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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 April 3, 1998
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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 (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 13 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.
5,475,353 shares of Common Stock, $.05 par value, as of May 11, 1998.
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WESTERN BEEF, INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE
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PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of
April 3, 1998 and January 2, 1998. 3
Condensed consolidated statements of income
for the thirteen weeks ended April 3, 1998 and
the twelve weeks ended March 28,1997. 4
Condensed consolidated statements of cash flows
for the thirteen weeks ended April 3, 1998 and 5
the twelve weeks ended March 28, 1997.
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 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
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1
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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 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 year 2000 issues relating to computer
applications. 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); the pricing and availability of the products the Company sells and
distributes, including Western Beef label brand products; potential delays in
the implementation of the Company's technological improvement programs; and the
effectiveness of such programs upon the implementation of, and the Company's
ability to resolve, any and all year 2000 computer applications.
2
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ITEM 1: Financial Statements
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
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<CAPTION>
April 3, January 2,
ASSETS 1998 1998
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(Unaudited)
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Current assets:
Cash and cash equivalents ............................. $ 9,476 $ 7,527
Accounts receivable, net of allowance for doubtful
accounts ( $631 and $573) ........................... 5,392 6,275
Inventories ........................................... 14,740 14,113
Deferred income taxes ................................. 1,218 1,235
Prepaid expenses and other current assets ............. 2,473 2,933
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Total current assets ................................ 33,299 32,083
Property, plant and equipment, net of accumulated
depreciation and amortization ($21,527 and $20,526) ... 42,460 42,258
Other assets ............................................ 1,980 1,913
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Total assets ........................................ $ 77,739 $ 76,254
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 1,585 $ 1,571
Current portion of obligations under capital leases ... 871 1,090
Accounts payable ...................................... 10,598 8,903
Accrued liabilities ................................... 4,684 4,834
Accounts payable-related party ....................... 1,985 1,997
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Total current liabilities ........................... 19,723 18,395
Deferred income taxes payable ........................... 2,086 2,059
Long-term debt, net of current portion .................. 5,302 5,707
Obligations under capital leases, net of current portion 2,961 3,130
Other non-current liabilities ........................... 1,575 1,834
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Total liabilities ................................... 31,647 31,125
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Stockholders' equity:
Preferred stock, $.05 par value; 2,000 shares
authorized; none issued ............................. -- --
Common stock, $.05 par value; 15,000 shares
authorized; at April 3, 1998, 5,470 shares issued
and outstanding; at January 3, 1998, 5,466 shares
issued and outstanding .............................. 273 273
Capital in excess of par value ........................ 11,396 11,390
Retained earnings ..................................... 34,511 33,563
Deferred compensation ................................. (88) (97)
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Total stockholders' equity .......................... 46,092 45,129
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Total liabilities and stockholders' equity .......... $ 77,739 $ 76,254
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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)
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<CAPTION>
Thirteen Twelve
Weeks Ended Weeks Ended
April 3, 1998 March 28, 1997
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Net sales .................................. $70,061 $72,795
Cost of sales .............................. 51,056 54,653
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Gross profit ............................... 19,005 18,142
Selling, general and administrative expenses 17,472 16,649
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Income before income taxes ................. 1,533 1,493
Provision for income taxes ................. 585 680
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Net income ................................. $ 948 $ 813
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Net income per share of common
stock-basic ............................. $ .17 $ .15
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Net income per share of common
stock-diluted ........................... $ .17 $ .15
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Weighted average shares
outstanding-basic ....................... 5,469 5,464
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Weighted average shares
outstanding-diluted ..................... 5,496 5,511
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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)
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<CAPTION>
Thirteen Twelve
Weeks Ended Weeks Ended
April 3, 1998 March 28, 1997
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Cash flows from operating activities:
Net income .............................................. $ 948 $ 813
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....................... 1,039 991
Deferred income tax expense ......................... 44 72
Provision for losses on accounts receivable ......... 68 120
Gain on disposal of property, plant and equipment ... (105) --
(Increase) decrease in assets:
Accounts receivable ............................... 815 433
Inventories ....................................... (627) 779
Prepaid expenses and other current assets ......... 460 (424)
Other assets ...................................... (67) (37)
(Decrease) increase in liabilities:
Accounts payable and accounts payable-related party 1,683 1,213
Accrued liabilities ............................... (150) (997)
Increase in non-current liabilities ............... (259) --
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Net cash provided by operating activities ....... 3,849 2,963
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Cash flows from investing activities:
Capital expenditures .................................... (1,275) (2,046)
Proceeds from sale of property, plant and equipment ..... 148 270
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Net cash used in investing activities ........... (1,127) (1,776)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt ................ -- 647
Payments on long-term debt and capital leases ........... (779) (693)
Issuance of common stock ................................ 6 4
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Net cash used in financing activities ........... (773) (42)
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Net increase in cash and cash equivalents ................. 1,949 1,145
Cash and cash equivalents, beginning of period ............ 7,527 2,634
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Cash and cash equivalents, end of period .................. $ 9,476 $ 3,779
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Cash paid during the period for:
Interest ................................................ $ 285 $ 281
Income taxes ............................................ $ 0 $ 650
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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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 conformity 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 thirteen weeks ended April 3,
1998 are not necessarily indicative of the results that may be expected
for the year ending January 1, 1999. 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 2,
1998.
(2) Litigation:
There has been no material change in litigation from the year ended
January 2, 1998. 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 thirteen weeks ended April 3, 1998, Western Beef, Inc. (the
"Company") achieved net income of $948,000 or $0.17 per share on net sales of
$70,061,000 as compared to net income of $813,000 or $0.15 per share on net
sales of $72,795,000 for the twelve weeks ended March 28, 1997.
Net sales for the first quarter of fiscal 1998 were $2,734,000 or 3.8%
lower than the sales for the first quarter of fiscal 1997 (a twelve week
period). Wholesale division sales decreased $7,151,000 due in part to the
divestiture of its wholesale outlet business segment in February 1998 as
well as the effects of the continued tightening of its credit policies
initiated in the prior year. Retail division sales increased $4,417,000
due to the additional sales week in the current year's quarter. After
adjusting for the additional week, comparable store sales increased
0.5% during the quarter.
Gross profit as a percentage of net sales for the 1998 and 1997
quarters was 27.1% and 24.9%, respectively. The increased gross profit
margin of 2.2% resulted from the increased ratio of retail to wholesale
sales in 1998 as compared to 1997 wherein the retail segment generates
higher gross profits than does the wholesale segment.
Selling, general and administrative expenses expressed as a percentage
of sales increased to 24.9% in 1998 from 22.9% in 1997. The increased expense
percentage was primarily the result of the increased retail sales composition of
the business wherein retail sales operating expenses are higher than wholesale
sales operating expenses. In addition, the Company incurred certain pre-opening
expenses of approximately $85,000 associated with the March 30, 1998 opening of
its first Junior's Food Outlet store.
Liquidity and Capital Resources:
Cash flow from operations was $3,849,000 for the thirteen weeks ended
April 3, 1998 as compared to $2,963,000 for the twelve week period of 1997.
Lower wholesale division sales accounted for the accounts receivable decrease.
Inventories increased as a result of the build-up of inventories in preparation
for the Easter holiday which occurred in April 1998. In 1997, the Easter
holiday was celebrated in March. Overall operating cash flow benefited from
increased accounts payable leverage. Cash flow from operations plus cash on
hand were sufficient to pay for capital expenditures and long-term debt
requirements.
Capital expenditures of $1,275,000 related principally to equipment
purchases for, and renovations of, existing supermarkets and the new Junior's
Food Outlet store. The Company funded these expenditures with cash flow from
operations. The Company believes that cash on hand and its $3,000,000 bank
line of credit which expires on July 31, 1998, will be sufficient to meet
its operational needs. The bank is expected to renew this line of credit in
1998. he Company also has severalfinancial institutions that would be
available to finance new store equipment, usually over a five or seven year
period. As of April 3, 1998 there were no material commitments for capital
expenditures.
7
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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.
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 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.
8
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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: May 14, 1998
9
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 3, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JAN-03-1998
<PERIOD-END> APR-03-1998
<CASH> 9,476
<SECURITIES> 0
<RECEIVABLES> 6,023
<ALLOWANCES> 631
<INVENTORY> 14,740
<CURRENT-ASSETS> 33,299
<PP&E> 63,987
<DEPRECIATION> 21,527
<TOTAL-ASSETS> 77,739
<CURRENT-LIABILITIES> 19,723
<BONDS> 8,263
0
0
<COMMON> 273
<OTHER-SE> 45,819
<TOTAL-LIABILITY-AND-EQUITY> 77,739
<SALES> 70,061
<TOTAL-REVENUES> 70,061
<CGS> 51,056
<TOTAL-COSTS> 17,187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> 1,533
<INCOME-TAX> 585
<INCOME-CONTINUING> 948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
