC. QUARTERLY REPORT ON FORM 10 Q FOR THE QUARTER ENDED SEPTEMBER 27,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 5544
<SECURITIES> 0
<RECEIVABLES> 9055
<ALLOWANCES> 755
<INVENTORY> 18566
<CURRENT-ASSETS> 34933
<PP&E> 55330
<DEPRECIATION> 15934
<TOTAL-ASSETS> 76045
<CURRENT-LIABILITIES> 24212
<BONDS> 9822
0
0
<COMMON> 273
<OTHER-SE> 39915
<TOTAL-LIABILITY-AND-EQUITY> 76045
<SALES> 85167
<TOTAL-REVENUES> 85167
<CGS> 64487
<TOTAL-COSTS> 64487
<OTHER-EXPENSES> 17607
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 2821
<INCOME-TAX> 1299
<INCOME-CONTINUING> 1522
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1522
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
