<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 July 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.
5,475,153 shares of Common Stock, par value $.05, as of August 10, 1998.
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WESTERN BEEF, INC. AND SUBSIDIARIES
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets as of
July 3, 1998 and January 2, 1998. 3
Condensed consolidated statements of income for the
twenty-six weeks ended July 3, 1998, the
twenty-five weeks ended June 27, 1997,
and the thirteen weeks ended July 3, 1998
and June 27, 1997. 4
Condensed consolidated statements of cash flows
for the twenty-six weeks ended July 3, 1998
and the twenty-five weeks ended June 27, 1997. 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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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 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.
2
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ITEM 1: FINANCIAL STATEMENTS
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WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
July 3, 1998 January 2, 1998
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(Unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash and cash equivalents $ 9,617 $ 7,527
Accounts receivable, net of allowance for doubtful
accounts ($711 and $573) 5,731 6,275
Inventories 15,852 14,113
Deferred income taxes 1,218 1,235
Prepaid expenses and other current assets 2,796 2,933
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Total current assets 35,214 32,083
Property, plant and equipment, net of accumulated
depreciation and amortization ($22,517 and $20,526) 45,013 42,258
Other assets 2,007 1,913
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Total assets $82,234 $76,254
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 1,685 $ 1,571
Current portion of obligations under capital leases 740 1,090
Accounts payable 10,990 8,903
Accrued liabilities 6,498 4,834
Accounts payable-related party 2,387 1,997
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Total current liabilities 22,300 18,395
Deferred income taxes payable 2,086 2,059
Long-term debt, net of current portion 6,868 5,707
Obligations under capital leases, net of current portion 2,790 3,130
Other non-current liabilities 1,220 1,834
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Total liabilities 35,264 31,125
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Stockholders' equity:
Preferred stock, $.05 par value; 2000 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 35,369 33,563
Deferred compensation (80) (97)
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Total stockholders' equity 46,970 45,129
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Total liabilities and stockholders' equity $82,234 $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)
<TABLE>
<CAPTION>
Twenty-Six Twenty-Five
Weeks Ended Weeks Ended Thirteen Weeks Ended
July 3, 1998 June 27, 1997 July 3, 1998 June 27, 1997
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<S> <C> <C> <C> <C>
Net sales $146,254 $154,676 $76,193 $81,881
Cost of sales 106,926 116,595 55,870 61,942
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Gross profit 39,328 38,081 20,323 19,939
Selling, general and administrative expenses 36,432 35,207 18,960 18,558
-------- -------- ------- -------
Income before income taxes 2,896 2,874 1,363 1,381
Provision for income taxes 1,090 1,282 505 602
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Net income $ 1,806 $ 1,592 $ 858 $ 779
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Net income per share of common
stock-basic and diluted $ .33 $ .29 $ .16 $ .14
======== ======== ======= =======
Weighted average shares
outstanding-basic 5,472 5,465 5,475 5,466
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Weighted average shares
outstanding-diluted 5,498 5,507 5,498 5,504
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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>
Twenty-Six Twenty-Five
Weeks Ended Weeks Ended
July 3, 1998 June 27, 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,806 $ 1,592
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,009 2,054
Deferred income tax expense 44 144
Provision for losses on accounts receivable 163 250
Gain on disposal of property, plant and equipment (114) (71)
(Increase) decrease in assets
Accounts receivable 381 169
Inventories (1,739) (664)
Prepaid expenses and other current assets 137 (1,487)
Other assets (94) (34)
(Decrease) increase in liabilities:
Accounts payable and accounts payable-related party 2,477 3,529
Accrued expenses and other liabilities 1,664 214
Non-current liabilities (614) --
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Net cash provided by operating activities 6,120 5,696
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Cash flows from investing activities:
Capital expenditures (5,579) (4,115)
Proceeds from sale of property, plant and equipment 946
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Net cash used in investing activities (4,633) (3,816)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 2,055 647
Payments on long-term debt and capital leases (1,470) (1,487)
Issuance of common stock 18 6
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Net cash provided by (used in) financing activities 603 (834)
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Net increase in cash and cash equivalents 2,090 1,046
Cash and cash equivalents, beginning period 7,527 2,634
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Cash and cash equivalents, end of period $ 9,617 $ 3,680
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Cash paid for:
Interest $ 504 $ 575
Income taxes $ 324 $ 1,860
</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
twenty-six weeks ended July 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 quarter ended July 3, 1998, Western Beef, Inc. (the
"Company") achieved net income of $858,000 or $0.16 per share on net
sales of $76,193,000, as compared to net income of $779,000 or $0.14
per share on net sales of $81,881,000 for the comparable period in
1997. On a year to-date basis the Company achieved net income of
$1,806,000, or $0.33 per share on net sales of $146,254,000 for the
twenty-six week period ended July 3, 1998 as compared to 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.
Retail division sales increased $3,312,000 and $7,729,000 for the
quarter and year-to-date periods ended July 3, 1998 as compared with
sales for the prior year periods ended June 27, 1997. Second quarter
retail division sales included the July fourth holiday as well as
incremental sales from the Company's capital expansion program which
included its first Junior's Food Outlet store opened on March 30,
1998 and a new supermarket in Manalapan, New Jersey opened on June
14, 1998. After adjusting for the additional week, 1998 year-to-date
comparable store sales declined by 0.3% versus 1997. Wholesale
division sales decreased $9,000,000 and $16,151,000 for the quarter
and year-to-date periods ended July 3, 1998 as compared with sales
for the prior year periods ended June 27, 1997. Wholesale division
sales continue to reflect tightening of the Company's credit policies
initiated in 1997. Overall Company net sales for the 1998 second
quarter and year-to-date periods ended July 3, 1998 were $5,688,000
and $8,422,000 lower than the prior year periods ended June 27, 1997
Gross profit as a percentage of sales increased to 26.7% in the
second quarter of 1998 from 24.4% in the same quarter of 1997. On a
year-to-date basis gross profit increased to 26.9% for the twenty-six
weeks ended July 3, 1998 as compared to 24.6% for the twenty-five
weeks ended June 27, 1997. The increase in the gross profit
percentage for the second fiscal quarter of 1998 resulted from the
increased ratio of retail division sales to wholesale division sales.
Selling, general and administrative expenses as a percentage of sales
increased to 24.9% for the second quarter of 1998 from 22.7% in the
comparable period in 1997. On a year-to-date basis, selling, general
and administrative expenses increased to 24.9% of sales for the
twenty-six weeks ended July 3, 1998 from 22.8% for the twenty-five
weeks ended June 27, 1997. The increased quarterly and year-to-date
selling, general and administrative percentage rate is attributable
to the increased ratio of retail division sales versus wholesale
division sales. In addition, the 1998 second quarter results include
$126,000 in pre-opening expense associated with the opening of two
new retail locations.
7
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations were $6,120,000 for the twenty-six weeks
ended July 3, 1998 as compared to $5,696,000 for the twenty-five
weeks ended June 27, 1997. Cash flow from operations improved due to
higher net income and reductions in accounts receivable attributable
to improved collections thereof. Inventory increases associated with
new retail locations were offset by related increases in trade
accounts payable and accrued expenses.
Cash flow from operations plus cash on hand were sufficient to pay
for capital expenditures and long-term debt requirements.
Capital expenditures of $5,579,000 included the exercise of an option
to purchase an existing store location for approximately $2,055,000
funded by the prior owner to be repaid over 15 years at 6.25% per
annum. The remaining capital expenditures were related to equipment
purchases and leasehold improvements for the new retail locations.
The Company funded these expenditures with cash flow from operations.
The Company has renewed its $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 July 3, 1998, the Company was in contract to purchase land for
future Junior's Food Outlet locations in Manhattan and Queens, NY.
The acquisition price for these locations is $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 satellite rental units.
8
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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
materially adversely affect the Company's financial position or
results of operations.
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
None
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
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Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 13, 1998
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1998
<PERIOD-START> APR-04-1998
<PERIOD-END> JUL-03-1998
<CASH> 9,617
<SECURITIES> 0
<RECEIVABLES> 6,442
<ALLOWANCES> 711
<INVENTORY> 15,852
<CURRENT-ASSETS> 35,214
<PP&E> 67,530
<DEPRECIATION> 22,517
<TOTAL-ASSETS> 82,234
<CURRENT-LIABILITIES> 22,300
<BONDS> 9,658
273
0
<COMMON> 0
<OTHER-SE> 46,697
<TOTAL-LIABILITY-AND-EQUITY> 82,234
<SALES> 146,254
<TOTAL-REVENUES> 146,254
<CGS> 106,926
<TOTAL-COSTS> 106,926
<OTHER-EXPENSES> 35,790
<LOSS-PROVISION> 138
<INTEREST-EXPENSE> 504
<INCOME-PRETAX> 2,896
<INCOME-TAX> 1,090
<INCOME-CONTINUING> 1,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,806
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
