<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 3, 1997
Commission File Number 0-4485
WESTERN BEEF, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3266114
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION 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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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceeding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
As of November 10, 1997, 5,465,930 shares of Common Stock, par value $.05
per share, were issued and outstanding.
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<PAGE>
INDEX
WESTERN BEEF, INC. AND SUBSIDIARIES
PAGE
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CAUTIONARY STATEMENT RELEVANT TO FORWARD-
LOOKING INFORMATION 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: (UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF 3
OCTOBER 3, 1997 AND JANUARY 3, 1997.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE 4
THIRTY-NINE WEEKS ENDED OCTOBER 3, 1997 AND
SEPTEMBER 27, 1996, AND THE FOURTEEN WEEKS ENDED
OCTOBER 3, 1997 AND THE THIRTEEN WEEKS ENDED
SEPTEMBER 27, 1996.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 5
THE THIRTY-NINE WEEKS ENDED OCTOBER 3, 1997 AND
SEPTEMBER 27, 1996.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 6
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS.
PART II-OTHER INFORMATION 8
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES 10
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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
quarterly report on Form 10-Q contains or may contain forward-looking
statements such as those statements pertaining to the renovation of the
Company's existing stores, the continued availability of credit lines for
capital expansion, and the successful outcome of the legal proceedings
detailed in Part II--Other Information on page eight of this quarterly
report. 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 and government and regulatory policies and certifications
(in particular those relating to the United States Department of Agriculture
Food Stamp Program).
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 6,732 $ 2,634
Accounts receivable, net of allowance for doubtful accounts ($1,002 and $386)........... 7,089 8,434
Inventories............................................................................. 15,050 17,668
Deferred income taxes................................................................... 1,323 1,253
Prepaid expenses and other current assets............................................... 2,669 1,461
----------- -----------
Total current assets................................................................ 32,863 31,450
Property, plant and equipment, net of accumulated depreciation and amortization
($19,721 and $16,935)................................................................... 43,532 41,276
Other assets.............................................................................. 1,821 1,773
----------- -----------
Total assets........................................................................ $ 78,216 $ 74,499
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................................................... $ 2,237 $ 2,391
Current portion of obligations under capital leases..................................... 623 455
Accounts payable........................................................................ 13,525 11,414
Accrued expenses and other current liabilities.......................................... 5,879 5,862
----------- -----------
Total current liabilities........................................................... 22,264 20,122
Deferred income taxes payable............................................................. 2,181 1,484
Long-term debt, net of current portion.................................................... 6,104 7,764
Obligations under capital leases, net of current portion.................................. 3,292 3,247
----------- -----------
Total liabilities................................................................... 33,841 32,617
----------- -----------
Stockholders' equity:
Preferred stock, $.05 par value; shares authorized 2,000; none issued................... -- --
Common stock, $.05 par value; 15,000 shares authorized; at October 3, 1997, 5,466 shares
issued and outstanding; at January 3, 1997, 5,463 shares issued and outstanding....... 273 273
Capital in excess of par value.......................................................... 11,387 11,379
Retained earnings....................................................................... 32,819 30,360
Deferred compensation................................................................... (104) (130)
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Total stockholders' equity.......................................................... 44,375 41,882
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 78,216 $ 74,499
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</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED FOURTEEN THIRTEEN
------------------------- WEEKS ENDED WEEKS ENDED
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1997 1996 1997 1996
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales................................................ $ 241,048 $ 248,696 $ 86,372 $ 85,167
Cost of sales............................................ 181,362 188,413 64,767 64,487
---------- ------------- ------------ -------------
Gross profit on sales.................................. 59,686 60,283 21,605 20,680
---------- ------------- ------------ -------------
Operating expenses:
Rent expense-affiliates................................ 2,105 1,910 725 660
Interest expense....................................... 853 733 278 252
Selling, general and administrative expenses........... 52,274 49,651 19,022 16,947
---------- ------------- ------------ -------------
Total operating expenses................................. 55,232 52,294 20,025 17,859
---------- ------------- ------------ -------------
Income before income taxes............................... 4,454 7,989 1,580 2,821
Provision for income taxes............................... 1,995 3,685 713 1,299
---------- ------------- ------------ -------------
Net income............................................... $ 2,459 $ 4,304 $ 867 $ 1,522
---------- ------------- ------------ -------------
---------- ------------- ------------ -------------
Weighted average number of shares of common stock and
equivalents outstanding................................ 5,512 5,501 5,508 5,505
---------- ------------- ------------ -------------
---------- ------------- ------------ -------------
Earnings per share of common stock....................... $ .45 $ .78 $ .16 $ .28
---------- ------------- ------------ -------------
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------------
OCTOBER 3, 1997 SEPTEMBER 27, 1996
--------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 2,459 $ 4,304
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 3,122 2,337
Deferred income tax......................................................... 627 280
Provision for losses on accounts receivable................................. 790 430
Gain on disposal of fixed assets............................................ (80) --
(Increase)decrease in assets:
Accounts receivable..................................................... 555 24
Inventories............................................................. 2,618 (2,607)
Prepaid expenses and other current assets............................... (1,208) 493
Other assets............................................................ (48) (2)
Increase in liabilities:
Accounts payable........................................................ 2,111 5,033
Accrued expenses and other liabilities.................................. 17 287
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Net cash provided by operating activities............................. 10,963 10,579
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Cash flows from investing activities:
Capital expenditures........................................................ (5,577) (9,975)
Proceeds from sale of property, plant and equipment......................... 305 --
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Net cash used in investing activities................................. (5,272) (9,975)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases................. 647 4,224
Payments on long-term debt and capital leases............................... (2,248) (1,715)
Proceeds from issuance of common stock...................................... 8 --
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Net cash provided by (used in) financing activities................... (1,593) 2,509
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Net increase in cash and cash equivalents..................................... 4,098 3,113
Cash and cash equivalents, beginning of period................................ 2,634 2,431
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Cash and cash equivalents, end of period...................................... $ 6,732 $ 5,544
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Cash paid during the thirty-nine weeks for:
Interest.................................................................... $ 853 $ 733
Income taxes................................................................ $ 2,294 $ 3,103
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the thirty-nine weeks
ended October 3, 1997 are not necessarily indicative of the results that may be
expected for the year ending January 2, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended January 3, 1997.
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) LITIGATION:
There has been no material change in litigation from the year ended January
3, 1997. See Part II of this report for further disclosure.
6
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
For the fourteen week period ended October 3, 1997, Western
Beef, Inc. (the "Company") achieved net income of $867,000 or
$.16 per share on net sales of $86,372,000 as compared to net
income of $1,522,000 or $.28 per share on net sales of $85,167,000
for the same period in 1996. For the thirty-nine weeks ended
October 3, 1997, the Company achieved net income of $2,459,000 or
$.45 per share on net sales of $241,048,000 as compared to net
income of $4,304,000 or $.78 per share on net sales of $248,696,000
for the comparable thirty-nine week period ended September 27, 1996.
As a result of the extra week, net sales for the period ended
October 3, 1997 were 1.4% higher than sales for the quarter ended
September 27, 1996. For the comparable thirty-nine week period, net
sales declined 3.1%. Same store sales were 4.5% and 4.2% lower for
the fourteen and thirty-nine weeks ended October 3, 1997 as
compared with sales for the thirteen and thirty-nine weeks ended
September 27, 1996. Reduction in redemptions of United States
Department of Agriculture Food Stamps and low food price inflation
account for a significant portion of the decline in same store
sales.
Gross profit, as a percentage of sales increased to 25.0% for the
fourteen weeks ended October 3, 1997 from 24.3% in the quarter
ended September 27, 1996. On a year-to-date basis, gross profit
increased to 24.8% for the thirty-nine weeks ended October 3, 1997
as compared to 24.2% for the thirty-nine weeks ended September 27,
1996. The increase in the gross profit for the third fiscal quarter
and the thirty-nine weeks ended October 3, 1997 resulted from the
increased ratio of retail to wholesale sales, as well as the
capital expansion program, which increased the selling square
footage dedicated to the higher gross profit dairy, frozen and
bakery merchandise categories.
Operating expenses, including selling, general and administrative
expenses, rent expense -affiliates and interest expense, as a percentage of
sales were 23.2% and 22.9%, respectively for the fourteen and thirty-nine
weeks ended October 3, 1997 as compared to 21.0% for the thirteen and
thirty-nine weeks ended September 27, 1996. The increase in the 1997
operating expense ratios over the prior year is reflective of certain
occupancy costs such as utilities, rent and depreciation which do not vary
directly with sales declines. Additionally, 1997 operating expenses include
those costs incurred at the Company's Roosevelt N.Y. store which did not open
until late September 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $4,098,000 for the thirty-nine
weeks ended October 3, 1997 as compared to $3,113,000 for the
thirty-nine weeks ended September 27, 1996. To improve inventory
and receivable cash flows and operating efficiencies, the Company
consolidated its internal warehouse and distribution operations and
has increased its purchases from White Rose Food, its primary
wholesale supplier. Cash flows from operations plus cash on hand
were sufficient to pay for capital expenditures and long-term debt
requirements.
7
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED).
The capital expenditures of $5,577,000 related to equipment
purchases for, and renovations of, several of the Company's
supermarkets as well as construction of the Company's twentieth
store which is expected to be completed before the end of the
Company's fiscal year. In September 1997 the Company renewed its
$3,000,000 line of credit which provides for borrowings at the
bank's prime rate through June 30, 1998. The Company also has
several financial institutions that it believes would be available
to finance expenditures for new store equipment usually over a five
to seven year period. As of October 3, 1997 there were no material
commitments for capital expenditures.
Part II Other Information
Item 1. Legal Proceedings
The Company has various outstanding litigation matters which it
considers to be in the ordinary course of business. In the opinion
of management, the outcome of these litigation matters will not
adversely affect the Company's financial position materially.
In April 1991 in New York Supreme Court, Putnam County, an
action was commenced against the Company to prevent a scheduled
foreclosure of certain collateral held by the Company as security
for its loan to one of the plaintiffs in the original principal
amount of $85,000 of which approximately $65,000 was outstanding.
Thereafter, in a complaint served in March 1992, plaintiffs
interposed three causes of action on behalf of themselves and a
previously unnamed plaintiff, C.B. Foods, Inc., which was 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 January
12, 1998. 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 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
8
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PART II OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company held its Annual Meeting of Stockholders on July 11,
1997, and transacted the following business:
(a) Election of Directors:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR % FOR VOTES WITHHELD
-------------------------------------- ---------- --------- ---------------
<S> <C> <C> <C>
Joseph Castellana..................... 4,729,032 99.85% 6,885
Peter Castellana, Jr.................. 4,728,732 99.85% 7,185
Stephen R. Bokser..................... 4,728,632 99.85% 7,285
Arnold B. Becker...................... 4,729,032 99.85% 6,885
</TABLE>
(b) Selection of BDO Seidman, LLP as Independent Auditors:
<TABLE>
<CAPTION>
VOTES FOR % FOR VOTES AGAINST ABSTENTIONS
---------- --------- --------------- -------------
<S> <C> <C> <C>
4,731,576.. 99.91% 2,208 2,133
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K in September, 1997
pertaining to the engagement of Price Waterhouse LLP to replace BDO
Seidman, LLP as independent auditors for the Company's 1997 fiscal
audit.
9
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN BEEF, INC.
By: /s/Chris Darrow
-------------------------------
Chris Darrow
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 10, 1997
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
BEEF, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE FOURTEEN WEEKS ENDED OCTOBER 3,
1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> OCT-03-1997
<CASH> 6,732
<SECURITIES> 0
<RECEIVABLES> 8,091
<ALLOWANCES> 1,002
<INVENTORY> 15,050
<CURRENT-ASSETS> 32,863
<PP&E> 63,253
<DEPRECIATION> 19,721
<TOTAL-ASSETS> 78,216
<CURRENT-LIABILITIES> 22,264
<BONDS> 9,396
0
0
<COMMON> 273
<OTHER-SE> 44,102
<TOTAL-LIABILITY-AND-EQUITY> 78,216
<SALES> 241,048
<TOTAL-REVENUES> 241,048
<CGS> 181,362
<TOTAL-COSTS> 181,362
<OTHER-EXPENSES> 54,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 853
<INCOME-PRETAX> 4,454
<INCOME-TAX> 1,995
<INCOME-CONTINUING> 2,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,459
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
