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 2, 1998
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 (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
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.
5,475,153 shares of Common Stock, $.05 par value, as of November 9, 1998.
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<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
INDEX
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
October 2, 1998 and January 2, 1998. 3
Condensed consolidated statements of income for the thirty-nine
weeks ended October 2, 1998 and October 3, 1997, the
thirteen weeks ended October 2, 1998 and the fourteen weeks
ended October 3, 1997. 4
Condensed consolidated statements of cash flows
for the thirty-nine weeks ended October 2, 1998
and October 3, 1997. 5
Notes to the condensed consolidated financial statements. 6
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 7-8
PART II-OTHER INFORMATION 9
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
<PAGE>
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
tax assets, 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.
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
October 2, January 2,
1998 1998
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,938 $ 7,527
Accounts receivable, net of allowance for
doubtful accounts ( $661 and $573) 5,313 6,275
Inventories 16,204 14,113
Deferred income taxes 1,209 1,235
Prepaid expenses and other current assets 3,140 2,933
-------- --------
Total current assets 35,804 32,083
Property, plant and equipment, net of
accumulated depreciation and
amortization ($23,532 and $20,526) 45,843 42,258
Other assets 2,007 1,913
-------- --------
Total assets $ 83,654 $ 76,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,714 $ 1,571
Current portion of obligations under
capital leases 676 1,090
Accounts payable 11,809 8,903
Accrued liabilities 6,184 4,834
Accounts payable-related party 3,040 1,997
-------- --------
Total current liabilities 23,423 18,395
Deferred income taxes payable 2,144 2,059
Long-term debt, net of current portion 6,428 5,707
Obligations under capital leases, net of
current portion 2,616 3,130
Other non-current liabilities 1,243 1,834
-------- --------
Total liabilities 35,854 31,125
-------- --------
Stockholders' equity:
Preferred stock, $.05 par value; 2,000
shares authorized; none issued -- --
Common stock, $.05 par value; 15,000
shares authorized; 5,475 and 5,466
shares issued and outstanding 273 273
Capital in excess of par value 11,408 11,390
Retained earnings 36,190 33,563
Deferred compensation (71) (97)
-------- --------
Total stockholders' equity 47,800 45,129
-------- --------
Total liabilities and stockholders'
equity $ 83,654 $ 76,254
======== ========
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Fourteen
Thirty-Nine Weeks Ended Weeks Ended Weeks Ended
October 2, October 3, October 2, October 3,
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $221,285 $241,048 $75,031 $86,372
Cost of sales 161,637 181,362 54,711 64,767
-------- -------- ------- -------
Gross profit 59,648 59,686 20,320 21,605
Selling, general and
administrative
expenses 55,444 55,232 19,012 20,025
-------- -------- ------- -------
Income before income taxes 4,204 4,454 1,308 1,580
Provision for income taxes 1,577 1,995 487 713
-------- -------- ------- -------
Net income $ 2,627 $ 2,459 $ 821 $ 867
======== ======== ======= =======
Net income per share of common
stock-basic and diluted $ .48 $ .45 $ .15 $ .16
======== ======== ======= =======
Weighted average shares
outstanding-basic 5,473 5,465 5,475 5,466
======== ======== ======= =======
Weighted average shares
outstanding-diluted 5,499 5,504 5,501 5,501
======== ======== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
October 2, 1998 October 3, 1997
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,627 $ 2,459
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,094 3,122
Deferred income tax expense 111 627
Provision for losses on accounts receivable 310 790
Gain on disposal of property, plant and equipment (139) (80)
(Increase)decrease in assets:
Accounts receivable 652 555
Inventories (2,091) 2,618
Prepaid expenses and other current assets (207) (1,208)
Other assets (94) (48)
(Decrease) increase in liabilities:
Accounts payable and accounts payable -
related party 3,949 2,111
Accrued expenses and other liabilities 1,350 17
Non-current liabilities (591) --
------- --------
Net cash provided by operating activities 8,971 10,963
------- --------
Cash flows from investing activities:
Capital expenditures (7,569) (5,577)
Proceeds from sale of property, plant and equipment 1,055 305
------- --------
Net cash used in investing activities (6,514) (5,272)
------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt
and capital leases 2,055 647
Payments on long-term debt and capital leases (2,119) (2,248)
Proceeds from issuance of common stock 18 8
------- --------
Net cash used in financing activities (46) (1,593)
------- --------
Net increase in cash and cash equivalents 2,411 4,098
Cash and cash equivalents, beginning of period 7,527 2,634
------- --------
Cash and cash equivalents, end of period $ 9,938 $ 6,732
======= ========
Cash paid during the thirty-nine weeks for:
Interest $ 774 $ 853
Income taxes $ 979 $ 2,294
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<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 2,
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.
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<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
For the thirteen week period ended October 2, 1998, the Company earned net
income of $821,000 or $.15 per share on net sales of $75,031,000 as
compared to net income of $867,000 or $.16 per share on net sales of
$86,372,000 for the fourteen week period ended October 3, 1997. For the
thirty-nine weeks ended October 2, 1998, the Company earned net income of
$2,627,000 or $.48 per share on net sales of $221,285,000 as compared to
net income of $2,459,000 or $.45 per share on net sales of $241,048,000
for the comparable thirty-nine week period in 1997.
Net sales for the thirteen week period ended October 2, 1998 decreased
13.1% from the prior year period which included an extra week's sales as
well as, incremental sales from the Fourth of July holiday period. Sales
for the thirty-nine weeks ended October 2, 1998 were 8.2% lower than sales
for the comparable thirty-nine week period of 1997. Comparable retail
store sales were flat for the quarter and 0.2% lower for the thirty-nine
week year-to-date period. Total retail store sales increased $6,311,000 or
3.6% for the thirty-nine week period as a result of the 1998 openings of
two Junior's Food Outlet stores in New York and two Western Beef
supermarkets in New Jersey. Overall consolidated Company sales for the
1998 third quarter and thirty-nine week period continued to be negatively
impacted by a decline in the Company's meat wholesale business resulting
primarily from a tightening of credit policies initiated in the fourth
quarter of 1997.
Gross profit, as a percentage of sales, increased to 27.1% in the third
quarter of 1998 from 25.0% for the same quarter of 1997. On a year-to-date
basis, gross profit increased to 27.0% for the thirty-nine weeks ended
October 2, 1998 as compared to 24.8% for the thirty-nine week period in
1997. The increase in the gross profit percentage for the quarter and
thirty-nine weeks ended October 2, 1998 is the result of the increased
share of total Company sales generated by the retail store division versus
sales generated by the wholesale meat division, with the retail store
division having higher selling gross margins than the wholesale meat
division.
Selling, general and administrative expenses, as a percentage of sales,
increased to 25.3% for the third quarter of 1998 from 23.2% for the
fourteen week period ended October 3, 1997. On a year-to-date basis,
selling, general and administrative expenses increased to 25.1% of sales
for the thirty-nine weeks ended October 2, 1998 from 22.9% for the
comparable thirty-nine week period in 1997. The increased quarterly and
year-to-date selling, general and administrative percentage rate is
similarly attributable to the increased share of total Company sales
generated by the retail store division which has relatively higher selling
expenses than the wholesale meat division. Incremental promotional
spending and pre-opening expenses related to two newly opened New Jersey
store locations also contributed to the increase in selling, general and
administrative expenses.
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<PAGE>
ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Liquidity and Capital Resources
Cash flows from operations were $8,971,000 for the thirty-nine weeks ended
October 2, 1998 as compared to $10,963,000 for the thirty-nine weeks ended
October 3, 1997. Cash flows from operations decreased $1,992,000 primarily
as a result of inventory increases associated with the four new retail
locations partially offset by increased accounts payable and accrued
expenses. Cash flows from operations plus cash on hand were sufficient to
pay for capital expenditures and long-term debt requirements.
Capital expenditures of $7,569,000 included the exercise of an option to
purchase an existing store location for approximately $2,055,000 to be
paid over 15 years at 6.25 percent interest per annum. The remaining
capital expenditures were for equipment purchases and leasehold
improvements for the new retail locations opened in 1998.
The Company has a $3,000,000 line of credit (expiring July 3, 1999) 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 October 2, 1998, the Company was in contract to purchase land for
future Junior's Food Outlet locations in Manhattan and Queens, NY. The
acquisition prices for these locations are $640,000 and $250,000,
respectively. In addition, the Company was also in contract to purchase
land for $1,700,000 in the Bronx, NY upon which it intends to construct a
supermarket and several satellite stores for commercial rental.
Year 2000
The Company has performed an analysis and is in the process of modifying
its computer systems to address year 2000 issues. The Company is also
reviewing year 2000 vulnerability with respect to its major suppliers and
third party service providers. Based on current information, management
believes that all hardware and software modifications necessary for the
Company to operate will be complete by the year 2000. Costs associated
with year 2000 computer system modifications are currently estimated to be
approximately $300,000 of which $150,000 is for certain front-end cash
register systems.
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<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has various outstanding litigation matters, which it
considers to be in the ordinary course of business. In the opinion
of Management, the outcome of these litigation matters will not
materially adversely affect the Company's financial position or
results of operations.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on August 7, 1998, and
transacted the following business:
(a) Election of Directors:
Votes
Nominee Votes For % For Withheld
------- --------- ----- ---------
Peter Castellana, Jr. 4,616,771 99.80% 9,298
Joseph Castellana 4,616,771 99.80% 9,298
Stephen R. Bokser 4,616,371 99.79% 9,698
Arnold B. Becker 4,616,871 99.80% 9,198
(b) Selection of PricewaterhouseCoopers LLP as Independent Auditors:
Votes For % For Votes Against Abstentions
- --------- ----- ------------- -----------
4,731,576 99.87% 1,146 4,765
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
None
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<PAGE>
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 12, 1998
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Quarterly
Report on Form 10-Q for Western Beef, Inc. for the Quarter ended October 2, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> JUL-04-1998
<PERIOD-END> OCT-02-1998
<CASH> 9,938
<SECURITIES> 0
<RECEIVABLES> 5,974
<ALLOWANCES> 661
<INVENTORY> 16,204
<CURRENT-ASSETS> 35,804
<PP&E> 69,375
<DEPRECIATION> 23,532
<TOTAL-ASSETS> 83,654
<CURRENT-LIABILITIES> 23,423
<BONDS> 9,044
0
0
<COMMON> 273
<OTHER-SE> 47,527
<TOTAL-LIABILITY-AND-EQUITY> 83,654
<SALES> 221,285
<TOTAL-REVENUES> 221,285
<CGS> 161,637
<TOTAL-COSTS> 161,637
<OTHER-EXPENSES> 54,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 774
<INCOME-PRETAX> 4,204
<INCOME-TAX> 1,577
<INCOME-CONTINUING> 2,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,627
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
