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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, 1999
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 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 |_|
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 May 14, 1999
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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:
Condensed consolidated balance sheets as of
April 3, 1999 and January 1, 1999. 3
Condensed consolidated statements of income for the
thirteen weeks ended April 3, 1999 and 1998. 4
Condensed consolidated statements of cash flows for the
thirteen weeks ended April 3, 1999 and 1998. 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 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
SIGNATURE 9
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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; 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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ITEM 1. FINANCIAL STATEMENTS
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
APRIL 3, 1999 JANUARY 1, 1999
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,818 $ 12,086
Accounts receivable, net of allowance for doubtful
accounts ($555 and $522) 5,701 5,632
Inventories 16,685 15,290
Deferred income taxes 1,542 1,550
Prepaid expenses and other current assets 2,262 2,133
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Total current assets 38,008 36,691
Property, plant and equipment, net of accumulated
depreciation and amortization ($25,302 and $24,267) 48,121 47,373
Other assets 2,281 2,293
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Total assets $ 88,410 $ 86,357
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,543 $ 1,681
Current portion of obligations under capital leases 705 690
Accounts payable 12,365 10,564
Accounts payable-related party 3,050 3,765
Accrued expenses and other current liabilities 6,066 5,610
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Total current liabilities 23,729 22,310
Long-term debt, net of current portion 8,681 8,819
Obligations under capital leases, net of current portion 2,256 2,438
Deferred income taxes 2,509 2,497
Other non-current liabilities 2,028 1,760
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Total liabilities 39,203 37,824
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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;
5,475 shares issued and outstanding 274 274
Capital in excess of par value 11,407 11,407
Retained earnings 37,580 36,915
Deferred compensation (54) (63)
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Total stockholders' equity 49,207 48,533
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Total liabilities and stockholders' equity $ 88,410 $ 86,357
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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 INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 3, 1999 APRIL 3, 1998
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Net sales $77,434 $70,061
Cost of sales 56,854 51,056
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Gross profit 20,580 19,005
Selling, general and administrative expenses 19,516 17,472
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Income before income taxes 1,064 1,533
Provision for income taxes 399 585
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Net income $ 665 $ 948
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Net income per share of common stock:
Basic and diluted $ .12 $ .17
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Weighted average shares outstanding:
Basic 5,474 5,469
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Diluted 5,495 5,496
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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)
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<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 3, 1999 APRIL 3, 1998
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Cash flows from operating activities:
Net income $ 665 $ 948
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,073 1,039
Deferred income taxes 20 44
Provision for losses on accounts receivable 32 68
Gain on disposal of property, plant and equipment -- (105)
(Increase) decrease in assets:
Accounts receivable (101) 815
Inventories (1,395) (627)
Prepaid expenses and other current assets (148) 460
Other assets 19 (67)
(Decrease) increase in liabilities:
Accounts payable and accounts payable-related parties 1,086 1,683
Accrued expenses and other current liabilities 456 (150)
Non-current liabilities 268 (259)
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Net cash provided by operating activities 1,975 3,849
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Cash flows from investing activities:
Capital expenditures (1,800) (1,275)
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Net cash used in investing activities (1,800) (1,275)
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Cash flows from financing activities:
Proceeds from sale of property, plant and equipment -- 148
Proceeds from long-term debt 160 --
Payments on long-term debt and capital leases (603) (779)
Issuance of common stock -- 6
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Net cash used in financing activities (443) (625)
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Net (decrease) increase in cash and cash equivalents (268) 1,949
Cash and cash equivalents, beginning of period 12,086 7,527
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Cash and cash equivalents, end of period $ 11,818 $ 9,476
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Cash paid during the period for:
Interest $ 273 $ 285
Income taxes $ 0 $ 0
</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 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,
1999 are not necessarily indicative of the actual results for the
year ending January 1, 2000. 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 1, 1999.
(2) Litigation:
Except as discussed below, there has been no significant change in
litigation as discussed in Note 7 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended January 1, 1999 as filed on March 26, 1999.
On December 3, 1998, a purported class action, Plumpe v. Castellana
et al., No. 16807 NC, was filed in the Delaware Chancery Court
against Western Beef, Peter Castellana, Jr., Joseph Castellana,
Stephen R. Bokser and Arnold B. Becker. The action seeks to enjoin a
transaction pursuant to which the Company would be acquired by an
entity formed by certain Company officials and their family members,
on the grounds that the transaction would create a breach of fiduciary
duties to shareholders. The action also seeks recission of the
transaction if it is consummated, and accounting, damages and
attorneys' fees. By agreement with plaintiff, defendants' time to
answer the complaint has been extended indefinitely, pending possible
settlement discussions with plaintiff. Western Beef believes that
plaintiff's claims are without legal merit and is prepared to defend
them vigorously.
(3) Change in Fiscal Year-End:
The Company has changed its retail 52-53 week year-end to end on the
Saturday closest to the end of the calendar year from the Friday
closest to the end of the calendar year.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the thirteen weeks ended April 3, 1999, Western Beef, Inc. (the
"Company") achieved net income of $665,000 or $0.12 per share on net
sales of $77,434,000 as compared to net income of $948,000 or $0.17
per share on net sales of $70,061,000 for the comparable period in
1998.
Net sales for the first quarter of fiscal 1999 were $77,434,000
or 10.5% higher than the sales for the first quarter of fiscal
1998. Retail division sales increased by $6,279,000 primarily as
a result of the 1998 openings of two Western Beef supermarkets in
New Jersey and two Junior's Food Outlet stores in New York.
Comparable store retail sales were basically unchanged from the
retail sales of the first quarter of 1998. Wholesale division
sales increased $1,094,000 or 7.7% resulting from an expansion of
the Company's sales force.
Gross profit, as a percentage of net sales, for the 1999 and 1998
quarters was 26.6% and 27.1%, respectively. The 0.5% decrease in the
gross profit margin resulted from increased sales in the Company's
wholesale division and Junior's Food Outlet stores which operate at
lower gross profit margins.
Selling, general and administrative expenses expressed as a
percentage of sales increased to 25.2% from 24.9% in 1998.
The increase was primarily the result of costs associated
with the opening of the two new supermarkets in New Jersey
and the two new Junior's Food Outlet stores in New York and
increases in insurance reserves under the Company's self-
insurance program.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was $1,975,000 for the thirteen weeks
ended April 3, 1999 as compared to $3,849,000 for the comparable
period in 1998. Such decrease primarily resulted from higher
wholesale division sales, thereby increasing accounts receivable
and an increase in inventories as a result of the new
supermarkets and Junior's Food Outlet stores that opened in 1998.
Capital expenditures of $1,800,000 related principally to the
acquisition of a parcel of land in Queens, NY on which the Company
intends to construct a Junior's Food Outlet store, construction
costs at a new Junior's Food Outlet store to be opened on Prospect
Avenue in the Bronx, N.Y., and various expenditures for equipment
and leasehold improvements for existing stores.
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 June 30, 1999 will
be sufficient to meet its operational needs. The Company expects
that this line of credit will be renewed by the bank on similar
terms.
The Company also has several financial institutions that would be
available to finance new store equipment, usually over a five to
seven year period. In 1999, the Company intends to commence
construction of one Western Beef Supermarket and four Junior's Food
Outlet stores. The Company expects that the aggregate 1999 capital
commitments for these projects will be approximately $11,600,000.
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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.
See Note 2. Litigation of Notes to Condensed Consolidated
Financial Statements for further disclosure.
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.
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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/ Thomas F. Moranzoni
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Thomas F. Moranzoni
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: May 18, 1999
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 3, 1999 FOR WESTERN BEEF, INC.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-03-1999
<CASH> 11,818
<SECURITIES> 0
<RECEIVABLES> 6,256
<ALLOWANCES> 555
<INVENTORY> 16,685
<CURRENT-ASSETS> 38,008
<PP&E> 73,423
<DEPRECIATION> 25,302
<TOTAL-ASSETS> 88,410
<CURRENT-LIABILITIES> 23,729
<BONDS> 10,937
0
0
<COMMON> 274
<OTHER-SE> 48,933
<TOTAL-LIABILITY-AND-EQUITY> 88,410
<SALES> 77,434
<TOTAL-REVENUES> 77,434
<CGS> 56,854
<TOTAL-COSTS> 56,854
<OTHER-EXPENSES> 19,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 1,064
<INCOME-TAX> 399
<INCOME-CONTINUING> 665
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>