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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 June 28,1996
Commission File Number 0-4485
WESTERN BEEF, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3266114
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
47-05 Metropolitan Avenue, Ridgewood, New York 11385
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718)-417-3770
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 |_|
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 August 8, 1996, 5,463,317 shares of Common Stock, par value $.05 per
share, were issued and outstanding.
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<PAGE>
INDEX
WESTERN BEEF, INC. AND SUBSIDIARIES
PAGE
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PART I-FINANCIAL INFORMATION
Item 1. Financial statements
(Unaudited)
Condensed consolidated balance sheets as of
June 28, 1996 and December 29, 1995 2
Condensed consolidated statements of income for the
twenty-six weeks and the thirteen weeks ended
June 28, 1996 and June 30, 1995 3
Condensed consolidated statements of cash flows for the
twenty-six weeks ended June 28, 1996 and June 30, 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
SIGNATURES 9
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
June 28, December 29,
1996 1995
-------- --------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,283 $ 2,431
Accounts receivable, net of allowance for doubtful
accounts ( $582 and $326) 8,090 8,754
Inventories 18,257 15,959
Prepaid expenses and other current assets 2,666 2,020
Deferred income taxes 887 702
-------- --------
Total current assets 33,183 29,866
Property, plant and equipment, net of accumulated
depreciation and amortization ($15,171 and $15,026) 36,943 31,733
Other assets 1,683 1,714
-------- --------
Total assets $ 71,809 $ 63,313
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,408 $ 1,997
Current portion of obligations under capital leases 166 193
Accounts payable 13,939 13,134
Accrued expenses and other liabilities 4,799 3,190
-------- --------
Total current liabilities 21,312 18,514
Deferred income taxes payable 1,629 1,249
Long-term debt, net of current portion 8,900 6,280
Obligations under capital leases, net of
current portion 1,310 1,411
-------- --------
Total liabilities 33,151 27,454
-------- --------
Shareholders' equity:
Preferred stock, $.05 par value; shares authorized
2,000; 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 27,153 24,371
Deferred compensation (147) (164)
-------- --------
Total shareholders' equity 38,658 35,859
-------- --------
Total liabilities and shareholders' equity $ 71,809 $ 63,313
======== ========
See accompanying notes to condensed consolidated financial statements
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Twenty-Six Weeks Ended Thirteen Weeks Ended
---------------------- ---------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $163,529 $140,632 $ 84,180 $ 73,058
Cost of sales 123,926 107,401 64,166 55,353
-------- -------- -------- --------
Gross profit on sales 39,603 33,231 20,014 17,705
-------- -------- -------- --------
Expenses:
Rent expense-affiliates 1,250 1,399 627 701
Selling, general and
administrative expenses 32,704 27,773 16,278 14,654
Interest expense 481 388 273 193
-------- -------- -------- --------
Total expenses 34,435 29,560 17,178 15,548
-------- -------- -------- --------
Income before income taxes 5,168 3,671 2,836 2,157
Provision for income taxes 2,386 1,720 1,316 1,003
-------- -------- -------- --------
Net income $ 2,782 1,951 $ 1,520 1,154
======== ======== ======== ========
Weighted average number of
common shares and
equivalents 5,501 5,463 5,498 5,463
======== ======== ======== ========
outstanding
Earnings per common share $ .51 $ .36 $ .28 $ .21
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Twenty-Six Weeks Ended
---------------------
June 28, June 30,
1996 1995
------- -------
Cash flows from operating activities:
Net income $ 2,782 $ 1,951
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,507 1,213
Deferred income tax (benefit) 195 (169)
Provision for losses on accounts receivable 260 260
(Increase)decrease in assets:
Accounts receivable 404 (909)
Inventories (2,298) (3,044)
Prepaid expenses and other current assets (646) 290
Other assets 31 (10)
(Decrease) increase in liabilities:
Accounts payable 805 2,566
Accrued expenses and other liabilities 1,609 304
Income taxes payable -- 497
------- -------
Net cash provided by operating activities 4,649 2,949
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Cash flows from investing activities:
Capital expenditures (6,777) (4,671)
Low income housing investment -- (907)
Proceeds from sale of property, plant and equipment 77 --
------- -------
Net cash used in investing activities (6,700) (5,578)
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Cash flows from financing activities:
Net borrowings under line of credit agreement -- 391
Payments on long-term debt and capital leases (1,104) (757)
Proceeds from issuance of long-term debt 4,007 --
------- -------
Net cash provided by (used in)
financing activities 2,903 (366)
------- -------
Net increase (decrease) in cash and cash equivalents 852 (2,995)
Cash and cash equivalents, beginning of period 2,431 4,311
------- -------
Cash and cash equivalents, end of period $ 3,283 $ 1,316
======= =======
Cash paid during the twenty-six weeks for:
Interest $ 481 $ 388
Income taxes $ 2,413 $ 1,233
See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 twenty-six weeks ended June 28, 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.
(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.
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ITEM 2. Management Discussion and Analysis of Financial Condition and Results of
Operations
Net sales for the second fiscal quarter of 1996 were $84,180,000, a 15.2%
increase from the comparable quarter of 1995. On a year-to-date basis, net
sales were $163,529,000, an increase of 16.3% over 1995 net sales. The
sales increase was generated predominantly from the new stores that were
opened in 1995 and 1996. Same store sales declined approximately 1% in the
second quarter of 1996 compared to the similar quarter in 1995. The decline
is attributable to the renovation of two stores and some existing customers
who began shopping at the new stores opened in Brooklyn and Staten Island
because of proximity to their homes. For the six months ended June 28, 1996
same stores sales were flat compared to the similar period in 1995.
Gross profit, as a percentage of sales decreased to 23.78% in the second
quarter of 1996 from 24.23% in the same quarter of 1995. On a year-to-date
basis, gross profit increased to 24.22% as compared with 23.63% last year.
The variances result from changes in the market conditions of perishable
products such as, meat, deli, dairy and produce.
Selling, general and administrative expenses, including rent
expense-affiliates and interest expense as a percentage of sales, decreased
to 20.41% in the second fiscal quarter of 1996 from 21.28% in the same
quarter of 1995. On a year-to-date basis, selling, general and
administrative expenses, including rent expense-affiliates and interest
expense, was essentially flat at 21.06% as compared with 21.02% in 1995.
The selling, general and administrative cost category includes payroll,
bonuses and operating costs. The decline in the second quarter was due to
increased efficiencies along with lower start up costs incurred during the
period.
Liquidity and Capital Resources
Cash flows from operations were $4,649,000 for the twenty-six weeks ended
June 28, 1996 as compared to $2,949,000 for the comparable period of 1995.
The increase results from higher net income, decreased accounts receivable,
increased accounts payable and accrued expenses offset by increases in
inventories and prepaid expenses. The increase in inventories and accounts
payable occurred because of increased buying in preparation for the July
4th weekend sales. The increase in accrued expenses arises from a change to
a self-insured plan for liability, automobile and workmen's compensation
insurance. Cash flow from operations plus cash on hand were sufficient to
pay for capital expenditures and long-term debt requirements.
The capital expenditures of $6,777,000 were primarily for the exercise of
an option to purchase for $3,000,000, one of the Company's retail locations
currently leased from a non-affiliated company, the opening of the West End
Avenue store in Manhattan, renovation of the College Point Boulevard store
and a new telephone communications system. The exercise of the store option
was funded by a 20 year mortgage at 8.25% per annum with a balloon payment
of $2,084,095 due on the tenth anniversary date of the purchase. The
additions and improvements were funded by cash flow from operations and a
$1,000,000 loan from a finance company for five years at 7.54% per annum.
The Company believes that cash on hand and its $3,000,000 bank line of
credit which expires on June 30, 1997 will be sufficient to meet its
operational needs. The Company also has available a $3,000,000 line of
credit from a finance company to fund future capital expenditures. As of
June 28, 1996, the Company plans to spend approximately $2,000,000
renovating its Metropolitan Avenue store and its newest location in
Roosevelt, New York.
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<PAGE>
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 plaintiffs' 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.
The Company held its Annual Meeting of Shareholders on June 12, 1996, and
transacted the following business:
(a) Election of Directors:
Nominee Votes For % For Votes Withheld
---------------------- ------------- -------- --------------
Frank Castellana 4,806,757 87.98% 189,924
Joseph Castellana 4,806,757 87.98% 189,924
Peter Castellana, Jr. 4,802,757 87.91% 193,924
Stephen R. Bokser 4,805,037 87.95% 191,644
Arnold B. Becker 4,805,017 87.95% 191,664
Richard G. Klein 4,805,037 87.95% 191,644
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<PAGE>
(b) Adoption of Amendment to the 1995 Employee Stock Option Plan:
Votes For % For Votes Against Abstentions
---------------- ------------ --------------- -------------
4,675,836 85.59% 225,829 10,363
(c) Selection of BDO Seidman as Independent Auditors:
Votes For % For Votes Against Abstentions
---------------- ------------ --------------- -------------
4,989,075 91.32% 3,040 4,566
Item 5. Other Information
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.
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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
---------------------------------
Robert C. Ludlow
Senior Vice-President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 7, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Western Beef, Inc. quarterly report on Form 10-Q for the quarter ended June
28, 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-START> MAR-30-1996
<PERIOD-END> JUN-28-1996
<CASH> 3,283
<SECURITIES> 0
<RECEIVABLES> 8,672
<ALLOWANCES> 582
<INVENTORY> 18,257
<CURRENT-ASSETS> 33,183
<PP&E> 52,114
<DEPRECIATION> 15,171
<TOTAL-ASSETS> 71,809
<CURRENT-LIABILITIES> 21,312
<BONDS> 10,210
0
0
<COMMON> 273
<OTHER-SE> (147)
<TOTAL-LIABILITY-AND-EQUITY> 71,809
<SALES> 84,180
<TOTAL-REVENUES> 84,180
<CGS> 64,166
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<OTHER-EXPENSES> 16,905
<LOSS-PROVISION> 0
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