-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RBiZV6sJnqy1cFrozD0rI8DOcrXx5MDihQFMAE3ykUfRHIgBO1WYhmQjubBPlRof pcwaZFmJ9IcjtMDlh9TEhg== 0000912057-99-006385.txt : 19991117 0000912057-99-006385.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006385 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN BEEF INC /DE/ CENTRAL INDEX KEY: 0000081942 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 133266114 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04485 FILM NUMBER: 99758305 BUSINESS ADDRESS: STREET 1: 47 05 METROPOLITAN AVE CITY: RIDGEWOOD STATE: NY ZIP: 11385 BUSINESS PHONE: 7188210011 FORMER COMPANY: FORMER CONFORMED NAME: QUAREX INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: RANCHERS PACKING CORP DATE OF NAME CHANGE: 19830713 10-Q 1 10-Q 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, 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 - -------------------------------------------------------------------------------- (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 November 12, 1999. - -------------------------------------------------------------------------------- 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 October 2, 1999 and January 1, 1999. 3 Condensed consolidated statements of income for the thirty-nine weeks and the thirteen weeks ended October 2, 1999 and 1998. 4 Condensed consolidated statements of cash flows for the thirty-nine weeks ended October 2, 1999 and 1998. 5 Notes to condensed consolidated financial statements. 6 Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations. 8 PART II - OTHER INFORMATION 11 --------------------------- 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 12 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. 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 ITEM 1: FINANCIAL STATEMENTS WESTERN BEEF, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE) (UNAUDITED)
OCTOBER 2, 1999 JANUARY 1, 1999 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 11,163 $ 12,086 Accounts receivable, net of allowance for doubtful accounts ($876 and $522) 7,281 5,632 Inventories 16,568 15,290 Deferred income taxes 1,678 1,550 Prepaid expenses and other current assets 1,971 2,133 -------- -------- Total current assets 38,661 36,691 Property, plant and equipment, net of accumulated depreciation and amortization ($27,424 and $24,267) 48,304 47,373 Other assets 2,193 2,293 -------- -------- Total assets $ 89,158 $ 86,357 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,161 $ 1,681 Current portion of obligations under capital leases 734 690 Accounts payable 12,397 10,564 Accounts payable-related party 2,961 3,765 Accrued expenses and other current liabilities 5,931 5,610 -------- -------- Total current liabilities 23,184 22,310 Long-term debt, net of current portion 7,994 8,819 Obligations under capital leases, net of current portion 1,882 2,438 Deferred income taxes 2,831 2,497 Other non-current liabilities 2,659 1,760 -------- -------- Total liabilities 38,550 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 38,964 36,915 Deferred compensation (37) (63) -------- -------- Total stockholders' equity 50,608 48,533 -------- -------- Total liabilities and stockholders' equity $ 89,158 $ 86,357 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 WESTERN BEEF, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
Thirty-Nine Weeks Ended Thirteen Weeks Ended OCTOBER 2, 1999 OCTOBER 2, 1998 OCTOBER 2, 1999 OCTOBER 2, 1998 --------------- --------------- --------------- --------------- Net sales $245,664 $221,285 $ 82,888 $ 75,031 Cost of sales 182,102 161,637 61,959 54,711 -------- -------- -------- -------- Gross profit 63,562 59,648 20,929 20,320 Selling, general and administrative expenses 60,249 55,444 19,870 19,012 -------- -------- -------- -------- Income before income taxes 3,313 4,204 1,059 1,308 Provision for income taxes 1,264 1,577 397 487 -------- -------- -------- -------- Net income $ 2,049 $ 2,627 $ 662 $ 821 ======== ======== ======== ======== Net income per share of common stock-basic and diluted $ .37 $ .48 $ .12 $ .15 ======== ======== ======== ======== Weighted average shares outstanding-basic 5,475 5,473 5,475 5,475 ======== ======== ======== ======== Weighted average shares outstanding-diluted 5,498 5,499 5,501 5,501 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 4 WESTERN BEEF, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Thirty-Nine Weeks Ended OCTOBER 2, 1999 OCTOBER 2, 1998 --------------- --------------- Cash flows from operating activities: Net income $ 2,049 $ 2,627 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,230 3,094 Deferred income tax expense 206 111 Provision for losses on accounts receivable 354 310 Gain on disposal of property, plant and equipment -- (139) (Increase) decrease in assets: Accounts receivable (2,003) 652 Inventories (1,278) (2,091) Prepaid expenses and other current assets 162 (207) Other assets 64 (94) (Decrease) increase in liabilities: Accounts payable and accounts payable-related party 1,029 3,949 Accrued expenses and other current liabilities 321 1,350 Other non-current liabilities 899 (591) -------- -------- Net cash provided by operating activities 5,033 8,971 -------- -------- Cash flows from investing activities: Capital expenditures (4,099) (7,569) Proceeds from sale of property, plant and equipment -- 1,055 -------- -------- Net cash used in investing activities (4,099) (6,514) -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt and capital leases 160 2,055 Payments on long-term debt and capital leases (2,017) (2,119) Proceeds from Issuance of common stock -- 18 -------- -------- Net cash used in financing activities (1,857) (46) -------- -------- Net (decrease) increase in cash and cash equivalents (923) 2,411 Cash and cash equivalents, beginning of period 12,086 7,527 -------- -------- Cash and cash equivalents, end of period $ 11,163 $ 9,938 ======== ======== Cash paid during the thirty-nine weeks for: Interest $ 805 $ 774 Income taxes $ 515 $ 979
See accompanying notes to condensed consolidated financial statements. 5 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 items) considered necessary for a fair presentation have been included. Operating results for the thirty-nine weeks ended October 2, 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 accountants' and attorneys' fees. On July 29, 1999, the acquisition price was increased to $8.75 per share from an initial offer price of $7.50 per share and the Company entered into a Memorandum of Understanding with counsel to the plaintiff in the above referenced 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 by plaintiff of additional discovery, completion of definitive documentation relating to the settlement, court approval and the dismissal of the lawsuit with prejudice and without any costs to any party (except as agreed upon). Additionally, pursuant to the memorandum of understanding, the defendants will not oppose the plaintiff's application for an award for attorney's fees in the amount of $150,000 and reimbursement of expenses not to exceed $10,000. The defendants have also agreed to be responsible for the costs and expenses related to providing notice of the proposed settlement, regardless of whether the proposed settlement is approved by the court. On October 26, 1999, the defendants commenced mailing notice of the hearing concerning the proposed settlement. The hearing will be held before the Delaware Chancery Court on December 9, 1999, at 10:00 a.m. (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. This change did not have a significant impact on the results of operations and cash flows for the thirteen and thirty-nine week periods ended October 2, 1999. 6 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 nine month periods ended October 2, 1999 and 1998 is as follows:
1999 THREE MONTHS ENDED OCTOBER 2, 1999 Retail Wholesale Total ------ --------- ----- Net sales $ 64,432 $ 18,456 $ 82,888 Intersegment sales -- 13,453 13,453 Net interest expense 231 33 264 Net income before provision for income taxes 1,028 31 1,059 Other significant non-cash items: Bad debt expense -- 161 161 Capital expenditures 1,032 22 1,054 NINE MONTHS ENDED OCTOBER, 2 1999 Retail Wholesale Total ------ --------- ----- Net sales $192,210 $ 53,454 $245,664 Intersegment sales -- 41,343 41,343 Net interest expense 704 101 805 Net income before provision for income taxes 2,995 318 3,313 Other significant non-cash items: Bad debt expense -- 354 354 Capital expenditures 4,035 64 4,099 Identifiable assets 75,474 13,684 89,158
7 WESTERN BEEF, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) SEGMENTS OF BUSINESS (CONTINUED)
1998 THREE MONTHS ENDED OCTOBER 2, 1998 Retail Wholesale Total ------ --------- ----- Net sales $ 61,723 $ 13,308 $ 75,031 Intersegment sales -- 13,861 13,861 Net interest expense 233 37 270 Net income loss before provision for income taxes 1,372 (64) 1,308 Other significant non-cash items: Bad debt expense -- 147 147 Capital expenditures 1,930 60 1,990 NINE MONTHS ENDED OCTOBER 2, 1998 Retail Wholesale Total ------ --------- ----- Net sales $179,068 $ 42,217 $221,285 Intersegment sales -- 40,431 40,431 Net interest expense 661 113 774 Net income before provision for income taxes 3,980 224 4,204 Other significant non-cash items: Bad debt expense -- 310 310 Capital expenditures 7,310 259 7,569 Identifiable assets 71,736 11,918 83,654
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. For the quarter ended October 2, 1999, Western Beef, Inc. (the "Company") achieved net income of $662,000 or $.12 per share on net sales of $82,888,000 as compared to net income of $821,000 or $.15 per share on net sales of $75,031,000 for the comparable period in 1998. On a year-to-date basis the Company achieved net income of $2,049,000 or $.37 per share on net sales of $245,664,000 for the thirty nine week period ended October 2, 1999 as compared to net income of $2,627,000 or $.48 per share on net sales of $221,285,000 for the thirty-nine week period ended October 2, 1998. Net sales increased $7,857,000 and $24,379,000 for the quarter and year-to-date periods ended October 2, 1999 as compared with sales for the comparable periods in the prior year. The Company's retail division accounted for $2,709,000 and $13,142,000 of the sales increases for the quarter and year-to-date periods respectively, ended October 2, 1999, primarily as a result of the 8 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 $5,148,000 and $11,237,000 for the quarter and year-to-date periods ended October 2, 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 25.3% in the third quarter of 1999 from 27.1% in the same quarter of the prior year. On a year-to-date basis gross profit decreased to 25.9% for the thirty-nine weeks ended October 2, 1999 from 27.1% 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. Selling, general and administrative expenses increased $858,000 and $4,805,000 for the quarter and year-to-date periods ended October 2, 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 24.0% and 24.5% for the quarter and year-to-date periods ended October 2,1999 from 25.3% and 25.1% for the similar periods in 1998. The increase in expense for the quarter resulted primarily from costs incurred in connection with expansion of the Company's wholesale division whereas the increase in expense for the year-to-date period 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 decreases in selling, general and administrative expenses, as a percentage of sales, are attributable to the increased ratio of wholesale sales which incur lower operating costs than those incurred by the retail division. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations was $5,033,000 for the thirty-nine weeks ended October 2, 1999 as compared to $8,971,000 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 $4,099,000 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 October 2, 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 two Junior's Food Outlet stores. The Company expects the aggregate 1999 and 2000 capital commitments for these projects and additional developments scheduled in 2000, to 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. 9 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 $225,000 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 has completed Company-wide implementation of this software. 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 of September 30, 1999 the Company has ordered one generator which will be delivered in February, 2000. This generator will be mobile in order to meet the demands of any given store. However, if more than one store experiences power interruptions perishable products must be stored in the Company's refrigerated trailers packed with dry ice. Because the above-mentioned generator will not arrive prior to January 1, 2000, the Company is currently investigating additional remedies to any potential problems due to power interruptions. As part of the Company's goal to achieve year 2000 compliance, it is seeking representations 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. 10 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. Reference is made to the information regarding legal proceedings appearing in Part I of this Report on Form 10-Q under the heading "Notes to Condensed Consolidated Financial Statements -- Note 2. Litigation" which is hereby incorporated by reference. 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 ended October 2, 1999 11 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: November 12, 1999 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN BEEF, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-01-2000 JUL-04-1999 OCT-02-1999 11,163 0 8,157 876 16,568 38,661 75,728 27,424 89,158 23,184 9,876 0 0 274 50,334 89,158 245,664 245,664 182,102 182,102 59,444 0 805 3,313 1,264 2,049 0 0 0 2,049 .37 .37
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