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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 27,1997
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Commission File Number 0-4485
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WESTERN BEEF, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3266114
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(State or other 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
As of August 5, 1997, 5,465,530 shares of Common Stock, par value $.05 per
share, were issued and outstanding.
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INDEX
WESTERN BEEF, INC. AND SUBSIDIARIES
PAGE
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CAUTIONARY STATEMENT RELEVANT TO FORWARD -
LOOKING INFORMATION......................................... 2
PART I-FINANCIAL INFORMATION
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Item 1. Financial statements (Unaudited)
Condensed consolidated balance sheets as of June 27,
1997 and January 3, 1997....................... 3
Condensed consolidated statements of income for the
twenty-five weeks ended June 27, 1997 and the
twenty-six weeks ended June 28, 1996 and the
thirteen weeks ended June 27, 1997 and June 28,
1996........................................... 4
Condensed consolidated statements of cash flows for
the twenty-five weeks ended June 27, 1997 and the
twenty-six weeks ended June 28, 1996............ 5
Notes to the condensed consolidated financial
statements...................................... 6
Item 2. Management discussion and analysis of financial
condition and results of operations............ 7
PART II-OTHER INFORMATION.................................... 9
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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 nine 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).
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ITEM I FINANCIAL STATEMENTS
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
JUNE 27, JANUARY 3,
1997 1997
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(Unaudited)
ASSETS
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Current assets:
Cash and cash equivalents.................. $3,680 $ 2,634
Accounts receivable, net of allowance for
doubtful accounts ( $636 and $386)....... 8,015 8,434
Inventories................................ 18,332 17,668
Prepaid expenses and other current assets.. 2,948 1,461
Deferred income taxes...................... 1,301 1,253
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Total current assets................... 34,276 31,450
Property, plant and equipment, net of
accumulated depreciation and amortization
($18,666 and $16,935)...................... 43,126 41,276
Other assets................................. 1,807 1,773
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Total assets........................... $79,209 $74,499
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt.......... $2,357 $ 2,391
Current portion of obligations under capital
leases................................... 608 455
Accounts payable........................... 14,943 11,414
Accrued expenses and other liabilities..... 6,076 5,862
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Total current liabilities.............. 23,984 20,122
Deferred income taxes payable................ 1,676 1,484
Long-term debt, net of current portion....... 6,576 7,764
Obligations under capital leases, net of
current portion 3,476 3,247
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Total liabilities...................... 35,712 32,617
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Stockholders' equity:
Preferred stock, $.05 par value; shares
authorized 2,000; none issued............ -- --
Common stock, $.05 par value; 15,000 shares
authorized; at June 27, 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............... 11,385 11,379
Retained earnings............................ 31,952 30,360
Deferred compensation........................ (113) (130)
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Total stockholders' equity.............. 43,497 41,882
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Total liabilities and stockholders'
equity................................ $79,209 $74,499
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See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
TWENTY-FIVE TWENTY-SIX THIRTEEN WEEKS ENDED
WEEKS ENDED WEEKS ENDED ----------------------------
JUNE 27, 1997 JUNE 28, 1996 JUNE 27, 1997 JUNE 28, 1996
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<S> <C> <C> <C> <C>
Net sales............................................. $ 154,676 $ 163,529 $ 81,881 $ 84,180
Cost of sales......................................... 116,595 123,926 61,942 64,166
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Gross profit on sales................................. 38,081 39,603 19,939 20,014
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Operating expenses:
Rent expense-affiliates............................. 1,380 1,328 692 666
Selling, general and administrative expenses........ 33,252 32,626 17,572 16,239
Interest expense.................................... 575 481 294 273
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Total operating expenses.............................. 35,207 34,435 18,558 17,178
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Income before income taxes............................ 2,874 5,168 1,381 2,836
Provision for income taxes............................ 1,282 2,386 602 1,316
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Net income............................................ $ 1,592 $ 2,782 $ 779 $ 1,520
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Weighted average number of shares of common stock and
equivalents outstanding............................. 5,518 5,501 5,510 5,498
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Earnings per share of common stock.................... $ .29 $ .51 $ .14 $ .28
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
TWENTY-FIVE TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JUNE 27, 1997 JUNE 28, 1996
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Cash flows from operating activities:
Net income......................................................................... $ 1,592 $ 2,782
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 2,054 1,507
Deferred income tax.............................................................. 144 195
Provision for losses on accounts receivable...................................... 250 260
Gain on disposal of fixed assets................................................. (71) --
(Increase)decrease in assets:
Accounts receivable............................................................ 169 404
Inventories.................................................................... (664) (2,298)
Prepaid expenses and other current assets...................................... (1,487) (646)
Other assets................................................................... (34) 31
Increase in liabilities:
Accounts payable............................................................... 3,529 805
Accrued expenses and other liabilities......................................... 214 1,609
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Net cash provided by operating activities.................................... 5,696 4,649
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Cash flows from investing activities:
Capital expenditures............................................................... (4,115) (6,777)
Proceeds from sale of property, plant and equipment................................ 299 77
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Net cash used in investing activities........................................ (3,816) (6,700)
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Cash flows from financing activities:
Payments on long-term debt and capital leases...................................... (1,487) (1,104)
Proceeds from issurance of long-term debt and capital leases....................... 647 4,007
Issuance of common stock........................................................... 6 --
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Net cash provided by (used in) financing activities.......................... (834) 2,903
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Net increase in cash and cash equivalents............................................ 1,046 852
Cash and cash equivalents, beginning of period....................................... 2,634 2,431
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Cash and cash equivalents, end of period............................................. $ 3,680 $ 3,283
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Cash paid during the twenty-five and twenty-six weeks respectively for:
Interest........................................................................... $ 575 $ 481
Income taxes....................................................................... $ 1,860 $ 2,413
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the twenty-five weeks ended June 27, 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.
(3) RECLASSIFICATION:
Certain amounts in the prior period's consolidated condensed Financial
Statements have been reclassified to conform with the presentation in the
current period.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
For the quarter ended June 27, 1997, Western Beef, Inc. (the "Company")
achieved net income of $779,000 or $0.14 per share on net sales of
$81,881,000, as compared to net income of $1,520,000 or $0.28 per share on
net sales of $84,180,000 for the comparable period in 1996. On a
year-to-date basis the Company achieved net income of $1,592,000, or $0.29
per share on net sales of $154,676,000 for the twenty-five week period ended
June 27, 1997 as compared to net income of $2,782,000 or $0.51 per share on
net sales of $163,529,000 for the twenty-six week period ended June 28,
1996.
Retail sales for the quarter ended June 27, 1997 were 0.4% higher than
the comparable period in 1996 resulting from the excess of sales generated
by the two new stores opened by the Company in 1996 over the decline in same
store sales. The decline in same store sales improved to a -2.9% in the
second fiscal quarter of 1997 as compared to a -5.6% decline in same store
sales for the first fiscal quarter of 1997. This improvement resulted
primarily from completion of store renovations which caused customer
disruptions and inconvenience at three of its existing locations. Same store
sales continue to be impacted by reductions in redemptions of United States
Department of Agriculture food stamps. This reduction in redemptions along
with a low rate of inflation, accounted for a significant portion of the
decline in same store sales. These same factors were also responsible for
the $2,500,000 decline in wholesale sales during the quarter ended
June 27, 1997.
Gross profit, as a percentage of sales increased to 24.4% in the second
quarter of 1997 from 23.8% in the same quarter of 1996. On a year-to-date
basis gross profit increased to 24.6% for the twenty-five weeks ended
June 27, 1997 as compared to 24.2% for the twenty-six weeks ended
June 28, 1996. The increase in the gross profit for the second fiscal
quarter resulted from the increased ratio of retail to wholesale sales,
as well as from the capital expansion program, which has 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 increased to 22.7% for the second quarter of 1997 from 20.4% in the
comparable period in 1996. On a year- to-date basis operating expenses
including selling, general and administrative expenses, rent expense
-affiliates and interest expense increased to 22.8% for the twenty-five
weeks ended June 27, 1997 from 21.1% for the twenty-six weeks ended June
28,1996. Operating expenses for 1997 include costs incurred at the Company's
Roosevelt, New York store which opened in September, 1996, as well as
increased expenditures for utilities, rent depreciation and interest expense
pertaining to the Company's expansion and modernization of its property,
plant and equipment.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $5,696,000 for the twenty-five weeks
ended June 27, 1997 as compared to $4,649,000 for the twenty-six weeks ended
June 28, 1996. Cash flow from operations improved due to an increase in
non-cash expenses such as depreciation and amortization along with increased
accounts payable and a reduction in the seasonal build-up of inventory
partially offset by a decline in net income.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, (Continued).
Cash flow from operations plus cash on hand were sufficient to pay for
capital expenditures and long-term debt requirements.
Capital expenditures of $4,115,000 related to equipment purchases for,
and renovations of, several of the Company's supermarkets. The Company
funded these expenditures with cash flow from operations. The Company is
currently in the process of renewing its $3,000,000 line of credit (expiring
September 1, 1997) which, along with cash on hand, is expected to be
sufficient to meet its operational needs. The Company also has several
financial institutions that would be available to finance new store
equipment, usually over a five or seven year period. As of June 27, 1997
there were no material commitments for capital expenditures.
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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 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 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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 has not filed a report on Form 8-K during
the quarter just ended.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN BEEF, INC.
BY: /s/ CHRIS DARROW
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Chris Darrow
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
DATE: AUGUST 8, 1997
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
BEEF, INC. QUARTERLY REPORT OF FORM 10-Q FOR THE QUARTER ENDED JUNE 27, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-2-1998
<PERIOD-START> JAN-4-1997
<PERIOD-END> JUN-27-1997
<CASH> 3680
<SECURITIES> 0
<RECEIVABLES> 8651
<ALLOWANCES> 636
<INVENTORY> 18332
<CURRENT-ASSETS> 34276
<PP&E> 61792
<DEPRECIATION> 18666
<TOTAL-ASSETS> 79209
<CURRENT-LIABILITIES> 23984
<BONDS> 10052
273
0
<COMMON> 0
<OTHER-SE> 43224
<TOTAL-LIABILITY-AND-EQUITY> 79209
<SALES> 154676
<TOTAL-REVENUES> 154676
<CGS> 116595
<TOTAL-COSTS> 116595
<OTHER-EXPENSES> 34632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 575
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<INCOME-TAX> 1282
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<NET-INCOME> 1592
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
