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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 3, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
___________________________to__________________________.
Commission File Number 0-4485
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 jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
47-05 Metropolitan Avenue, Ridgewood, New York 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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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act:
common stock par value $.05 per share ("Common Stock")
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the $12 3/8 average of the closing bid and asked prices
reported by NASDAQ/NMS on March 14, 1997 was $18,999,053.
As of March 14, 1997, the registrant had issued and outstanding 5,463,317 shares
of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or the indicated portions thereof, have
been incorporated herein by reference:
(1) Specifically identified information in the registrant's
definitive proxy material for its 1997 Annual Meeting of Stockholders
is incorporated by reference as Part III hereof, which definitive
proxy material shall be filed not later than 120 days after the
registrant's fiscal year ended January 3, 1997.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K is forward-looking, such as information relating
to the renovation of the Company's existing stores and the construction or
acquisition of new stores, the recoverability of deferred taxes, the continued
availability of credit lines for capital expansion, the suitability of
facilities, access to suppliers, implementation of technological improvement
programs and the broadening of the customer base for the Company's wholesale
operations. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions; delays and other hazards inherent
in building and construction; competition in both the retail and wholesale
markets; government and regulatory policies and certifications (in particular
those relating to the United States Department of Agriculture food stamp
program); the pricing and availability of the products the Company sells and
distributes, including Western Beef brand products; potential delays in the
implementation of the Company's technological improvement programs; and the
effectiveness of such programs upon implementation.
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PART 1
ITEM 1. BUSINESS
GENERAL
Western Beef, Inc., ("Western Beef" or the "Company") consists
principally of a retail food business that currently operates 19 high-volume,
warehouse-type supermarkets and a wholesale food business (which primarily deals
in beef, pork, poultry and provisions). The Company's supermarkets serve the New
York Metropolitan area, while the Company's wholesale business operates in the
New York, New Jersey and Eastern Pennsylvania markets. In the fiscal years ended
January 3, 1997 ("1996"), a fifty-three week fiscal year, December 29, 1995
("1995") and December 30, 1994 ("1994"), both of which were fifty-two week
fiscal years, the retail supermarket business accounted for approximately 70%,
69%, and 68% respectively, of the Company's total net sales. See ITEM 7,
Management Discussion and Analysis of Financial Condition and Results of
Operations.
Western Beef's supermarkets are distinguishable from traditional
supermarket formats by their unusually broad selection of meat and produce items
and their limited selection of "non-food" items, such as health and beauty aids.
Western Beef's supermarkets are truly "food stores."
Key elements in Western Beef's business strategy include:
(*) Competitive Prices - Western Beef's objective is to be perceived
as the "value leader" in its markets by offering the best values
to its customers on a consistent basis. Western Beef reinforces
its image as a value leader by offering a large selection of high
quality grocery items under the "Western Beef" label. These
private label items are priced substantially below comparable
national brand items. Western Beef sets its prices based on
"everyday low pricing" policies rather than the "high-low"
pricing strategy (i.e., high regular prices with deep discounts
on sale items) utilized by many other retailers.
(*) Neighborhood/Ethnic Appeal - Western Beef's supermarkets are
located in densely populated, culturally diverse neighborhoods in
the New York Metropolitan area. The merchandise offerings in
Western Beef's supermarkets are tailored to the preferences,
i.e., specific items, brand names and packaging, of the various
ethnic groups represented in each store's market area. Some of
these products are not generally available in supermarkets
operated by national chains.
(*) Low-Cost Warehouse Format - In order to offer the lowest possible
prices to its customers, Western Beef uses a low cost, no-frills
warehouse store format. Management believes it can be successful
in providing superior value to Western Beef's customers only if
it can carefully control all operating costs on a continuous
basis.
The retail and wholesale food businesses are generally
characterized by low profit margins, with earnings primarily dependent on rapid
inventory turnover, careful cost control and the ability to achieve high sales
volume. Since many food products, particularly produce, meat and dairy products,
are subject to spoilage and become unmarketable with the passage of time, it is
important to avoid overstocking and to reduce excess inventories when they
occur. This is usually accomplished by promotional sales at reduced prices.
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It is advantageous to combine wholesale and retail businesses under common
ownership because overstocking in the wholesale business can be relieved by
promotional sales in commonly-owned retail stores. Commonly-owned operations
can also more readily take advantage of opportunities for bargain purchases,
including stocks with shorter than usual shelf life, as they become available
in wholesale markets.
HISTORY
Western Beef, Inc.,(successor by merger on June 5, 1991, to
Southern Blvd. Supermarkets, Inc., which was incorporated in New York on
February 6, 1985) was incorporated in Delaware on June 3, 1991, pursuant to an
Agreement of Combination entered into on April 1, 1989. Effective October 30,
1992, Quarex Industries, Inc. ("Quarex") (originally organized under the name
Ranchers Packing Corp., in 1963) combined (the "Combination") with the food
businesses of P.S.L. Food Market, Inc., ("PSL") and Southern Blvd. Supermarkets,
Inc., ("Southern"), which were owned by certain members of the Castellana family
who were the controlling stockholders of Quarex (the "Principal Stockholders").
The PSL/Southern food business operated seven retail food stores in the New York
Metropolitan area similar to those operated by Quarex, and two small wholesale
produce businesses. The Combination, accounted for in a manner similar to a
"pooling of interests," was proposed to eliminate the purchase and sale of food
products and certain other dealings, and the related conflicts of interest
between the Principal Stockholders and Quarex, and to form a stronger company.
Pursuant to the Combination, each share of Quarex common stock, was converted
into one share of common stock in the combined Company, renamed "Quarex
Industries, Inc." The Principal Stockholders received an additional 1,400,000
shares of common stock, and the public owned approximately 28% of the combined
Company compared to 38% of Quarex. In January 1993, the combined Company's name
was changed to "Western Beef, Inc."
The Company leases retail food stores, office and warehouse
facilities from affiliates of the Principal Stockholders. Pursuant to the
Agreement of Combination, independent appraisals were obtained of the rentals
under all then existing Company leases in which the Principal Stockholders had
an interest as landlord or tenant (other than one food store lease which was
fixed on a formula basis). Any necessary revisions were made effective as of
January 4, 1992, so that in the aggregate, such rentals did not exceed fair
market value. Any PSL/Southern leases in which the Principal Stockholders had an
interest have been amended wherever necessary, so that the rentals thereunder do
not exceed fair market value. In addition, Management and the Principal
Stockholders agreed that any future leases from such affiliates would be based
on fair market value as established by independent appraisal.
FISCAL 1996 DEVELOPMENTS
The Company opened two new retail supermarkets in 1996, bringing
the total number of open supermarkets to nineteen. The Company completed the
renovation of two other existing supermarkets including an 8,000 square foot
expansion of its College Point Boulevard store at a cost of approximately
$2,200,000. The Company began a "Central Cutting" operation which processes
various meat, cheese and fish products. These products are cut into convenient
sizes by the Company's employees, vacuumed packed and distributed to the
Company's supermarkets. This operation produces uniform packaging, saves
expensive store butcher labor costs and employs new packaging concepts which
reduce moisture and eliminate bacteria. As a result, product shelf life is
increased from one week to as much as six weeks. Consequently spoilage is
significantly reduced and customer acceptance is increased.
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In March 1996 the Company exercised a $3,000,000 purchase option
for its Steinway Street store which had previously been leased from a
non-affiliated entity. The Company also began a major renovation of its
Metropolitan Avenue store. The Company intends to change the principal lay-out
of the Metropolitan Avenue store by installing new floors, shelving, food
display freezers and cases. The Company also intends to make extensive
improvements to its plumbing, electric and refrigeration systems and parking
lot. Projected costs of these renovations, which are expected to be completed
around August 1, 1997 are approximately $1,500,000.
To pay for these and other capital improvements, the Company: (1)
used cash flow from operations, (2) borrowed $3,000,000 from a finance company
at 8.25% per annum payable in monthly installments of $25,562 with a balloon
payment of $2,084,000 due on March 18, 2006; (3) took down $2,369,000 at 7.75%
per annum, payable over a five year period, from a $3,000,000 credit facility
obtained from a finance company in 1995 and (4) borrowed $1,002,000 from another
finance company payable over a five year period at 7.55% per annum. The Company
also has a $3,000,000 working capital line of credit, all of which is available
to fund future operating and construction programs, from its bank.
In September 1996 the Company and The Brooklyn Union Gas Company
("BUG") entered into an agreement to evaluate the performance of a natural gas
fired engine refrigeration system (the "System") which will be installed at the
Company's Metropolitan Avenue supermarket. BUG will retain title to the System
for the eighteen month term of the agreement. Thereafter, title will be
transferred to Western Beef upon payment of $1.00. The Company will pay for all
installation costs of the System and any auxiliary equipment needed for its
installation. BUG will pay for the System, valued at approximately $240,000, as
well as delivery charges and maintenance of the System during the eighteen month
test period. BUG has the right to publicize the System, subject to the Company's
approval, and to bring visitors in to exhibit the System for publicity purposes
during normal business hours.
The Company's retail and wholesale segments continue to improve
their operating efficiencies through automation. In 1996, the Company completed
the installation of an integrated data and voice wide area network ("WAN")
connecting the main office and distribution centers with all its retail outlets.
The Company's largest store, located on Metropolitan Avenue in Ridgewood,
Queens, New York, has automated purchasing and inventory operations on the WAN
by means of real time wireless hand held terminals. The Company plans to
continue the implementation of this automated purchasing and inventory
technology to more of its stores in 1997. During 1996, the Company automated
data collection from its supermarket check-out scanning systems to reduce the
time required to produce financial and merchandise analyses. The Company has
increased supplier participation in its Electronic Data Interchange ("EDI")
invoicing program which will improve merchandise inventory controls and create
administrative processing efficiencies.
The foundation of Western Beef's systems technology is its
centralized client-server fast information system. This system supports the
Company's retail store check-out scanners, purchase ordering, time management
and perishable scale systems. The system also integrates Western Beef's
distribution center databases which, along with the Company's store
applications, consolidates into a complete accounting application to provide
for timely and effective management reporting.
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RETAIL OPERATIONS
Western Beef operates nineteen retail supermarkets in the New
York Metropolitan area under the trade name "Western Beef." Its first two
stores were opened in 1973 and 1979. In the late 1980's, Management decided to
pursue a more aggressive growth and expansion program consisting of new store
acquisitions and remodeling and/or closing of smaller stores. Since that time,
the Company has continued to search for suitable locations in the New York
Metropolitan area to open up new stores. In 1996 and 1995 the Company opened
two and three stores, respectively. No stores were opened in 1994.
For the years 1996, 1995, and 1994, the Company's retail capital
expenditures were $12,933,000, $9,027,000 and $2,801,000 respectively.
All stores are owned or leased by separate subsidiaries of the
Company, with the exception of two subsidiaries, which each have two stores.
Most are free standing. All stores are open seven days a week including
evenings, and are high-volume operations most of which are in refrigerated,
warehouse-type facilities, divided into separate areas kept at different
temperature. Non-perishable items are displayed in an area maintained at
normal room temperature. In most of the Company's stores, meat is displayed in
large refrigerated rooms and the Company sells both bulk meat, which is custom
cut by its store butchers, as well as a full variety of pre-packaged meats. In
seventeen of its stores the Company sells produce which is displayed in
refrigerated cases maintained at 37 degrees Fahrenheit where moisture content
may be regulated by automatic misting equipment. Dairy and deli products are
sold in separate areas of the Company's stores, maintained at 30-40 degrees
Fahrenheit. Most of the Company's stores also contain stand-alone freezers
which maintain temperatures suitable for storage of frozen foods such as, ice
cream, frozen vegetables and frozen entrees. The Company's stores also sell a
complete line of dry groceries and non-food products such as, paper products
and household utensils.
Four of the Company's stores operate scratch brick oven bakeries
which bake a large variety of old world bread and rolls from basic ingredients.
One of these stores supplies three other stores with fresh baked goods. It is
anticipated that as capacity permits these baked goods will be introduced into
all of the Company's stores. Thirteen stores also operate full service
delicatessen departments which cut to order the various cheeses and processed
meats displayed. The Company's other stores have self-service delicatessen
departments.
The Company promotes its "Western Beef" retail food stores in
full color store circulars and local newspapers, generally at least once a week.
In addition, advertisements are also placed on local radio stations and smaller
cable television networks in both the English and Spanish languages. The Company
distributes its weekly circulars door-to-door in selected neighborhoods and
through insertions in local newspapers.
The Company's nineteen retail supermarkets range in size from
9,000 square feet to 83,000 square feet, with an average of 30,000 square feet
per store. They are supported by Company warehouses totalling 165,000 square
feet. In 1996, approximately 52% of the Company's retail purchases were derived
from the Company's warehouses; the remaining purchases being delivered directly
to the stores from manufacturers or wholesalers. The largest outside supplier
to the Company is White Rose Food ("White Rose") whose president is a member of
the Company's Board of Directors. In 1996 White Rose accounted for
approximately 12% of the Company's retail purchases. In 1996, no other supplier
accounts for a material percentage of the Company's purchases. Management
believes that the loss of White Rose as a supplier would not have a long term
adverse effect on the Company's performance since the Company currently has
access to several other similar suppliers.
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During 1996, the Company increased both the number and diversity
of the products marketed under the Western Beef brand label. Purchases of these
products, which are brought from national and local food manufacturers, totalled
approximately $14,840,000 and $10,610,000 in 1996 and 1995 respectively. Western
Beef brand products are generally well accepted by the Company's retail
customers and more Western Beef brand products will continue to be introduced.
In general, Western Beef brand products, which are priced 20% to 50% lower than
the comparable national brand products, generate higher gross profit margins
than brand name merchandise.
WHOLESALE OPERATIONS
The Company also conducts a wholesale food business. It purchases
beef, pork, poultry and provisions directly from major slaughterhouses, meat and
poultry processors and other suppliers on a daily basis to ensure a supply of
fresh products and to be responsive to customer needs. Additionally, the Company
warehouses and distributes grocery, produce, dairy and frozen food products to
its own retail food stores.
The Company distributes these products from its warehouses in
Ridgewood, New York, which operate 24 hours a day. On average, the perishable
inventory is turned over more than once per week. Not withstanding such
turnover, the wholesale business requires large amounts of working capital for
financing inventory and accounts receivable.
To facilitate its wholesale business and retail distribution, the
Company (through a subsidiary) owns and operates a fleet of tractors, trailers
and trucks, most of which are refrigerated. Although at various times since 1989
the Company transported on a limited basis food products for others,
substantially all trucking operations now are conducted for the Company's
internal operations.
COMPETITION
The wholesale and retail segments of the food industry throughout
the marketing areas served by the Company are competitive. These businesses are
generally characterized by low profit margins, with earnings primarily dependent
on rapid inventory turnover, careful cost control and the ability to achieve
high sales volume.
Competition manifests itself in virtually every aspect of the
retail food business, including pricing, advertising and promotion, store size,
location and attractiveness, hours of operation, product selection and quality,
employee friendliness, service and parking facilities. Although Management
believes the Company's retail stores price their products competitively, such
pricing has been made possible principally because of the low overhead costs
incurred by presenting the food in no-frills, warehouse type, bulk display
settings in most of its stores without the typical shelving, lighting, decor
and other amenities offered by most supermarkets. In the past the Company's
retail food business has grown by opening food stores in locations in
Metropolitan New York City areas where its stores were larger than existing
independent supermarkets and convenience food stores and where there had been a
limited presence of national or regional chain supermarkets. In recent years,
however, the Company has experienced competition from larger supermarket
chains, some of which have greater resources than the Company, as well as with
other independent operators. Such competitors have and are likely to continue
expanding by opening retail food stores within the Company's markets. Although
Management believes it will be able to continue to compete on the basis of
quality, price and reputation, there can be no assurances that it will be able
to maintain or improve its current competitive position.
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Wholesale competition is based principally on price, quality and
service, including the extension of favorable credit terms. Financially stronger
wholesale competitors may be better suited to take advantage of distressed,
"bargain" price opportunities, which arise during periods of over-supply, and to
finance the cost of carrying large inventories and receivables during periods of
market weakness. The wholesale division competes with several other companies on
the wholesale level, some of which are larger than the Company and may have
greater resources. Currently, there are adequate suppliers and multiple sources
of the products which the Company distributes and sells. However, there is a
trend towards concentration in the industry with many smaller suppliers being
acquired by larger concerns.
GOVERNMENT REGULATION
The food business is subject to, and affected by, substantial and
complex federal, state and local laws and regulations that apply to the sale of
food at both the wholesale and retail level, and it is required to obtain
certain federal, state and local permits and/or licenses for accepting United
States Department of Agriculture ("USDA") food stamps, and WIC (Women, Infants
and Children) checks (assistance checks which can only be used to purchase
certain dairy and grocery items), operating a bakery, processing meat, selling
fresh and frozen produce and selling beer and wine coolers, and otherwise in
order to conduct business. In addition, such regulation includes unannounced
inspections by government officials investigating sanitary conditions, weights,
measures and other matters. The Company believes it currently holds all licenses
and permits required to conduct its business and is in compliance in all
material respects with applicable regulations. For fiscal 1996, 1995 and 1994,
respectively, food stamp sales accounted for approximately 22%, 25% and 24% of
the Company's retail sales. There would be a material adverse effect on the
Company if it were to suffer the loss of its USDA permits to accept food stamps
or if the Government were to reduce or eliminate the food stamp program.
EMPLOYEES
As of March 15, 1997, the Company's retail business employed
approximately 1,900 people and its wholesale business employed approximately 100
people. There are no collective bargaining agreements covering any employees,
and the Company considers its relationships with its employees to be
satisfactory.
SEASONALITY
No material portion of the Company's business is affected by
seasonal fluctuations, except that sales are generally strongest around the
holidays, particularly the Fourth of July and Easter.
ENVIRONMENTAL LAWS
The Company is subject to various applicable federal, state, and
local laws and regulations relating to environmental matters. Under such laws,
the Company is exposed to liability primarily as an owner or operator of real
property, and as such, the Company may be responsible for proper management or
remediation of hazardous substances. Such substances for which the Company may
be liable could include historic contamination of real property, asbestos-
containing material in improvements, and hazardous substances and oils used in
the course of regular business operations. Remediation requirements may be
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imposed whether or not the owner or operator knew of, or was responsible for,
the presence of contamination by hazardous substances. Also, the presence of
contamination may hinder the owner or operator's ability to lease or sell
property, or to use the property as loan collateral.
The Company believes that it does not have any material
environmental liability and that compliance with environmental laws and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's operations or its financial condition. There
can be no assurance, however, that new or amended environmental laws or
regulations or the future discovery of environmental conditions will not require
additional expenditures by the Company.
DEPENDENCE ON MAJOR CUSTOMERS
The business of the Company is not dependent on a single or a few
customers.
ORDER BACKLOG
The Company does not have any material backlog of orders.
RESEARCH AND DEVELOPMENT ACTIVITY
The Company has not expended material amounts on research and
development activities.
GOVERNMENT CONTRACTS
Other than licenses to accept USDA food stamps and WIC checks (see
"Government Regulation") the Company does not have any material contracts or
sub-contracts with any governmental agency.
ITEM 2. PROPERTIES-GENERAL
The buildings utilized by the Company were constructed at various
dates between 1918 and 1994. The warehouse facilities are considered to be in
good condition. All of the Company's retail facilities have been opened or
modernized in recent years and are also considered to be in good condition. The
Company believes, to the best of its knowledge, that all its physical facilities
both owned and leased, are suitable and adequate for their intended uses and
purposes.
PROPERTY-RETAIL
As of January 3, 1997, the Company owned four and leased fifteen
of its open supermarkets. Nine of the leased supermarkets are rented from
non-affiliated real estate developers and the other six are leased from entities
owned by the Principal Stockholders (see "Item 1 BUSINESS HISTORY"). During
1996, the Company exercised an option to purchase the Steinway Street store
property that it had previously leased from a non-affiliated real estate
developer for $3,000,000.
In 1996, the Company purchased two adjoining parcels of land for
$323,000 in Brooklyn, N.Y. The Company intends to build its first outlet type
store on this site. The Company expects that this store will open in late 1997,
and will be approximately 10,000 square feet in size. Unlike conventional
supermarkets, this store intends to sell food staples, most of which will be
Western Beef products including pre-packaged meats, cheese and fish from our
Central Cutting operation. The Company expects the building to be of pre-fab
construction. Management believes this will result in low maintenance and
overhead costs which in turn should result in high volume sales at a low gross
profit.
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The Company's supermarkets are leased for terms, including
options, of up to 40 years under leases which generally require the Company to
pay for all real estate taxes, repairs and insurance. The average remaining
life, including renewal options, on supermarkets leased from non-affiliates and
from the Principal Stockholders is 26 and 11 years, respectively.
The Company leases approximately 78,000 and 15,000 square feet of
warehouse storage space for its grocery and produce distribution warehouses,
respectively, and an additional 20,000 square feet of office, storage and cooler
space in Ridgewood, New York, from entities owned by the Principal Stockholders.
PROPERTY-WHOLESALE
Under a lease purchase agreement, the Company occupies a
two-story warehouse building located in Ridgewood, New York, of approximately
178,000 square feet with an adjacent parking area, requiring annual base rental
payments of approximately $251,000 per year with the final payment scheduled
for August 2004, plus taxes, utilities and all other operating costs. The
Company utilizes approximately half of the building for its wholesale
operations and the remainder for its retail operations.
ITEM 3. LEGAL PROCEEDINGS
In 1996 the Company was subject to the following action:
In Bock v. The Quarex Co. commenced in April 1991, in New York
Supreme Court, Putnam County, plaintiffs sought to prevent a scheduled auction
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 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 motion practice and appeals addressed to the
sufficiency and adequacy of the claims asserted, which resulted in the dismissal
of plaintiffs' third claim for abuse of process, the parties engaged in
extensive discovery procedures which are now completed. Plaintiffs have filed a
note of issue placing this case on the trial calendar, and sought to have this
action tried by a jury. On the grounds that the action sought a mixture of
equitable and legal relief, the Company moved to strike the jury demand and
compel a bench trial. The court granted the motion to strike the jury demand and
plaintiffs have filed a notice of appeal from that order. The trial of this
matter is scheduled to commence on September 9, 1997. The Company intends to
continue vigorously defending this action. Although the Company believes it has
meritorious defenses to this action, an evaluation of the likelihood of an
unfavorable outcome cannot be made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter in the
NASDAQ National Market System ("NASDAQ") under the symbol "BEEF".
The range of the high and low bid prices per share of the Common
Stock during the last two fiscal years, listed under the name Western Beef, Inc.
as reported by NASDAQ, is set forth below:
FISCAL 1996 HIGH LOW
1ST QUARTER 8 1/8 5 1/8
2ND QUARTER 9 3/4 8 1/8
3RD QUARTER 11 1/8 9 1/8
4TH QUARTER 11 1/8 10 1/4
FISCAL 1995 HIGH LOW
1ST QUARTER 7 1/4 6
2ND QUARTER 6 3/4 5 1/4
3RD QUARTER 6 3/4 5 3/4
4TH QUARTER 6 5/8 4 3/8
As of March 14, 1997, there were 326 holders of record of the
Company's Common Stock whose closing bid price on NASDAQ was $12 1/8 per share.
The Company has never paid cash dividends on its Common Stock.
Payment of dividends if any, will be within the discretion of the Company's
Board of Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in order to finance
the development of its business.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below is derived from the
Company's consolidated financial statements and should be read in conjunction
with the consolidated financial statements and related notes included elsewhere
in this Annual Report. See Management Discussion and Analysis of Financial
Condition and Result of Operations.
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WESTERN BEEF, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
==================================================================================================
January 3, December 29, December 30, December 31, January 1,
1997 (2) 1995 1994 1993 1993
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 340,873 $ 301,387 $ 291,886 $ 274,107 $ 297,777
Net income $ 5,989 $ 4,934 $ 4,773 $ 4,422 $ 4,309
Net income per
share of common
stock(1) $ 1.09 $ .90 $ .87 $ .81 $ .79
Total assets $ 74,499 $ 63,313 $ 54,731 $ 48,530 $ 37,033
Long-term
obligations $ 11,011 $ 7,691 $ 7,224 $ 5,614 $ 1,789
==================================================================================================
<FN>
(1) Adjusted to reflect 10% stock split in January 1993.
(2) Fifty-three week fiscal year. The other fiscal years have fifty-two weeks.
</TABLE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Company's
financial statements and the related notes included herein.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
For the year ended January 3, 1997, the Company achieved net
income of $5,989,000 or $1.09 per share on net sales of $340,873,000 as compared
to 1995 net income of $4,934,000 or $.90 per share on net sales of $301,387,000.
The 13.1% increase in 1996 net sales over 1995 resulted from (1)
the full year's sales of the three stores that opened in mid-1995; (2) the sales
of the two stores that were opened in 1996; (3) an 8.8% increase in wholesale
sales and (4) 1996 was a 53 week fiscal year whereas 1995 was a 52 week fiscal
year. The sales of the new retail outlets raised retail sales as a percentage of
total sales to 70% as compared to 69% in 1995.
Gross profits for 1996 and 1995 were 24.2% and 24.0%,
respectively. The retail segment contributed 89% of the gross profit for both
years.
Selling, general and administrative expenses expressed as a
percentage of sales increased to 20.5% in 1996 from 20.2% in 1995. Included in
1996 selling, general and administrative costs were approximately $310,000 of
store opening costs related to the two new stores that opened in 1996. 1995
selling, general and administrative costs included $1,200,000 of store opening
costs related to the three stores that opened that year.
12
<PAGE>
RETAIL SEGMENT
Sales increased 15% due to the full year's results of the three stores that
opened in 1995, the sales of the two stores that opened in 1996, and because
1996 was a 53 week fiscal year whereas 1995 was a 52 week fiscal year. Same
store sales were up 1.11% for the year 1996 being a 53 week fiscal year.
Gross profits for 1996 and 1995 were 30.6% and 30.8% respectively.
Income from operations for the retail segment increased 13% to $8,793,000 in
1996 from $7,781,000 in 1995.
The Company expects competition in the retail segment from major
chains as the Company expands and continues to open new retail supermarkets.
Several of the Company's retail stores have been impacted by this competition;
however, the Company believes that its ability to serve its customers with
quality merchandise at the lowest price should allow it to stay profitable and
maintain a significant part of its market share.
In 1997 the Company expects to open two outlet type supermarkets
late in the year. The Company expects that one of these stores will be on
property purchased by the Company in 1996 and the other will be on property to
be leased from an affiliate of the Principal Stockholders. The Company expects
to renovate four existing stores including the extensive renovation of the
Metropolitan Avenue store begun in 1996. The Company is actively seeking more
sites for possible openings of new stores in 1997. There can be no assurance
that the Company can implement this strategy in a timely manner or that such
strategy, when implemented, will be successful.
The Company's growth and expansion program is susceptible to the
hazards inherent in building and construction, including delays, cost overruns
and zoning issues. While in the past such issues have not materially affected
the Company's growth and expansion program, there can be no assurance that in
the future such issues will not delay the implementation of this program or have
a material effect on this program and the Company.
Same store sales for the eight weeks ended March 1,1997
were 6.45% below the sales for such stores for the same period of 1996
principally as a result of the extensive renovations being made in several of
the Company's existing stores, unfavorable weather conditions and reductions in
the U.S.D.A. Food Stamp Program.
WHOLESALE SEGMENT
Wholesale sales increased 8.8% to $101,162,000 in 1996 from
$92,961,000 in 1995. The gross profit for 1996 and 1995 remained constant at
the 1995 level of 8.9%. Income from operations decreased 16.6% to $924,000
from $1,108,000 in 1995.
The wholesale division continued to have competition in its
market segment in 1996 compared with 1995. The increase in sales was generated
by higher sales to an existing supermarket chain customer and expanded sales in
Philadelphia, PA arising from the business closure of a competitor of the
Company. The decrease in income from operations resulted from higher delivery,
general and administrative expenses.
For the first ten weeks of 1997, wholesale sales were 5.9%
lower than the comparable period in 1996 principally because the company has
been eliminating high risk accounts to improve the profitability of the
Company's wholesale segement.
GENERAL
In 1997, the Company plans to upgrade its centralized
client-server host information system which will allow the Company to support
the continued roll-out of its store automation systems. Hand-held and terminal
applications in use at the Company's Metropolitan Avenue store and programs to
control receiving and merchandising will be introduced into more of the
Company's retail supermarkets.
13
<PAGE>
The Company is committed to technological excellence to enable it
to remain profitable and competitive by controlling expenses and providing all
of the latest services necessary for customer satisfaction.
INCOME TAXES
The effective tax rate of the Company for 1996 decreased to 43.3%
from 45.5% resulting from the utilization of low income housing tax credits and
lower state and local income taxes.
The deferred tax asset on the Company's Balance Sheet resulted
from temporary differences that accelerated the reporting of taxable income for
income tax purposes. These temporary differences will reverse themselves in
future periods and Management believes it will recover the entire amount. The
deferred tax liability is a result of temporary differences in reporting
depreciation expense for income tax and financial reporting purposes.
The Company's investment in low income housing credits reduced the
effective tax rate approximately 2.1% in 1996 and 1.6% in 1995. This investment
in low income housing credits was made to offset the loss of the targeted jobs
credit, which expired at the end of 1994.
RECENT ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of"("SFAS No.
121"). SFAS No. 121 requires, among other things, impairment loss of assets to
be held and gains or losses from assets that are expected to be disposed of, to
be included as a component of income from continuing operations before taxes on
income. The Company adopted SFAS No. 121 in fiscal 1996 and its implementation
did not have a material effect on the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, " Accounting for
Stock-Based Compensation ("SFAS No. 123"). SFAS No. 123 requires entities which
have arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of its stock either to record the fair value of the
arrangements or to disclose the pro forma effects of the fair value of the
arrangements. The Company has adopted the disclosure method of SFAS No.123. The
adoption of this method did not affect the Company's financial position,
operating results or cash flows.
In 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
SFAS No. 128 specified the computation, presentation, and disclosure requirement
for earnings per share. SFAS No. 128 is effective for periods ending after
December 15, 1997. The adoption of this statement is not expected to have a
material effect on the consolidated financial statements.
FISCAL 1995 COMPARED TO FISCAL 1994
For the fiscal year ended December 29, 1995, the Company achieved
net income of $4,934,000 or $.90 per share on net sales of $301,387,000 as
compared to 1994 net income of $4,773,000 or $.87 per share on net sales of
$291,886,000.
The 3.25% increase in net sales in 1995 over 1994 resulted mainly
from the opening in 1995 of the three new retail outlets which raised overall
retail sales as a percentage of total sales to 69% compared to 68% in 1994.
14
<PAGE>
Gross profits for 1995 and 1994 were 24.0% and 23.5%,
respectively. The retail segment contributed 89% of the gross profit for both
years.
Selling, general and administrative expenses expressed as a
percentage of sales increased to 20.2% in 1995 from 19.6% in 1994. Included in
1995 costs were approximately $1,200,000 of store opening costs related to the
three new stores opened in 1995. No new stores were opened in 1994.
RETAIL SEGMENT
Sales increased 4.7% due to the opening of the three new stores in
1995. Same store sales were down 4.39% for the year. To combat the decline in
same store sales, which had been trending downward for the past two years, the
Company, in the second quarter of 1995, began a program of restructuring stores
and improving advertising and merchandising. For stores open more than one year,
this program has resulted in sales for the fourth quarter of 1995 which were
approximately equal to the sales for such stores in the fourth quarter of 1994
and sales for the first eleven weeks of 1996, which were 1.57% above the sales
for such stores for the same period of 1995. Gross profits for 1995 and 1994
were 30.8% and 30.7%, respectively. Income from operations for the retail
segment increased 3% to $7,781,000 in 1995 from $7,661,000 in 1994.
The Company benefited from the Federal Targeted Jobs Credit
Program for several years, including 1994. This program expired at the end of
1994.
WHOLESALE SEGMENT
Although 1995 sales of $92,961,000 were basically unchanged from
1994 sales of $92,802,000 gross profit increased to 8.9% from 8.1% in 1994.
Income from operations increased 24.1% to $1,108,000 from $893,000 in 1994.
The wholesale division continued to have competition in its market
area in 1995 compared with 1994. The increase in gross profits resulted from the
continuing consolidation in the market place. The wholesale division is striving
to expand its customer base as smaller competitors cease operation. Through
March 3, 1996, wholesale sales were 15.5% higher than the comparable period in
1995.
INCOME TAXES
There was no material change in the effective tax rate for 1995 as
compared to 1994.
The deferred tax asset on the Company's Balance Sheet results from
temporary differences that accelerated the reporting of taxable income for tax
purposes. These temporary differences will reverse themselves in future periods
and Management believes it will recover the entire amount. The deferred tax
liability is a result of temporary differences in reporting depreciation expense
for income tax and financial reporting purpose.
The Company's investment in low income housing credits reduced the
effective tax rate approximately 1.6% in 1995. This investment in low income
housing credits was made to offset the loss of the targeted jobs credit, which
expired at the end of 1994.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations was $9,111,000 for the year
ended January 3, 1997. Utilizing this cash flow and monies borrowed in 1995 and
1996, the Company spent $13,121,000 primarily on equipment purchases and
improvements at the two stores opened in 1996, the renovation of several older
stores and the exercise of a $3,000,000 purchase option for one of the
Company's retail locations which was previously leased from a non affiliated
entity. The Company also repaid long-term debt of $2,276,000 in 1996.
The exercise of the store option was funded in March 1996 by
a 20 year mortgage at 8.25% per annum with a balloon payment of $2,084,000 due
March 18, 2006. The additions and improvements were funded by cash flow from
operations and two finance company loans for $1,007,000 and $2,369,000 for five
years at 7.55% and 7.75% interest per annum respectively.
The Company has available a $3,000,000 working capital line
of credit which expires on June 30, 1997 from its bank. At January 3, 1997 the
entire balance was available for use by the Company. The Company also has
several financial institutions who would be available to finance new store
equipment, usually over a five year period. One of these companies issued a
$3,000,000 credit facility to Western Beef, $630,000 of which was available
for use by the Company on January 3, 1997.
The Company presently owns or leases transportation equipment
for distribution to its retail outlets and delivery to its wholesale customers.
In 1995 the Company overhauled a significant portion of its transportation
equipment by entering into 7 and 10 year leasing arrangements. The impact of the
new fleet increased costs by approximately $200,000 per year. In 1996, however,
the increase was offset in its entirety by fuel efficiencies and lower
maintenance costs.
In 1997, the Company plans to utilize most of its available
cash flow to fund capital expenditures for renovating existing stores and for
opening new retail outlets. The Company expects that available cash flow from
the wholesale segment will be used to expand its customer base which should
result in higher levels of inventory and accounts receivable. There are no
restrictions on the transfer of assets between segments and the Company intends
to let each segment develop its own growth. Although Management believes that
these expenditures will enable the Company to expand its customer base, there
can be no assurance that this strategy will be successful.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, and
REPORTS on FORM 8K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
All items under this section are incorporated by reference to
the Company's proxy statement that will be filed no later than 120 days after
the Company's fiscal year-end.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8K
The following documents are being filed as a part of this report:
(a) 1. Financial Statements
2. Financial Statement Schedule
All other schedules are omitted since the required
information is either not required or not present.
3. Exhibits
(3)(a) Certificate of Incorporation of the Company,
as amended (1)
(b) Certificate of Amendment to the Certificate
of Incorporation of the Company, dated
January 13, 1993 (3)
(c) By-Laws of the Company (2)
(10)(a) Agreement of Combination (2)
(b) Agreement of Merger (1)
(c) Certificate of Merger (1)
(21) Subsidiaries
(23) Consent of BDO Seidman, LLP
(27) Financial Data Schedule
- -------------------
(1) Incorporated by reference to the Form 8-K
Current Report filed November 13, 1992
(the "8-K").
(2) Incorporated by reference to Form S-4
File No. 33-44494
(3) Filed with the Annual Report on Form 10-K
for the fiscal year 1992
(b) No reports on Form 8-K have been filed during the last quarter of
the fiscal year covered by this report on Form 10-K.
(c) See Item 14(a)3, above
(d) Not applicable
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) 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/Peter Castellana, Jr., President
-----------------------------------
Peter Castellana, Jr., President
Date: March 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Peter Castellana, Jr. Principal Executive March 28, 1997
=============================== Officer and Director
Peter Castellana, Jr.
/s/Chris Darrow Principal Financial March 28, 1997
=============================== and Accounting Officer
Chris Darrow
/s/Frank Castellana Chairman of the Board March 28, 1997
===============================
Frank Castellana
/s/Joseph Castellana Vice-Chairman of the March 28, 1997
=============================== Board
Joseph Castellana
/s/Stephen R. Bokser Director March 28, 1997
===============================
Stephen R. Bokser
/s/Arnold B. Becker Director March 28, 1997
===============================
Arnold B. Becker
/s/Richard G. Klein Director March 28, 1997
===============================
Richard G. Klein
</TABLE>
18
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
______________________________________________________________________________
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995
AND DECEMBER 30, 1994
F-1
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONTENTS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-4
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7 - F-8
Notes to consolidated financial statements F-9 - F-28
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Directors
Western Beef, Inc.
We have audited the accompanying consolidated balance sheets of Western Beef,
Inc. and Subsidiaries as of January 3, 1997 and December 29, 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended January 3, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Western Beef, Inc.
and Subsidiaries as of January 3, 1997 and December 29, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended January 3, 1997, in conformity with generally accepted accounting
principles.
New York, New York
March 5, 1997
F-3
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXPECT PAR VALUE)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
JANUARY 3, December 29,
1997 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 2,634 $ 2,431
Accounts receivable, net of allowance for doubtful
accounts of $386 and $326 8,434 8,754
Inventories 17,668 15,959
Prepaid expenses and other current assets 1,461 2,020
Deferred income taxes 1,253 702
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 31,450 29,866
PROPERTY, PLANT AND EQUIPMENT, NET 41,276 31,733
OTHER ASSETS 1,773 1,714
- ------------------------------------------------------------------------------------------------------------------------
$74,499 $63,313
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Current portion of long-term debt $ 2,391 $ 1,997
Current portion of obligations under capital leases 455 193
Accounts payable 11,414 13,134
Accrued expenses and other liabilities 5,862 3,190
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 20,122 18,514
DEFERRED INCOME TAXES PAYABLE 1,484 1,249
LONG-TERM DEBT, NET OF CURRENT PORTION 7,764 6,280
OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT PORTION 3,247 1,411
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 32,617 27,454
- ------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8 AND 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value - shares authorized
2,000; none issued - -
Common stock, $.05 par value - shares authorized
15,000; issued and outstanding 5,463 273 273
Capital in excess of par value 11,379 11,379
Retained earnings 30,360 24,371
Deferred compensation (130) (164)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 41,882 35,859
- ------------------------------------------------------------------------------------------------------------------------
$74,499 $63,313
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 3, December 29, December 30,
Year ended 1997 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $340,873 $301,387 $291,886
COST OF SALES 258,402 228,923 223,382
- ------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT ON SALES 82,471 72,464 68,504
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Rent expense - affiliates 2,737 2,772 2,783
Selling, general and administrative expenses 70,017 60,803 57,277
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 72,754 63,575 60,060
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 9,717 8,889 8,444
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Rental income, net of expenses 906 681 592
Interest income 164 142 92
Other income 838 114 278
Interest expense (1,071) (775) (708)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 837 162 254
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 10,554 9,051 8,698
PROVISION FOR INCOME TAXES 4,565 4,117 3,925
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,989 $ 4,934 $ 4,773
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE OF COMMON STOCK $ 1.09 $ .90 $ .87
- ------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK AND EQUIVALENTS OUTSTANDING 5,503 5,466 5,463
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common stock Capital in
------------------------------- excess of Retained Deferred
Shares Amount par value earnings compensation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 5,463 $273 $11,516 $14,664 $ -
Net income for 1994 - - - 4,773 -
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 30, 1994 5,463 273 11,516 19,437 -
Net income for 1995 - - - 4,934 -
Other - - (305) - -
Granting of below-market
options - - 168 - (168)
Amortization of deferred
compensation - - - - 4
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 29, 1995 5,463 273 11,379 24,371 (164)
Net income for 1996 - - - 5,989 -
Amortization of deferred
compensation - - - - 34
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 3, 1997 5,463 $273 $11,379 $30,360 $(130)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 3, December 29, December 30,
Year ended 1997 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,989 $ 4,934 $ 4,773
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,395 2,747 2,641
Provision for losses on accounts receivable 611 539 419
Deferred income taxes (316) 916 785
(Gain) loss on disposal of fixed assets (20) 19 -
(Increase) decrease in assets:
Accounts receivable (291) (2,386) (652)
Inventories (1,709) (2,620) (1,348)
Prepaid expenses and other current assets 559 780 (1,166)
Other assets (59) 240 172
(Decrease) increase in liabilities:
Accounts payable (1,720) 537 (149)
Accrued expenses and other liabilities 2,672 1,711 (404)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 9,111 7,417 5,071
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,121) (9,304) (3,229)
Investment in low-income housing credits - (1,067) -
Proceeds from sale of property, plant and
equipment 112 228 -
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (13,009) (10,143) (3,229)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 29, DECEMBER 30,
YEAR ENDED 1997 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
NET REPAYMENTS UNDER LINE OF CREDIT AGREEMENT $ - $ - $ (750)
PROCEEDS ON ISSUANCE OF LONG-TERM DEBT AND
CAPITAL LEASES 6,377 2,777 3,355
PAYMENTS ON LONG-TERM DEBT AND CAPITAL LEASES (2,276) (1,931) (1,165)
ADVANCES TO AFFILIATES AND SHAREHOLDERS - - (51)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,101 846 1,389
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 203 (1,880) 3,231
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,431 4,311 1,080
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,634 $ 2,431 $ 4,311
- ------------------------------------------------------------------------------------------------------------------------
CASH PAID DURING THE YEAR FOR:
INTEREST $ 1,071 $ 775 $ 708
INCOME TAXES 4,442 2,741 3,442
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
1. SUMMARY OF Description of Business
SIGNIFICANT
ACCOUNTING POLICIES
Through its wholly-owned subsidiaries,
Western Beef, Inc. (the "Company")
operates high-volume, warehouse-type,
retail food stores and a wholesale meat
and poultry business. The retail stores
serve the New York/New Jersey
metropolitan area and the wholesale
business operates principally in the New
York, New Jersey, and Eastern
Pennsylvania markets.
Revenue Recognition
The Company operates nineteen retail
food stores, where revenue is recorded
at the time the sale is made. (During
1995 and 1994, the Company operated
seventeen and fourteen retail stores,
respectively.)
The Company also sells poultry, beef,
pork and provisions through its
wholesale operations to supermarket
chains, retailers and other
distributors. Revenue from the sale of
these products are recorded at the time
the products are shipped.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and
its wholly-owned subsidiaries. All
significant intercompany balances and
transactions have been eliminated in
consolidation.
Fiscal Year
The Company uses a 52-53 week fiscal
year, with the year ending on the Friday
closest to December 31. The fiscal years
ended January 3, 1997, December 29, 1995
and December 30, 1994 are referred to as
1996, 1995 and 1994, respectively,
throughout the financial statements.
1996 includes 53 weeks and 1995 and 1994
include 52 weeks.
F-9
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Inventories
Inventories, consisting of meats,
poultry, groceries and other food
products held for resale, are stated at
the lower of cost (first-in, first-out
method) or market.
Property, Plant and Equipment
Property, plant and equipment are
recorded at cost. Depreciation and
amortization are computed on the
straight-line method over the estimated
useful lives of the assets. The building
under capital lease (see Note 8) and
leasehold improvements are being
amortized over their useful lives.
Repairs and maintenance are charged to
operations. Renewals and improvements
are capitalized. At the time property,
plant and equipment are retired or
otherwise disposed of, the cost and
accumulated depreciation are eliminated
from the accounts, and any gain or loss
is reflected in operations.
Income Taxes
Deferred income taxes are recognized for
temporary differences between the bases
of assets and liabilities for financial
statement and income tax purposes. The
deferred income taxes represent the
future tax return consequences of those
differences which will either be taxable
or deductible when the assets and
liabilities are recovered or settled.
Earnings Per Share of Common Stock
Earnings per share of common stock are
computed on the basis of the weighted
average number of shares of common stock
outstanding during the year and the
dilutive effect of the assumed exercise
of stock options.
Cash Equivalents
Cash equivalents include all highly
liquid debt instruments with an original
maturity of three months or less. Cash
equivalents consist primarily of money
market accounts.
Concentration of Credit Risk
Financial instruments which potentially
expose the Company to concentrations of
credit risk consist primarily of cash
and trade accounts receivable.
F-10
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The Company maintains some of its cash
balances in accounts which exceed
federally insured limits. It has not
experienced any losses to date resulting
from this policy.
The Company sells primarily to retail
customers and wholesale food businesses,
located in the New York metropolitan
area. Although the Company is directly
affected by the well-being of the food
industry, management does not believe
significant credit risk exists.
Store Opening Costs
All costs associated with the opening of
new stores are expensed as incurred.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted
accounting principles requires the
Company to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Long-Lived Assets
In March 1995, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be
Disposed of" ("SFAS No. 121"). SFAS No.
121 requires, among other things,
impairment loss of assets to be held and
gains or losses from assets that are
expected to be disposed of, be included
as a component of income from continuing
operations before taxes on income. The
Company adopted SFAS No. 121 in fiscal
1996 and its implementation did not have
a material effect on the consolidated
financial statements.
F-11
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Stock-Based Compensation
In October 1995, the Financial
Accounting Standards Board issued
Statement of Financial Accounting
Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123 requires entities
which have arrangements under which
employees receive shares of stock or
other equity instruments of the employer
or the employer incurs liabilities to
employees in amounts based on the price
of its stock to either record the fair
value of the arrangements or disclose
the pro forma effects of the fair value
of the arrangements. In 1996, the
Company has adopted the disclosure
method of SFAS No. 123. The adoption of
this method did not affect the Company's
financial position, operating results or
cash flows.
Self-insurance
The Company is primarily self-insured
for workers' compensation, automobile,
and general liability costs. The
Company's insurance coverage provides
that the Company is responsible for the
first $250,000 of each reported claim
with a total aggregate exposure of
$2,690,000 for the policy period ended
February 15, 1997. During 1996, based on
actuarial estimates, the Company had
incurred losses of approximately
$2,388,000, of which approximately
$546,000 has been paid as of January 3,
1997.
Estimated Fair Value of Financial
Instruments
Statement of Financial Accounting
Standards No. 107 ("SFAS No. 107"),
"Disclosure about Fair Value of
Financial Instruments", requires
disclosures of fair value information
about financial instruments for which it
is practicable to estimate the value,
whether or not recognized on the balance
sheet. The fair value of financial
instruments, including cash, accounts
receivable, accounts payable and accrued
expenses, approximate their carrying
value because of the current nature of
these instruments. The carrying amounts
of long-term debt and obligations under
capital leases approximate fair value
because the interest rates approximate
current market rates.
F-12
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Recent Accounting Standards
In 1997, the Financial Accounting
Standards Board issued Statement of
Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 specifies the computation,
presentation, and disclosure
requirements for earnings per share.
SFAS No. 128 is effective for periods
ending after December 15, 1997. The
adoption of this statement is not
expected to have a material effect on
the consolidated financial statements.
2. PROPERTY, PLANT AND Property, plant and equipment consist of
EQUIPMENT the following (in thousands):
JANUARY 3, December 29,
1997 1995
- -------------------------------------------------------------------------------
Land $ 2,703 $ 1,953
Buildings 4,053 1,430
Improvements 26,599 22,439
Machinery and equipment 16,475 14,326
Property and plant under capital leases
(Note 8) 4,969 2,747
Transportation equipment 720 944
Furniture and fixtures 2,692 1,960
- -------------------------------------------------------------------------------
58,211 45,799
Less: Accumulated depreciation and
amortization 16,935 14,066
- -------------------------------------------------------------------------------
Net property, plant and equipment $41,276 $31,733
- -------------------------------------------------------------------------------
F-13
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. NOTES PAYABLE - During 1996, the Company renewed its
agreement for a credit facility
BANK that permits borrowings of up to
$3,000,000, expiring June 30, 1997.
The facility is available for working
capital purposes and is unsecured.
Interest on borrowings is payable at the
rate of 1/2% over the bank's prime rate.
During 1996, the Company had no
borrowings under this facility. There is
a compensating cash balance of $500,000
on any amounts outstanding under the
credit agreement.
4. LONG-TERM DEBT Long-term debt consists of the following
(in thousands):
JANUARY 3, December 29,
1997 1995
- --------------------------------------------------------------------------------
Installment notes payable, due in aggregate
monthly installments of $220 including
interest ranging from 6.7% to 10.9%, due at
various times through 2001, collateralized
by accounts receivable, inventory or
equipment $ 6,231 $ 7,179
Installment notes payable, due in aggregate
monthly installments of $44 including
interest ranging from 8.25% to 9.0%, due
at various times through April 2006,
collateralized by land 3,924 1,098
- --------------------------------------------------------------------------------
10,155 8,277
Less: Current maturities 2,391 1,997
- --------------------------------------------------------------------------------
$ 7,764 $ 6,280
- --------------------------------------------------------------------------------
F-14
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of January 3, 1997, long-term debt
matures as follows (in thousands):
- --------------------------------------------------------------------------------
1997 $ 2,391
1998 2,047
1999 1,531
2000 923
2001 378
Thereafter 2,885
- --------------------------------------------------------------------------------
$10,155
- --------------------------------------------------------------------------------
At January 3, 1997, land, property and
equipment with a net book value of
$11,487,000 was pledged as collateral
for the debt.
5. INCOME TAXES The income tax rate differed from the
statutory Federal income tax rate
as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Statutory Federal income
tax rate 34.0% 34.0% 34.0%
State and local income
taxes, net of Federal
income tax benefit 12.1 13.1 13.0
Utilization of low income
housing tax credits (1) (2.1) (1.6) -
Other tax credits - - (2.1)
Other (.7) - .2
- --------------------------------------------------------------------------------
Effective tax rate 43.3% 45.5% 45.1%
- --------------------------------------------------------------------------------
F-15
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(1) The Company's effective tax rate
for the years ended January 3,
1997 and December 29, 1995 was
reduced by 2.1% and 1.6% as
a result of the utilization of
low income housing tax credits
of approximately $222,000 and
$148,000, respectively. The
Company has qualified low income
housing tax credits of
$1,659,000 which are available
to reduce future regular Federal
income taxes for the years
ending 1997 through 2005.
Provision for income taxes consists of
the following (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Federal:
Current $2,744 $1,474 $1,809
Deferred (183) 515 393
- --------------------------------------------------------------------------------
2,561 1,989 2,202
- --------------------------------------------------------------------------------
State and local:
Current 2,137 1,727 1,402
Deferred (133) 401 321
- --------------------------------------------------------------------------------
2,004 2,128 1,723
- --------------------------------------------------------------------------------
$4,565 $4,117 $3,925
- --------------------------------------------------------------------------------
F-16
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following is a summary of the
significant components of the Company's
deferred tax assets and liabilities (in
thousands):
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Capitalized costs for income tax $ 1,078 $ 550
purposes
Accounts receivable allowance 175 152
- --------------------------------------------------------------------------------
Deferred tax assets $ 1,253 $ 702
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Investment in low income housing credit $ 42 $ 51
Depreciation and amortization (1,526) (1,300)
- --------------------------------------------------------------------------------
Deferred tax liabilities $(1,484) $(1,249)
- --------------------------------------------------------------------------------
6. INVESTMENT TAX Included in other assets are investments
CREDITS of approximately $974,000 which the
Company made in two limited partnerships
during 1995.
These investments have generated low
income housing tax credits to be used to
offset future Federal income taxes.
These investments are accounted for
under the effective yield method since
the credits are guaranteed, the
projected yield from the credits is
positive and the Company has limited
liability under the investment.
F-17
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. STOCK OPTIONS The Company had an incentive program
under which options and other
incentives covering 100,000 shares of
common stock may be granted to
key employees, including officers, at an
exercise price at no less than
100% of the fair market value of the
Company's common stock on the
date of the grant (110% of fair market
value in the case of grantees
who own 10% or more of outstanding stock
of the Company). Unless otherwise
provided in the specific option grant,
the options terminate on the tenth
anniversary of their effective date.
This plan terminated in 1995. Option
activity under this plan is as follows:
Number of Exercise Aggregate
Options Price Price
- --------------------------------------------------------------------------------
Outstanding at January 1,
1993 60,500 $ 4.1322 $ 250,000
Exercised (57,475) (4.1322) (237,500)
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1993 and
December 30, 1994 3,025 4.1322 12,500
Cancelled 3,025 - -
- --------------------------------------------------------------------------------
Outstanding at
December 29, 1995 and
January 3, 1997 - N/A N/A
- --------------------------------------------------------------------------------
F-18
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At January 3, 1997, the Company has two
stock option plans, which are described
below. The Company applies APB Opinion
25, "Accounting for Stock Issued to
Employees", and related interpretations
in accounting for the plans. Under APB
Opinion 25, because the exercise price
of the Company's employee stock options
generally equals the market price of the
underlying stock on the date of grant,
no compensation cost is recognized.
During 1995, the Company's 1995 Stock
Option Plan was adopted. Under the Plan,
options to purchase an aggregate of not
more than 1,300,000 shares of common
stock may be granted from time to time
to key employees, officers, directors,
advisors and independent consultants to
the Company or to any of its
subsidiaries. The total number of shares
of common stock for which options may be
granted under the plan shall not exceed
2% of the number of shares issued as of
January 1 of each year. The Plan is
administered by the Board of Directors,
which has empowered a committee of
directors to administer the Plan. The
per share exercise price for incentive
stock options ("ISO's") will not be less
than 100% of the fair market value of a
share of the common stock on the date
the option is granted (ISO's may not be
granted if the optionee owns more than
10% of the Company), and for
nonqualified stock options ("NQSO's")
will not be less than 25% of the fair
market value on the date the option is
granted. Options may be granted for a
term to be determined by the committee
of not more than ten years from the date
of grant.
During 1995, the Company adopted the
1995 Nonemployee Director Stock Option
Plan. Under the Plan, options to
purchase an aggregate of not more than
200,000 shares of common stock may be
granted from time to time to directors
who are neither employees nor officers
of the Company. The Plan is administered
by the Board of Directors, which has
empowered a committee of directors to
administer the Plan. Each year on the
date of the Company's annual meeting of
stockholders, each nonemployee director
is automatically granted an option to
purchase 5,000 shares of common stock.
The per share exercise price of each
option shall be the fair market value as
of the date such option is granted. Each
option shall vest within one year from
the date granted and will expire, at a
term determined by the committee, not to
exceed ten years.
F-19
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SFAS No. 123 requires the Company to
provide pro forma information regarding
net income and earnings per share as if
compensation cost for the Company's
stock option plans had been determined
in accordance with the fair value based
method prescribed in SFAS No. 123.
The accounting provisions of SFAS No.
123 do not have a material effect on the
Company's pro forma net income and
earnings per share and thus have not
been presented.
The following table contains information
on the 1995 Stock Option Plan and the
1995 Nonemployee Director Stock Option
Plan:
Exercise Weighted
Option price range average
shares per share price
- --------------------------------------------------------------------------------
Balance, December 31,
1994 - $ - $ -
Granted 81,949 $1.50 to $6.00 $3.93
- --------------------------------------------------------------------------------
Balance, December 29,
1995 81,949 $ - $3.93
Granted 15,000 $ 9.31 $9.31
Cancelled (7,000) $5.88 to $6.00 $5.91
- --------------------------------------------------------------------------------
Balance, January 3, 1997 89,949 $1.50 to $9.31 $4.67
- --------------------------------------------------------------------------------
As of January 3, 1997, 20% of the
options granted in 1995 were
exercisable. None of the options granted
in 1996 were exercisable at January 3,
1997.
As of January 3, 1997, 1,418,051 shares
were available for future grants.
Certain options were granted in 1995 at
below-market exercise prices. Related
compensation, totaling $168,000, was
deferred and is being amortized over
five years.
F-20
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. COMMITMENTS Capital Leases
The Company leases land, building and
equipment used in its wholesale
operations under lease agreements which
are accounted for as capital leases. One
agreement contains a purchase option,
which gives the Company the right to
purchase the land and building at any
time during the 25-year lease term. The
purchase price of the property declines
ratably over the term of the lease. The
agreement also provides for title of the
property to automatically transfer to
the Company at the end of the lease
term.
The following is an analysis of leased
property and equipment under capital
leases by major classification (in
thousands):
JANUARY 3, December 29,
1997 1995
- --------------------------------------------------------------------------------
Land $ 650 $ 650
Building 1,950 1,950
Equipment 2,369 147
- --------------------------------------------------------------------------------
4,969 2,747
Less: Accumulated amortization 2,119 1,962
- --------------------------------------------------------------------------------
$2,850 $ 785
- --------------------------------------------------------------------------------
F-21
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Future minimum lease payments under
capital lease obligations, together with
the present value of the net minimum
lease payments at January 3, 1997, were
as follows (in thousands):
Year ending Amount
- --------------------------------------------------------------------------------
1997 $ 741
1998 785
1999 785
2000 785
2001 785
Thereafter 951
- --------------------------------------------------------------------------------
4,832
Less: Amounts representing interest 1,130
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 3,702
Less: Current portion 455
- --------------------------------------------------------------------------------
$3,247
- --------------------------------------------------------------------------------
F-22
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Operating Leases
In addition to the above capitalized
leases, the Company also has commitments
for various noncancellable operating
leases which expire at various dates
through December 2007. Many of the
leases are with related parties (see
Note 11). Some of the leases have
renewal options and most contain
provisions for passing through
incremental costs. A few leases have
purchase options (see below). Future
minimum rental payments required under
noncancellable operating leases at
January 3, 1997 are as follows (in
thousands):
Year ending Amount
- --------------------------------------------------------------------------------
1997 $ 5,148
1998 4,970
1999 5,088
2000 4,565
2001 4,283
Thereafter 11,977
- --------------------------------------------------------------------------------
Total future minimum rentals $36,031
- --------------------------------------------------------------------------------
The following schedule shows the
composition of total rent expense for
all operating leases (in thousands):
Year ended Amount
- --------------------------------------------------------------------------------
1996 $4,838
1995 4,195
1994 3,979
- --------------------------------------------------------------------------------
F-23
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has entered into sublease
agreements for some sections of the
unoccupied space located at various
facilities. Rental income from these
subleases in 1996, 1995 and 1994 was
$906,000, $681,000 and $592,000,
respectively. The Company retains the
right to sublease the additional
unoccupied space. The subleases
currently in effect provide for future
rental income as follows (in thousands):
Year ending Amount
- --------------------------------------------------------------------------------
1997 $ 914
1998 898
1999 892
2000 905
2001 839
Thereafter 1,227
- --------------------------------------------------------------------------------
$5,675
- --------------------------------------------------------------------------------
Standby Letters of Credit
The Company has outstanding standby
letters of credit totalling $1,787,000
to collateralize incurred but unpaid
insurance claims.
9. CONTINGENCIES 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.
F-24
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In April 1991 in New York Supreme Court,
Putnam County, an action was commenced
against the Company to prevent a
scheduled auction 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 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.
Discovery procedures have been completed
and a trial of this matter is scheduled
to commence on September 9, 1997. The
Company intends to vigorously defend
this action. The Company believes the
resolution of this matter will not
adversely affect its financial position.
10. PROFIT SHARING PLANS The Company has a profit sharing plan,
which covers all eligible employees. The
plan allows for salary deferral
arrangements under the provisions of
Section 401(k) of the Internal Revenue
Code. The Company does not contribute to
this plan.
Additionally, the Company has a
noncontributory profit sharing plan for
its employees. Funding requirements for
the plan are nonobligatory. For 1996,
1995 and 1994, the noncontributory
profit sharing plan expense was
$625,000, $602,000 and $547,000,
respectively.
F-25
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. RELATED PARTY The Company leases land, various retail
TRANSACTIONS food stores and warehouse storage and
office space, from affiliates of the
principal stockholders under various
leases which expire through June 2005.
Rent expense relating to these leases
was $2,737,000 for 1996, $2,772,000 for
1995 and $2,783,000 for 1994 (see Note
8). During the years ended January 3,
1997 and December 29, 1995, the Company
made capital expenditures of
approximately $725,000 and $374,000,
respectively, at leaseholds owned by
affiliates of the principal
stockholders.
During 1996, 1995 and 1994, the Company
purchased various food products in the
amounts of $27,423,000, $21,954,000 and
$20,206,000, respectively, from a
company which has an officer who is a
director in the Company. As of January
3, 1997 and December 29, 1995, the
Company had trade payables of $797,000
and $1,117,000, respectively, due to the
affiliate.
The Company had sales to affiliates
controlled by the Company's principal
stockholders for 1996, 1995 and 1994 of
$85,000, $528,000 and $4,333,000,
respectively. In 1995, the Company
acquired one of these affiliates.
The Company does its banking at a bank
which has an officer who was a member of
the Company's Board of Directors until
April 1, 1996. The credit facility
described in Note 3 is with the same
bank. The Company believes all bank
terms and fees are at customary rates.
F-26
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. SEGMENTS OF BUSINESS The Company operates in two industry
segments. The wholesale segment
primarily sells poultry, beef, pork and
provisions. The retail segment sells
various meat and grocery items to the
general public.
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
Net sales:
Retail $239,711 $208,426 $199,084
Wholesale 101,162 92,961 92,802
- --------------------------------------------------------------------------------
$340,873 $301,387 $291,886
- --------------------------------------------------------------------------------
Intersegment sales:
Wholesale $ 60,775 $ 28,790 $ 12,111
- --------------------------------------------------------------------------------
Income from operations:
Retail $ 8,793 $ 7,781 $ 7,551
Wholesale 924 1,108 893
- --------------------------------------------------------------------------------
$ 9,717 $ 8,889 $ 8,444
- --------------------------------------------------------------------------------
Identifiable assets:
Retail $ 60,475 $ 49,124 $ 41,072
Wholesale 14,024 14,189 13,121
- --------------------------------------------------------------------------------
$ 74,499 $ 63,313 $ 54,193
- --------------------------------------------------------------------------------
Depreciation and
amortization:
Retail $ 3,214 $ 2,541 $ 2,401
Wholesale 181 206 240
- --------------------------------------------------------------------------------
$ 3,395 $ 2,747 $ 2,641
- --------------------------------------------------------------------------------
Capital expenditures:
Retail $ 12,933 $ 9,027 $ 2,801
Wholesale 188 424 428
- --------------------------------------------------------------------------------
$ 13,121 $ 9,451 $ 3,229
- --------------------------------------------------------------------------------
F-27
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. QUARTERLY The summarized quarterly financial data
INFORMATION presented below reflects all adjustments
(UNAUDITED) which, in the opinion of management, are
of a normal and recurring nature
necessary to present fairly the results
of operations for the periods presented.
Fiscal year ended January 3, 1997
- --------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------------------------------
Sales $79,349 $84,180 $85,167 $92,177
Gross profit
on sales 19,589 20,014 20,680 22,188
Net income 1,262 1,520 1,522 1,685
Net income per
share of
common stock .23 .28 .28 .31
- --------------------------------------------------------------------------------
Fiscal year ended December 29, 1995
- --------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- --------------------------------------------------------------------------------
Sales $67,574 $73,058 $78,407 $82,348
Gross profit
on sales 15,526 17,705 19,209 20,024
Net income 797 1,154 1,360 1,623
Net income per
share of
common stock .15 .21 .25 .30
- --------------------------------------------------------------------------------
F-28
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
FURNISHED PURSUANT TO THE
REQUIREMENTS OF FORM 10-K
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Directors
Western Beef, Inc.
The audits referred to in our report dated March 5, 1997 relating to the
consolidated financial statements of Western Beef, Inc. and Subsidiaries, which
is referred to in Item 8 of this Form 10-K, included the audits of the
accompanying financial statement schedule for the years ended January 3, 1997,
December 29, 1995 and December 30, 1994. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein for the three years ended
January 3, 1997, December 29, 1995 and December 30, 1994.
BDO Seidman, LLP
New York, New York
March 5, 1997
F-29
<PAGE>
WESTERN BEEF, INC.
AND SUBSIDIARIES
CHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
Balance at Charged to
beginning of cost and Charged to Balance at end
Description year expenses other accounts Deductions * of year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 3, 1997:
Allowance for doubtful
accounts $326 $611 $- $(551) $386
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 29, 1995:
Allowance for doubtful
accounts $142 $539 $- $(355) $326
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 30, 1994:
Allowance for doubtful
accounts $450 $419 $- $(727) $142
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
- --------------
* Uncollectible accounts written off, net of recoveries.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(3)(a) Certificate of Incorporation of the Company, as amended
(1)
(b) Certificate of Amendment to the Certificate of
Incorporation of the Company, dated January 13, 1993
(3)
(c) By-Laws of the Company (2)
(10)(a) Agreement of Combination (2)
(b) Agreement of Merger (1)
(c) Certificate of Merger (1)
(21) Subsidiaries
(23) Consent of BBD Seidman, LLP
(27) Financial Data Schedule
--------------------------
(1) Incorporated by reference to the Form S-K Current
Report filed November 13, 1992 (the "S-K").
(2) Incorporated by reference to Form C-4 File No. 33-44494
(3) Filed with the Annual Report on Form 10-K for the
Fiscal Year 1992
SUBSIDIARIES
Exhibit 21
1. GENERAL
Western Beef, Inc. conducts its retail and wholesale food business
directly and through 19 consolidated wholly-owned subsidiaries and six
consolidated subsidiaries wholly-owned by Quarex Operating Company, Inc., a 100%
subsidiary of the registrant.
2. OTHER SUBSIDIARIES
Awesome Transportation, Inc.
East Central Meats, Inc.
Quarex New England, Inc.
Western Beef Advertising, Inc.
Western Beef, Administration, Inc. (Formerly known as Western Beef, Inc. (New
York Corporation)
W.B. Packing, Inc.
Sabrina Food Sales, Inc.
Food Warehouse, Inc.
NOTE:
All corporations listed above were incorporated in New York except
for Quarex-New England, Inc. which was incorporated in Massachusetts.
19
<PAGE>
SUBSIDIARIES OF WESTERN BEEF, INC.
WESTERN BEEF -METROPOLITAN AVENUE, INC.
WESTERN BEEF -MORRIS AVENUE, INC.
WESTERN BEEF -FOREST AVENUE, INC.
WESTERN BEEF -14TH STREET, INC.
W.B. PRODUCE -METROPOLITAN AVENUE, INC.
WESTERN BEEF -MERRICK BLVD., INC.
WESTERN BEEF -FORT GREENE PLACE, INC.
WESTERN BEEF -CANARSIE, INC.
W.B. PRODUCE -CANARSIE, INC.
WESTERN BEEF -173RD STREET, INC.
WESTERN BEEF -ROSEDALE AVENUE, INC.
WESTERN BEEF -STEINWAY STREET, INC.
WESTERN BEEF -EMPIRE BLVD., INC.
WESTERN BEEF -MINEOLA, INC.
WESTERN BEEF -WEST END AVE. INC.
(Formerly known as Western Beef-Atlantic Ave. Inc.)
WESTERN BEEF -ROOSEVELT, INC
WESTERN BEEF -ROCKAWAY BLVD, INC.
WESTERN BEEF -MYRTLE AVENUE, INC.
QUAREX OPERATING COMPANY, INC.
SUBSIDIARIES OF QUAREX OPERATING COMPANY, INC.
WESTERN BEEF -COLLEGE POINT BLVD., INC.
(Formerly known as Ranbar Packing, Inc.)
WESTERN BEEF -EAST ORANGE, N. J., INC.
WESTERN BEEF -EAST NEW YORK, INC.
WESTERN BEEF -PARK AVENUE, INC.
WESTERN BEEF -ELMONT, INC.
(Formerly known as Quarex-Elmont, Inc.)
WESTERN BEEF SUPERMARKET, INC.
NOTE:
All corporations listed above were incorporated in New York except
for Western Beef-East Orange, N.J., Inc., which was incorporated in New Jersey.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Western Beef, Inc.
We hereby consent to the incorporation by reference in the respective
Registration Statement on Form S-8 (No. 33-80379) of our report dated March 3,
1997, relating to the consolidated financial statements and schedule of Western
Beef, Inc. appearing in the Company's Annual Report on Form 10-K for the year
ended January 3, 1997.
BDO Seidman, LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WESTERN
BEEF, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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