<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, 1999
Commission File Number 0-4485
WESTERN BEEF, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3266114
- -------------------------------------- ------------------------------------
(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 August 17, 1999.
- --------------------------------------------------------------------------------
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
INDEX
Page
----
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING
INFORMATION 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed consolidated balance sheets as of
July 3, 1999 and January 1, 1999. 3
Condensed consolidated statements of income
for the twenty-six weeks and the thirteen weeks
ended July 3, 1999 and 1998. 4
Condensed consolidated statements of cash flows
for the twenty-six weeks ended July 3, 1999
and 1998. 5
Notes to condensed consolidated financial statements. 6
Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations. 9
PART II - OTHER INFORMATION 12
---------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default 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 13
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
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
(unaudited)
<TABLE>
<CAPTION>
JULY 3, 1999 JANUARY 1, 1999
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,582 $ 12,086
Accounts receivable, net of allowance for doubtful
accounts ($715 and $522) 7,054 5,632
Inventories 18,189 15,290
Deferred income taxes 1,682 1,550
Prepaid expenses and other current assets 2,066 2,133
-------- --------
Total current assets 41,573 36,691
Property, plant and equipment, net of accumulated
depreciation and amortization ($26,355 and $24,267) 48,313 47,373
Other assets 2,227 2,293
-------- --------
Total assets $ 92,113 $ 86,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,363 $ 1,681
Current portion of obligations under capital leases 719 690
Accounts payable 14,037 10,564
Accounts payable-related party 3,004 3,765
Accrued expenses and other current liabilities 7,218 5,610
-------- --------
Total current liabilities 26,341 22,310
Long-term debt, net of current portion 8,406 8,819
Obligations under capital leases, net of current portion 2,070 2,438
Deferred income taxes 2,697 2,497
Other non-current liabilities 2,663 1,760
-------- --------
Total liabilities 42,177 37,824
-------- --------
Stockholders' equity:
Preferred stock, $.05 par value; 2000 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 38,302 36,915
Deferred compensation (47) (63)
-------- --------
Total stockholders' equity 49,936 48,533
-------- --------
Total liabilities and stockholders' equity $ 92,113 $ 86,357
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Thirteen Weeks Ended
July 3, 1999 July 3, 1998 July 3, 1999 July 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $162,776 $146,254 $ 85,342 $ 76,193
Cost of sales 120,143 106,926 63,289 55,870
-------- -------- -------- --------
Gross profit 42,633 39,328 22,053 20,323
Selling, general and administrative
expenses 40,379 36,432 20,863 18,960
-------- -------- -------- --------
Income before income taxes 2,254 2,896 1,190 1,363
Provision for income taxes 867 1,090 468 505
-------- -------- -------- --------
Net income $ 1,387 $ 1,806 $ 722 $ 858
======== ======== ======== ========
Net income per share of common
stock-basic and diluted $ .25 $ .33 $ .13 $ .16
======== ======== ======== ========
Weighted average shares
outstanding-basic 5,475 5,472 5,475 5,475
======== ======== ======== ========
Weighted average shares
outstanding-diluted 5,495 5,498 5,493 5,498
======== ======== ======== ========
</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 Weeks Ended
JULY 3, 1999 JULY 3, 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,387 $ 1,806
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,144 2,009
Deferred income tax expense 68 44
Provision for losses on accounts receivable 193 163
Gain on disposal of property, plant and equipment -- (114)
(Increase) decrease in assets:
Accounts receivable (1,615) 381
Inventories (2,899) (1,739)
Prepaid expenses and other current assets 67 137
Other assets 43 (94)
(Decrease) increase in liabilities:
Accounts payable and accounts payable-related party 2,712 2,477
Accrued expenses and other current liabilities 1,608 1,664
Other non-current liabilities 903 (614)
-------- --------
Net cash provided by operating activities 4,611 6,120
-------- --------
Cash flows from investing activities:
Capital expenditures (3,045) (5,579)
Proceeds from sale of property, plant and equipment -- 946
-------- --------
Net cash used in investing activities (3,045) (4,633)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 160 2,055
Payments on long-term debt and capital leases (1,230) (1,470)
Issuance of common stock -- 18
-------- --------
Net cash provided by (used in) financing activities (1,070) 603
-------- --------
Net increase in cash and cash equivalents 496 2,090
Cash and cash equivalents, beginning of period 12,086 7,527
-------- --------
Cash and cash equivalents, end of period $ 12,582 $ 9,617
======== ========
Cash paid for:
Interest $ 541 $ 504
Income taxes $ 260 $ 324
</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 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-six weeks ended July 3,
1999 are not necessarily indicative of the results that may be expected
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 as filed on March 29, 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 29, 1999.
On December 3, 1998, a class action, Plumpe v. Castellana et al., No.
16807 NC, was filed in the Delaware Chancery Court against Western
Beef, Inc., 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 and merged into, an entity
owned by certain officers of the Company and their family members, on
the grounds that the transaction would create a breach of fiduciary
duties to shareholders. The action also seeks rescission of the
transaction if it is consummated, damages and accounting and
attorneys' fees. By agreement with plaintiff, defendants' time to
answer the complaint has been extended indefinitely, pending possible
settlement discussions with plaintiff.
On July 29, 1999, the acquisition price was increased to $8.75 per
share and the Company entered into a Memorandum of Understanding with
counsel to the plaintiff in the shareholder lawsuit arising from the
merger. The Memorandum of Understanding provides for the settlement of
such lawsuit based on the payment of a per share merger consideration
of $8.75 and is subject to, among other things, completion of
definitive documentation relating to the settlement, court approval and
consummation of the merger.
(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.
6
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WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) SEGMENTS OF BUSINESS
The Company operates in two industry segments. The wholesale segment primarily
sells poultry, beef, pork and provisions to retailers, restaurants and
institutions. The retail segment sells various meat and grocery items to the
general public. All intersegment sales prices are market based. Corporate
overhead costs are allocated to each of its operating segments based on overall
sales. The Company evaluates the performance of its segments based on operating
earnings before taxes of the respective business units. Financial data (in
thousands of dollars) for the three and six months of 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999
THREE MONTHS ENDED JULY 3, 1999
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $65,578 $19,764 $85,342
Intersegment sales - 14,982 14,982
Net interest expense 235 33 268
Net income before provision
for income taxes 975 215 1,190
Other significant non cash items:
Bad debt expense - 161 161
Capital expenditures 1,245 - 1,245
SIX MONTHS ENDED JULY 3, 1999
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $127,777 $34,999 $162,776
Intersegment sales - 27,890 27,890
Net interest expense 473 68 541
Net income before provision
for income taxes 1,967 287 2,254
Other significant non cash items:
Bad debt expense - 193 193
Capital expenditures 3,021 24 3,045
Identifiable assets 78,646 13,467 92,113
</TABLE>
7
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) SEGMENTS OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
1998
THREE MONTHS ENDED JULY 3, 1998
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $61,406 $14,787 $76,193
Intersegment sales - 13,842 13,842
Net interest expense 190 29 219
Net income before provision
for income taxes 1,145 218 1,363
Other significant non cash items:
Bad debt expense - 95 95
Capital expenditures 4,187 117 4,304
<CAPTION>
SIX MONTHS ENDED JULY 3, 1998
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $117,345 $28,909 $146,254
Intersegment sales - 26,570 26,570
Net interest expense 428 76 504
Net income before provision
for income taxes 2,608 288 2,896
Other significant non cash items:
Bad debt expense - 163 163
Capital expenditures 5,380 199 5,579
Identifiable assets 69,924 12,310 82,234
</TABLE>
8
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
For the quarter ended July 3, 1999, Western Beef, Inc. (the "Company")
achieved net income of $722,000 or $.13 per share on net sales of
$85,342,000, as compared to net income or $858,000 or $.16 per share on
net sales of $76,193,000 for the comparable period in 1998. On a
year-to-date basis the Company achieved net income of $1,387,000 or
$.25 per share on net sales of $162,776,000 for the twenty-six week
period ended July 3, 1999 as compared to net income of $1,806,000 or
$.33 per share on net sales of $146,254,000 for the twenty-six week
period ended July 3, 1998.
Net sales increased $9,149,000 and $16,522,000 for the quarter and
year-to-date periods ended July 3, 1999 as compared with sales for the
comparable periods in the prior year. The Company's retail division
accounted for $4,172,000 and $10,432,000 of the sales increases for the
quarter and year-to-date periods respectively, ended July 3, 1999,
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. Year-to-date comparable store retail sales were basically
unchanged from the retail sales for the similar period in 1998.
Wholesale division sales increased $4,977,000 and $6,090,000 for the
quarter and year-to-date periods ended July 3, 1999 as compared with
sales for the comparable periods in the prior year, resulting from
the continued expansion of the Company's wholesale sales force and
the acquisition of new-credit worthy customers.
Gross profit as a percentage of sales decreased to 25.8% in the second
quarter of 1999 from 26.7% in the same quarter of the prior year. On a
year-to-date basis gross profit decreased to 26.2% for the twenty-six
weeks ended July 3, 1999 from 26.9% for the comparable period in the
prior year. The decrease in the gross profit margins for 1999 resulted
from increased sales in the Company's wholesale division and Junior's
Food Outlet stores which operate at lower gross profit margins.
9
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. (CONTINUED)
Selling, general and administrative expenses increased $1,903,000 and
$3,947,000 for the quarter and year-to-date periods ended July 3, 1999
as compared with such expenses for the comparable periods in the prior
year. As a percentage of sales, selling, general and administrative
expenses decreased to 24.4% and 24.8% for the quarter and year-to-date
periods ended July 3,1999 from 24.9% for the similar periods in 1998.
The increase in expense resulted primarily from 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. The percentage of
sales decreases are attributable to the increased ratio of wholesale
division sales versus retail division sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was $4,611,000 for the twenty-six weeks ended
July 3, 1999 as compared to $6,120,000 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 $3,045,000 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 Western Beef supermarket to be opened on Prospect Avenue
in the Bronx, N.Y. and various expenditures for equipment and leasehold
improvements for its 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 July 1, 2000 will be sufficient to meet its operational
needs. At July 3, 1999 the entire balance was available for use by
the Company.
In 1999, the Company intends to commence construction on one Western
Beef supermarket and four Junior's Food Outlet stores. The Company
expects that the aggregate 1999 and 2000 capital commitments for
these projects will be approximately $11,600,000. Several financial
institutions have expressed an interest in financing the new store
equipment that would be required at these new locations.
10
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. (CONTINUED)
YEAR 2000 ISSUES
The Company is executing a plan to ensure that the Company's computer systems
and software applications will properly function beyond 1999. This plan involves
identifying year 2000 issues, assigning priorities to items identified and
correcting or replacing material items that are not year 2000 compliant. This
plan also considers year 2000 vulnerability with respect to the Company's major
suppliers and third party service providers.
The Company is utilizing both internal and external resources to address year
2000 issues. Costs associated with year 2000 computer system modifications are
currently estimated to be approximately $300,000 of which $54,000 has been
incurred to date. Included in these costs are $150,000 for certain front-end
cash register systems whose upgrade was previously identified for non-year 2000
operational enhancements.
The Company has already installed year 2000 program codes on all of its
financial, merchandise and distribution computer software systems. Effective
with the first payroll week of 1999, the Company was operating on year 2000
compliant software provided by its third party payroll service company. Finally,
the Company has received and completed the testing of the front-end register
system enhancements previously discussed and expects to complete Company-wide
implementation of this software before the end of the third quarter of 1999.
The Company has contingency plans in place for its financial, merchandise and
distribution automation systems utilizing internal and major supplier
communication systems. In the event of power interruptions, most of its retail
outlets are equipped with generators for its front-end register systems and up
to 50% of each store's lighting requirements. Plans are currently being
formulated to provide back-up power for the Company's wholesale and retail
divisions' refrigeration equipment.
As part of the Company's goal to achieve year 2000 compliance, it is seeking
representations and/or warranties from suppliers, vendors and business partners
about their year 2000 compliance. No assurances can be given that the Company
will be able to identify and address all year 2000 issues due to their
complexity and the Company's dependence on representations and preparedness of
third parties with whom the Company does business. Although the Company believes
that its efforts and plans will address year 2000 issues that are within the
Company's reasonable control, there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's business or results of
operations.
11
<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 and results of
operations and cash flows.
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
None
(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 ended July 3, 1999.
12
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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
--------------------------
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 17, 1999
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
BEEF, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
JULY 3, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> APR-04-1999
<PERIOD-END> JUL-03-1999
<CASH> 12,582
<SECURITIES> 0
<RECEIVABLES> 7,769
<ALLOWANCES> 715
<INVENTORY> 18,189
<CURRENT-ASSETS> 41,573
<PP&E> 74,668
<DEPRECIATION> 26,355
<TOTAL-ASSETS> 92,113
<CURRENT-LIABILITIES> 26,341
<BONDS> 10,476
274
0
<COMMON> 0
<OTHER-SE> 49,662
<TOTAL-LIABILITY-AND-EQUITY> 92,113
<SALES> 162,776
<TOTAL-REVENUES> 162,776
<CGS> 120,143
<TOTAL-COSTS> 120,143
<OTHER-EXPENSES> 39,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 541
<INCOME-PRETAX> 2,254
<INCOME-TAX> 867
<INCOME-CONTINUING> 1,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,387
<EPS-BASIC> .25
<EPS-DILUTED> .25
</TABLE>
