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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of
/X/ The Securities Exchange Act of 1934
For the fiscal year ended April 27, 1997
Or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-22252
CATTLEMAN'S, INC.
(Exact name of registrant as specified in charter)
DELAWARE
(State or other jurisdicton of 38-3012740
incorporation or organization) (I.R.S. Employer Identification Number)
1825 SCOTT STREET
DETROIT, MICHIGAN 48207
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (313) 833-2700
SECURITIES REGISTERED PURSUANT TO
SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO
SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(Title of Class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
At June 30, 1997, 3,239,083 shares of Common Stock were outstanding. The
aggregate market value of the voting stock held by non-affiliates on June 30,
1997 (326,033 shares) was approximately $407,541.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive 1997 Information Statement are
incorporated by reference into Part III.
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
CATTLEMAN'S, INC. ("Cattleman's"), a Delaware corporation, through its
wholly-owned subsidiary, Cattleman's Meat Company ("Cattleman's Meat"), a
Michigan corporation, conducts wholesale beef processing and fresh food outlet
sales operations. All references to Cattleman's include Cattleman's Meat,
unless otherwise disclosed. Beef processing involves the conversion of
carcasses of fresh beef into boxed beef, which is marketed primarily in the
United States to hotel, restaurant and institutional distributors, retail
distributors and other beef fabrication processors. Five retail outlets sell
fresh wholesale cuts of beef, retail cuts of beef, pork, poultry and fresh
produce to the general public under the name "Cattleman's Farmers' Markets".
Cattleman's is organized to take advantage of the vertical integration
opportunities available pursuant to its outlet/processing structure. Among
other things, benefits include product availability, inventory management,
pricing support and elimination of the middleman.
Cattleman's sales office and beef processing fabrication plant are located
at corporate headquarters at 1825 Scott Street, Detroit, Michigan 48207.
Cattleman's retail outlets are located in Detroit, Farmington, Hamtramck, Oak
Park and Taylor, Michigan. Cattleman's retail distribution center is located
in the Eastern Market area of Detroit, Michigan. Cattleman's telephone number
is (313) 833-2700.
HISTORY OF CATTLEMAN'S BUSINESS
Cattleman's is the successor of Arrow Point Resources, Inc. ("Arrow
Point"), a Utah non-operating shell corporation incorporated in 1984.
Cattleman's Meat was originally organized as Eastern Market Beef Processing
Corp. ("Eastern Market"). From its inception in 1972, Eastern Market has
conducted business as a wholesale beef fabricator.
Pursuant to an Agreement and Plan of Reorganization dated June 1991 (the
"Plan"), Arrow Point changed its name to Cattleman's, Inc. ("Cattleman's Inc. -
Utah"), approved a ten for one reverse stock split of the then issued and
outstanding shares and, in consideration of the issuance of 2,832,000 shares of
its common stock to the shareholders of Eastern Market, acquired all of the
issued and outstanding common stock of Eastern Market. As a result of the
acquisition, Cattleman's - Utah had a total of 3,191,982 shares of common stock
issued and outstanding. Following the reverse acquisition, the officers and
directors of Cattleman's - Utah were replaced with the officers and directors
of Eastern Market.
In connection with the Plan, Cattleman's Inc. was organized under the laws
of the State of Delaware ("Cattleman's Inc. - Delaware") as a wholly-owned
subsidiary of Cattleman's - Utah in July 1991 in order to change the domicile
of Cattleman's Utah to Delaware. In August 1991, Cattleman's Inc. - Utah and
Cattleman's Inc. - Delaware merged, with Cattleman's - Delaware as the
surviving corporation. In November 1991, Eastern Market changed its name to
Cattleman's Meat.
Effective August 30, 1993, Cattleman's acquired substantially all of the
assets of Oak Farms Market, Inc. and Oak Farms Market - Farmington, Inc.
(collectively, "Oak Farms") in exchange for 90,000 shares of Cattleman's stock.
Oak Farms owned and operated two fruit markets in Oak Park and Farmington,
Michigan, respectively. See "Facilities" below.
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OPERATIONS
PROCESSING
Cattleman's converts beef carcasses into "boxed beef" (packing house style
wholesale cuts of beef) and trimmings (used primarily for hamburger and beef
sausage) at its Scott Street plant. Cattleman's does not raise cattle and it
does not reduce live cattle to dressed carcasses. Cattleman's purchases the
carcass beef by the "swinging trailer load" (e.g., in quarters on hooks)
primarily from what it believes are the three largest slaughtering companies in
the country: (i) Iowa Beef Processors; (ii) Monfort, Inc., a subsidiary of
ConAgra, Inc.; and (iii) Excel, a subsidiary of Cargill, Inc. In the
aggregate, these suppliers have demonstrated the ability, throughout the
history of Cattleman's to supply Cattleman's with substantially all of its
needs for carcass beef. Cattleman's believes that these suppliers will
continue to supply its demands for carcass beef and that the Scott Street plant
has sufficient capacity to grow to match anticipated increased demand for its
products.
PRODUCTS
Cattleman's product line includes a variety of grades and sizes of beef.
The beef carcasses received from the suppliers have generally already been
graded by the suppliers. The suppliers generally have exact specifications
that all their carcass beef must satisfy for automated processing in their
plants. These specifications include size, shape, fat cover and color.
Cattleman's is an outlet for these suppliers of carcass beef which does not
satisfy their exact specifications. Because of the variety, size and different
needs of its customers, Cattleman's fills an industry niche.
Cattleman's believes that its retail outlets are unique to Michigan.
Outlet customers shop in a "no frills" temperature controlled environment,
where both packing house style and retail cuts of fresh meat along with deli
lunch meat and dairy products are displayed. The outlets, which are generally
open seven days a week, sell wholesale cuts of beef, retail cuts of beef, pork,
poultry, produce, deli and dairy.
PURCHASES AND SALES
During the fiscal year ended April 27, 1997, Cattleman's bought
approximately 93,000,000 pounds of carcass beef and 6,000,000 pounds of boxed
beef. There are no purchase contracts with suppliers. Cattleman's provides
letters of credit to certain of its suppliers. The standard practice in the
industry requires payment by Cattleman's for its carcass beef purchases within
eight (8) days after receipt. As a result, the payment terms with the
customers of the beef fabricating wholesale operations require payment no later
than twelve (12) days after delivery. Consequently, there are essentially no
backlog orders as Cattleman's inventory balance of carcass beef generally
equals the sales volume over a period of one week. Periodically, however, when
beef supply is high and prices are low, Cattleman's will purchase extra beef in
order to attempt to take advantage of the market opportunity. The beef is
inventoried for sale in the spring when prices are anticipated to be higher.
Accordingly, after this type of purchasing, the inventory balance of
Cattleman's can rise to a level equaling the sales volume over a period of 2 to
2-1/2 weeks.
The beef industry is subject to price fluctuations and to market
conditions as they affect supply and demand. Although the quick turnaround
between the time of purchase and the time of sale of the carcass beef and boxed
beef, respectively, generally permits some stability in price, there are times
when significant fluctuations in price in a short period of time can have a
significant effect on profitability as it relates to transactions during those
periods.
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CUSTOMERS
The customers of the beef fabricating wholesale operation are primarily
hotel, restaurant and institutional distributors, retail distributors and other
processors. Sales are conducted by Cattleman's salesmen located at the
corporate headquarters. Cattleman's customer niche is its ability to offer a
wide variety of grades, sizes and shapes of beef (including custom ordered
cuts) and to deliver its products to most of its customers overnight and on
short notice. Products are distributed to its domestic customers and to export
trading companies for delivery to foreign countries primarily by common
carrier.
Cattleman's sells its boxed beef nationally and to certain foreign
countries (generally, countries in the Carribean basin, Canada, Mexico and
Taiwan) in approximately the percentages set forth in the following table:
<TABLE>
<CAPTION>
AREA PERCENTAGE OF SALES BY AREA
- ----------------------------------------------------
1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Cattleman's Outlets 3.3% 3.3% 3.6%
- ----------------------------------------------------
Michigan 20.4% 22.7% 25.7%
- ----------------------------------------------------
Midwest 17.4% 19.2% 18.1%
- ----------------------------------------------------
East 29.5% 28.5% 32.3%
- ----------------------------------------------------
South 24.3% 19.8% 13.8%
- ----------------------------------------------------
West 3.8% 5.0% 5.0%
- ----------------------------------------------------
Foreign 1.3% 1.5% 1.5%
- ----------------------------------------------------
</TABLE>
Outlets sell products to the general public at lower than traditional
retail prices for meat. The customer base is drawn not only from metropolitan
Detroit, but from Canada as well. Cattleman's markets its products through
substantial advertising in newspapers. Retail outlets promote the quality of
the products and the savings available for the purchase of packing house style
cuts of beef which are obtained through Cattleman's beef fabrication
operations. Cattleman's outlets also sell regular retail packages of fresh and
smoked meats at prices traditionally 10%-40% below meat markets and
supermarkets. In addition, produce is sold at prices lower than supermarkets
and competitive with larger produce markets. The design of the outlets
promotes their lower than traditional retail price image as the retail customer
shops in the "no frills" controlled atmosphere.
FACILITIES
The beef processing operations of Cattleman's are located at the Scott
Street plant at 1825 Scott Street, Detroit, Michigan. The Scott Street plant
is situated in Detroit's Eastern Market, a local wholesale food distribution
area near downtown Detroit, and consists of a building of approximately 56,500
sq. ft. Cattleman's owns the property which serves as collateral under the
Company's financing arrangements. Cattleman's considers the Scott Street plant
to be in good condition. Cattleman's anticipates cash expenditures of
approximately $1,750,000 for additional processing equipment and plant
additions in fiscal year 1998 for the Scott Street Plant to be funded by
financing activities.
Cattleman's currently operates five outlets in metropolitan Detroit
(Detroit, Hamtramck, Taylor, Farmington and Oak Park). The Taylor, Farmington
and Oak Park outlets are leased from third parties. The Farmington and Oak
Park outlets were acquired from Oak Farms effective August 30, 1993. See
"History of Cattleman's Business" above. The Farmington outlet was converted
to a Cattleman's outlet in November 1993. The Oak Park outlet was converted to
a Cattleman's outlet in December 1994. The five outlets range in size from
approximately 4,000 to 18,000 square feet.
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EMPLOYEES
Cattleman's employs approximately 340 full time employees, consisting
mostly of hourly wage employees who are represented by the United Food and
Commercial Workers Union of the AFL-CIO. The term of the present labor
contract with its retail employees is scheduled to expire in November 1998.
The contract with its processing division employees was renegotiated in
December 1994 and is scheduled to expire in November 1998. Cattleman's
considers its relations with its employees to be good.
PATENTS, TRADEMARKS AND LICENSES
Cattleman's presently does not own or have any interest in any patents,
trademarks, licenses or franchises.
REGULATORY MATTERS
Cattleman's is subject to various laws and regulations relating to its
facilities, production standards and pollution controls which are administered
by federal, state and other governmental agencies, including the United States
Department of Agriculture (USDA), the Environmental Protection Agency, the
Michigan Department of Natural Resources, the Michigan Department of
Agriculture and the Occupational Safety and Health Administration. The Scott
Street plant is inspected by the USDA on a continuous basis. Cattleman's
believes that it is in compliance with all health, environmental and other laws
in all material respects and that continued compliance with existing standards
will not have a material effect on its earnings, financial condition or its
competitive position.
COMPETITION
Cattleman's believes that its processing/outlet structure provides it with
a competitive edge with respect to, among other things, product availability,
inventory management, pricing support and elimination of the middleman.
Cattleman's believes this is an important edge in light of the small margins
characterizing the industry.
Cattleman's believes that its beef processing operations fill a niche in
which there are only a few competitors located in Illinois, Michigan, and
Wisconsin. In addition, although Cattleman's suppliers are the largest
slaughtering and beef processing companies in the country, Cattleman's believes
that they are not in direct competition because, as previously disclosed,
Cattleman's acts more as an outlet for such suppliers. Cattleman's competes on
the basis of its reputation, product variety, continued quality and service,
price and customer base.
There are principally two categories of competitors of Cattleman's retail
outlets: (i) chain supermarkets; and (ii) independent operators. Cattleman's
intends to continue to compete through its unique store design and its discount
pricing structure. Cattleman's believes that these are significant competitive
advantages and will continue to highlight these differences in its newspaper
and radio advertisements.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Cattleman's is a party to legal proceedings arising out
of its general business activities. However, there are no pending legal
proceedings to which Cattleman's is a party, or to which any of its properties
is subject, which, if determined adversely to Cattleman's, would have a
material adverse effect on its consolidated financial position.
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ITEM 3. LEGAL PROCEEDINGS (CONTINUED)
In late September, early October, 1996, there was an apparent outbreak of
Legionnaires' Disease in the Farmington/Farmington Hills area. In a press
statement issued by the Oakland County Health Department on November 8, 1996,
Oakland County indicated that they found Legionella bacteria in the water
cooling condenser located on top of Cattleman's retail facility located in
Farmington, Michigan. There were thirty reported cases and four reported
fatalities. Cattleman's is cooperating with the County to take all actions
necessary to clean its water tower condenser.
Cattleman's is currently investigating the County's investigative
procedures and findings in this regard. Cattleman's believes that there was no
negligence on its part and Cattleman's believes that it has adequate insurance
to cover any lawsuits which might arise. The effect on sales is unknown.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
Cattleman's fourth quarter ended April 27, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The shares of Common Stock of Cattleman's are quoted on the NASDAQ Small
Cap Market under the symbol "CTLO." The range of high and low bid quotations
for each of the quarters for the years ended December 31, 1994, 1995, 1996 and
for the first two quarters of 1997 are provided below. The quotations reflect
inter-dealer prices without retail markup, markdown or commissions and may not
represent actual transactions. In addition, the quotations should not be
deemed to reflect an established public trading market. The shares of Common
Stock are thinly traded.
<TABLE>
<CAPTION>
QUARTERS ENDING HIGH LOW
- ------------------------------------------------
<S> <C> <C>
March 31, 1994 $3-1/8 $2-1/2
- ------------------------------------------------
June 30, 1994 $3 $2-1/4
- ------------------------------------------------
September 30, 1994 $2-1/8 $1-3/4
- ------------------------------------------------
December 31, 1994 $1-3/4 $1
- ------------------------------------------------
March 31, 1995 $1-1/4 $1
- ------------------------------------------------
June 30, 1995 $1-1/4 $1-1/8
- ------------------------------------------------
September 30, 1995 $1-3/4 $1-1/4
- ------------------------------------------------
December 31, 1995 $1-1/4 $1
- ------------------------------------------------
March 31, 1996 $1-7/8 $1-1/4
- ------------------------------------------------
June 30, 1996 $1-1/8 $1
- ------------------------------------------------
September 30, 1996 $1-1/2 $1
- ------------------------------------------------
December 31, 1996 $1-15/16 $5/8
- ------------------------------------------------
March 31, 1997 $1-5/8 $1-3/8
- ------------------------------------------------
June 30, 1997 $1-1/4 $1
- ------------------------------------------------
</TABLE>
HOLDERS
At June 30, 1997, there were 280 holders of record of Cattleman's shares
of Common Stock.
DIVIDENDS
During the last three fiscal years, Cattleman's has not paid any cash or
other dividends on its Common Stock. Pursuant to its loan agreement with
Comerica Bank, Cattleman's may not declare any dividends on its common stock.
In addition, the declaration by Cattleman's, and the amount of any cash
dividends, will depend on circumstances existing at the time, including
Cattleman's earnings, financial condition and capital requirements, the cash
available to pay such dividends as well as such other factors as the Board of
Directors may deem relevant. There can be no assurance that any dividends on
Cattleman's Common Stock will be paid in the future.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data shown below has been derived from the
consolidated financial statements of the Company for the years shown.
<TABLE>
<CAPTION>
52/53 APRIL 27, APRIL 28, APRIL 30, APRIL 30, APRIL 24,
WEEKS ENDED (1) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $119,776,779 $125,279,271 $126,342,937 $143,750,874 $134,377,532
- --------------------------------------------------------------------------------------------------------
Cost of Goods Sold 114,604,118 120,109,380 121,838,830 137,781,848 128,049,928
- --------------------------------------------------------------------------------------------------------
Selling, General and
Administrative Expenses 4,422,448 4,741,217 4,457,359 5,458,922 4,018,640
- --------------------------------------------------------------------------------------------------------
Earnings from Operations 750,213 428,674 46,748 510,104 2,308,964
- --------------------------------------------------------------------------------------------------------
Net Earnings (Loss) 23,143 (161,159) (353,761) 47,532 1,307,296
- --------------------------------------------------------------------------------------------------------
Net Earnings (Loss) per
share (2) 0.01 (0.05) (0.11) 0.01 0.41
- --------------------------------------------------------------------------------------------------------
Total Assets 16,634,810 18,452,679 18,602,253 19,056,673 14,605,593
- --------------------------------------------------------------------------------------------------------
Long-Term Obligations,
Long-Term Debt and
Capital Leases 6,831,440 8,052,479 7,081,786 5,457,762 1,133,564
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Less Current Portion 4,384,516 636,715 623,802 126,960 395,000
- --------------------------------------------------------------------------------------------------------
Long-Term Portion $ 2,446,924 $ 7,415,764 $ 6,457,984 $ 5,330,802 $ 738,564
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has changed its fiscal year end from the last Saturday in
April to the last Sunday in April starting in fiscal 1995.
(2) No dividends have been declared during any of the periods indicated. See
"Shareholder Information."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
Cattleman's, Inc. was originally incorporated in 1972. In 1991, the
Company changed its name from Eastern Market Beef to Cattleman's. Cattleman's
is currently incorporated in the state of Delaware.
The Company sells its beef production throughout the United States,
Canada, Mexico and the Caribbean with some sales to the Far East. The Company
sells to approximately 380 customers, mainly fresh meat distributors, hotel,
restaurant & institutional suppliers and retailers. No customer or group of
customers account for a disproportionate share of Company sales.
The Company also sells its products through five outlets in the
Metropolitan Detroit area. These sales, which include a complete-line of fresh
foods, accounted for 21.0% of Company sales in fiscal 1997. Outlet sales
totaled 17.4% of Cattleman's total sales in fiscal 1996.
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1997 TO FISCAL 1996
SALES for fiscal year ending April 27, 1997 were $120.0 million compared
to fiscal year ending April 28, 1996 sales of $125.3 million. Sales decreased
due to lower average selling prices for boxed beef.
Gross tonnage of product sold decreased approximately 4%. Outlet sales
decreased 5%. Outlet sales represented 21.0% of total sales in fiscal 1997
compared to 17.4% for the fiscal 1996.
COST OF GOODS SOLD for fiscal 1997 was $114.6 million compared to $120.1
million for fiscal 1996, a decrease of $5.5 million. Costs as a percent of
sales in processing operations remained flat while margins in our retail
outlets declined by approximately seven percent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) for fiscal 1997 and
fiscal 1996 were $4.4 million and $4.7 million, respectively. As a percent of
sales, SG&A totaled 4.0% for fiscal 1997 and 3.8% for fiscal 1996. The
decrease of $300,000 resulted primarily from decreased payroll and payroll
related costs.
NET INTEREST EXPENSE AND OTHER increased $31,000 to $655,000 during fiscal
1997 compared with fiscal 1996. The increase resulted from greater utilization
of the revolving line-of-credit on average throughout the period, plus higher
average interest rates in fiscal 1997.
NET EARNINGS for fiscal 1997 was $23,000 compared to a net loss of
$160,000 for fiscal 1996 due, primarily, to improved performance in our
processing plant.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
SALES for fiscal year ending April 28, 1996 were $125.3 million compared
to fiscal year ending April 30, 1995 sales of $126.3 million. Sales decreased
slightly due to lower average selling prices for boxed beef.
Gross tonnage of product sold increased approximately 6.0%. Outlet sales
increased 8.3%. Outlet sales represented 17.4% of total sales in fiscal 1996
compared to 16.0% for the fiscal 1995.
COST OF GOODS SOLD for fiscal 1996 was $120.1 million compared to $121.8
million for fiscal 1995, a decrease of $1.7 million. Costs as a percent of
sales in the processing operations remained flat while margins in our retail
outlets improved by approximately one percent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) for fiscal 1996 and
fiscal 1995 were $4.7 million and $4.5 million, respectively. As a percent of
sales, SG&A totaled 3.8% for fiscal 1996 and 3.6% for fiscal 1995. The
increase of $200,000 resulted primarily from increased payroll and payroll
related costs, one-time expenses associated with terminating a lease agreement
for a future, additional retail outlet plus the cost of consulting services
related to our retail operations.
NET INTEREST EXPENSE AND OTHER increased $143,000 to $624,000 during
fiscal 1996 compared with fiscal 1995. The increase resulted from greater
utilization of the revolving line-of-credit on average throughout the period,
plus higher average interest rates in fiscal 1996.
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NET LOSS for fiscal 1996 was $160,000 compared to $350,000 for fiscal 1995
due, primarily, to improved performance in our retail outlets.
LIQUIDITY AND CAPITAL RESOURCES
The Company keeps lines of credit in excess of the immediate needs of its
business. Borrowings on the line normally increase during the fall and peak in
December when the premium cuts of meat are inventoried. The line is paid down
during each spring, the industry's strong selling period.
CASH PROVIDED BY OPERATING ACTIVITIES during fiscal 1997 totaled $2.1
million. Cash provided by operations occurred primarily due to a decrease in
inventories ($.9 million), and a decrease in accounts payable ($.7 million),
offset by depreciation ($1.1 million).
CASH USED IN INVESTING ACTIVITIES during fiscal 1997 and 1996 totaled .3
million and .7 million respectively. Fiscal 1997 activity resulted primarily
from capital expenditures on process plant equipment and retail outlets
equipment.
CASH USED IN FINANCING ACTIVITIES during fiscal 1997 totaled $1.6 million.
In fiscal 1997, long-term borrowings increased $2.4 million, used primarily
for capital expenditures, inventory purchases and accounts payable reduction.
OTHER In 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. Statement 121 also addresses the
accounting for assets that are expected to be disposed of. The adoption of
this standard in fiscal year 1997 had no effect on the consolidated financial
statements of the Company.
Also in 1995, FASB issued Statement No. 123, Accounting for Stock-Based
Compensation, which introduces a fair-value based method of accounting for
stock-based compensation. Under the standard, companies may choose to continue
to apply the existing accounting rules contained in Accounting Principles Board
Opinion No. 25, while adopting the disclosure provisions of Statement 123. The
Company adopted Statement 123 in fiscal year 1997 and plans to continue to
apply the existing accounting rules contained in Accounting Principles Board
Opinion No. 25.
In February 1997, FASB issued Statement No. 128, Earnings Per Share, which
(i) replaces the presentation of primary earnings per share (EPS) with a
presentation of basic EPS; (ii) requires dual presentation of basic and diluted
EPS on the face of the consolidated statements of operations regardless of
whether basic and diluted EPS are the same; and (iii) requires a reconciliation
of the numerator and denominator used in computing basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed similarly
to fully diluted EPS pursuant to Accounting Principles Board Opinion 15.
Statement 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. Statement 128 requires restatement of all prior-period EPS
data presented.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of the independent certified public accountants and the
consolidated financial statements and schedule thereto follow the disclosure
under "Item 14. Exhibits, Financial Statements Schedule and Reports on Form
8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) On April 18, 1997 the Company, upon recommendation of the executive
officers, dismissed Coopers & Lybrand LLP as its principal accountants for the
1997 fiscal year. Coopers & Lybrand's reports on the Company's consolidated
financial statements as of and for each of the years ended April 28, 1996 and
April 30, 1995 were unqualified. During these years, there have been no
disagreements with Coopers & Lybrand LLP on any matter of accounting principles
or practices, financial statement disclosures, or auditing scope or procedure
or any reportable events.
Grant Thornton LLP was selected and approved by the executive officers,
and ratified by the Company's shareholders, as the Company's independent
certified public accountants for the year ending April 27, 1997.
(b) There have been no disagreements with the auditors on matters of
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of the
Registrant is included in the definitive Information Statement in the section
subtitled "Election of Directors," which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is included in the
definitive Information Statement in the section subtitled "Executive
Compensation," which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to the security ownership of certain
beneficial owners and management is included in the definitive Information
Statement in the section subtitled "Principal Shareholders," which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
is included in the definitive Information Statement in the section subtitled
"Indebtedness of Management," which is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(A)(1) FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ............................ F-1
Consolidated Balance Sheets at April 27, 1997 and April 28, 1996 .............. F-3
Consolidated Statements of Operations for the Years Ended
April 27, 1997, April 28, 1996 and April 30, 1995 ........................... F-5
Consolidated Statement of Stockholders' Equity for the Years
Ended April 27, 1997, April 28, 1996 and April 30, 1995 ..................... F-6
Consolidated Statements of Cash Flows for the Years Ended
April 27, 1997, April 28, 1996 and April 30, 1995 ........................... F-7
Notes to Consolidated Financial Statements .................................... F-9
(A)(2) FINANCIAL STATEMENT SCHEDULE:
Schedule II - Consolidated Schedule of Valuation and Qualifying
Accounts for the Years Ended April 27, 1997 and April 28, 1996 .............. F-17
</TABLE>
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT
-------------- --------
<S> <C>
(2)(i) Agreement and Plan of Reorganization*...................
(2)(ii) Certificate of Ownership and Merger* ...................
(3)(i) Certificate of Incorporation*...........................
(3)(ii) Bylaws*.................................................
(3)(iii) Amendment to Bylaws***..................................
(3)(iv) Amendment to the Certificate of Incorporation****.......
(4) Specimen of Common Stock Certificates*..................
(10)(i) Lease of Taylor Outlet*.................................
(10)(ii) Loan Agreement - Comerica Bank***.......................
(10)(iii) Lease of Oak Park Outlet**..............................
(10)(iv) Lease of Farmington Outlet**............................
(10)(v) Lease of Roseville Outlet**.............................
(10)(vi) Amendment to Oak Park Lease***..........................
(10)(vii) Employment Agreement - Matthew Martin***................
(10)(viii) Non-competition and Non-disclosure Agreement -
Matthew Martin***.....................................
(10)(ix) Employment Agreement - Timothy Collins***...............
(10)(x) Non-competition and Non-disclosure Agreement -
Timothy Collins***....................................
(10)(xi) Incentive Stock Option Plan***..........................
(10)(xii) Executive Incentive Stock Option Plan***................
</TABLE>
12
<PAGE> 13
* Incorporated by reference to the original filing of Form 10 on August 13,
1993
** Incorporated by reference to Amendment No. 1 to Form 10 on October 12,
1993
*** Incorporated by reference to Annual Report on Form 10K for the fiscal
year ended April 30, 1994 filed on July 29, 1994
**** Incorporated by reference to the Annual Report on Form 10K for the
fiscal year ended April 30, 1995 filed on July 28, 1995
(B) REPORTS ON FORM 8-K
A report on Form 8-K dated April 18, 1997 was filed during the fourth
quarter of fiscal 1997. Such report related to the change of accounting
and auditing firms for fiscal year ended April 27, 1997.
(C) EXHIBITS
See (a)(3) above
(D) FINANCIAL STATEMENT SCHEDULE
See (a)(2) above
13
<PAGE> 14
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cattleman's, Inc.
We have audited the accompanying consolidated balance sheet of Cattleman's,
Inc. (a Delaware corporation) and Subsidiary as of April 27, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Cattleman's, Inc.
and Subsidiary as of April 27, 1997, and the consolidated results of their
operations and their consolidated cash flows for the year then ended, in
conformity with generally accepted accounting principles.
We have also audited Schedule II for the year ended April 27, 1997. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON LLP
Detroit, Michigan
June 13, 1997
F-1
<PAGE> 15
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cattleman's, Inc.:
We have audited the accompanying consolidated balance sheet of Cattleman's,
Inc. and subsidiary as of April 28, 1996, and the related statements of income,
retained earnings, and cash flows for each of the two years in the period ended
April 28, 1996. We have also audited the financial statement schedule listed
in Item 14(a) of this Form 10-K for the year ended April 28, 1996. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cattleman's, Inc. and
subsidiary as of April 28, 1996, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
April 28, 1996 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basis financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
June 23, 1996
F-2
<PAGE> 16
CATTLEMAN'S, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 27, 1997 AND APRIL 28, 1996
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
ASSETS 1997 1996
<S> <C> <C>
----------- -----------
CURRENT ASSETS
Cash $919,261 $737,658
Accounts receivable, less allowance for doubtful
accounts of $100,000 in 1997 and $150,000 in 1996 4,529,592 4,700,314
Inventories 4,071,486 4,999,966
Prepaid expenses 491,244 579,558
Refundable income taxes 121,296 333,549
Deferred income taxes 64,000 113,000
----------- -----------
10,196,879 11,464,045
PROPERTY, PLANT AND EQUIPMENT
Land 188,416 147,166
Buildings and improvements 5,421,033 5,288,205
Equipment 5,852,531 5,436,474
Vehicles 166,946 166,244
----------- -----------
11,628,926 11,038,089
Less accumulated depreciation 6,083,869 4,984,191
----------- -----------
Net property, plant and equipment 5,545,057 6,053,898
OTHER ASSETS
Goodwill, net of accumulated amortization of $89,698
in 1997 and $65,880 in 1996 305,581 329,399
Loans - officers 300,576 294,554
Sundry 286,717 310,783
----------- -----------
$16,634,810 $18,452,679
=========== ===========
</TABLE>
F-3
<PAGE> 17
<TABLE>
<CAPTION>
APRIL 27, APRIL 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $4,384,516 $636,715
Accounts payable 3,487,582 4,219,886
Accrued expenses and other current liabilities 1,231,470 960,829
----------- -----------
9,103,568 5,817,430
LONG-TERM DEBT 2,446,924 7,415,764
DEFERRED INCOME TAXES 101,000 181,000
----------- -----------
Total Liabilities 11,651,492 13,414,194
COMMITMENTS AND CONTINGENCIES (NOTES H AND I) - -
STOCKHOLDERS' EQUITY
Common stock
$.001 par value; authorized, 4,500,000 shares;
issued and outstanding; 3,239,083 shares in
1997 and 3,289,983 shares in 1996 3,304 3,292
Capital in excess of par value 712,714 791,036
Retained earnings 4,267,300 4,244,157
----------- -----------
4,983,318 5,038,485
----------- -----------
$16,634,810 $18,452,679
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 18
CATTLEMAN'S, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
APRIL 27, APRIL 28, APRIL 30,
1997 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Sales $119,776,779 $125,279,271 $126,342,937
Cost of goods sold, including plant and
distribution 114,604,118 120,109,380 121,838,830
Selling, general and administrative expenses 4,422,448 4,741,217 4,457,359
-------------- -------------- -------------
Earnings from operations 750,213 428,674 46,748
Interest expense and other, net 655,070 623,833 480,509
-------------- -------------- -------------
Earnings (loss) before income tax 95,143 (195,159) (433,761)
Income tax (benefit)
Current 103,000 66,000 (189,000)
Deferred (31,000) (100,000) 109,000
-------------- -------------- -------------
72,000 (34,000) (80,000)
-------------- -------------- -------------
Net earnings (loss) $ 23,143 $ (161,159) $ (353,761)
============== ============== =============
Earnings (loss) per share of common stock $ 0.01 $ (0.05) $ (0.11)
============== ============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 19
CATTLEMAN'S, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL TOTAL
------------------------- EXCESS OF RETAINED STOCKHOLDERS
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
------------ --------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1994 3,267,583 $3,268 $779,950 $4,759,077 $5,542,295
Issuance of common stock 12,000 12 7,548 - 7,560
Net loss for year - - - (353,761) (353,761)
------------ --------- ------------ ---------- --------------
Balance, April 30, 1995 3,279,583 3,280 787,498 4,405,316 5,196,094
Issuance of common stock 12,000 12 6,738 - 6,750
Purchase and retirement of common stock (1,600) - (3,200) - (3,200)
Net loss for year - - - (161,159) (161,159)
------------ --------- ------------ ---------- --------------
Balance, April 28, 1996 3,289,983 3,292 791,036 4,244,157 5,038,485
Issuance of common stock 12,000 12 8,988 - 9,000
Purchase and retirement of common stock (62,900) - (87,310) - (87,310)
Net earnings for year - - - 23,143 23,143
------------ --------- ------------ ---------- --------------
Balance, April 27, 1997 3,239,083 $3,304 $712,714 $4,267,300 $4,983,318
============ ========= ============ ========== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 20
CATTLEMAN'S, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 1997, 1996 AND 1995
<TABLE>
<CAPTION>
APRIL 27, APRIL 28, APRIL 30,
1997 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 23,143 $ (161,159) $ (353,761)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation 1,113,700 985,958 821,732
Amortization 23,818 20,613 27,600
Deferred income taxes (31,000) (100,000) 109,000
Stock issued as compensation 9,000 3,550 7,560
Changes in operating assets and liabilities
Accounts receivable 170,722 (5,627) 1,495,098
Inventories 928,480 (412,809) 480,282
Prepaid expenses 88,314 (113,384) (13,180)
Accounts payable (732,304) (533,151) (1,686,779)
Accrued expenses and other current
liabilities 270,641 (226,507) (180,464)
Income taxes 212,253 (72,480) (179,069)
---------- ------------ ------------
Net cash provided by (used in)
operating activities 2,076,767 (614,996) 528,019
CASH FLOWS USED IN INVESTING ACTIVITIES
Increase (decrease) in loans to officers (6,022) (27,084) 8,172
Purchase of property, plant and equipment (337,461) (594,411) (1,680,556)
Decrease (increase) in sundry assets 24,066 (144,379) (42,830)
---------- ------------ ------------
Net cash used in investing activities (319,417) (765,874) (1,715,214)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving line
of credit, bank (2,028,302) 1,548,902 (150,508)
Borrowings on long-term debt 2,385,000 50,031 2,413,272
Payments on long-term debt (1,845,135) (628,240) (876,820)
Repurchase of common stock (87,310) - -
---------- ------------ ------------
Net cash (used in) provided by
financing activities (1,575,747) 970,693 1,385,944
Increase (decrease) in cash 181,603 (410,177) 198,749
Cash, beginning of year 737,658 1,147,835 949,086
---------- ------------ ------------
Cash, end of year $ 919,261 $ 737,658 $ 1,147,835
========== ============ ============
</TABLE>
F-7
<PAGE> 21
CATTLEMAN'S, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
YEARS ENDED APRIL 1997, 1996 AND 1995
<TABLE>
<CAPTION>
APRIL 27, APRIL 28, APRIL 30,
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION
Interest paid $668,586 $647,433 $487,283
Income taxes paid - 210,000 -
NONCASH INVESTING AND FINANCING ACTIVITIES
Long-term debt incurred for purchase of
property, plant and equipment $267,398 $50,031 $238,080
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
<PAGE> 22
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 27, 1997 AND APRIL 28, 1996
NOTE A - BUSINESS OPERATIONS
NATURE OF OPERATIONS
The Company converts beef carcasses into boxed beef and operates fresh food
retail outlets in the metropolitan area of Detroit, Michigan. Beef production
is sold throughout the United States, Canada, Mexico and the Caribbean with
some sales to the Far East. The Company purchases its beef primarily from the
three largest slaughtering companies in the country: Iowa Beef Processors,
Monfort and Excel.
The Company sells the majority of its beef production to restaurant and
institutional suppliers, fresh meat distributors, hotels and restaurants and
through five retail outlets.
FISCAL YEAR
The Company's fiscal year end is the last Sunday in April. Fiscal years ended
April 27, 1997, April 28, 1996 and April 30, 1995 consisted of 52 weeks.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Cattleman's Meat Company. All significant
intercompany accounts and transactions have been eliminated.
INVENTORIES
Inventories consist principally of finished goods and merchandise inventory.
Finished goods inventories are stated at the lower of cost (first-in, first-out
method) or market. Merchandise inventories are stated at the lower of cost or
market, using the retail method for store inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Capitalized amounts include
expenditures which materially extend the useful lives of existing property,
plant and equipment. Gains or losses from the disposal of property, plant and
equipment are included in the determination of income for the period and the
assets and corresponding accumulated depreciation are eliminated from the
accounts. Maintenance and repair expenditures are charged to expense when
incurred. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which range 10-40 years for building and
improvements and 5-10 years for equipment and vehicles.
F-9
<PAGE> 23
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over 15 years. On an
ongoing basis, management reviews the valuation and amortization of goodwill.
As part of the review, the Company estimates the value of and the estimated
undiscounted future net income expected to be generated by the related
subsidiary to determine that no impairment has occurred.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings (loss) per share of common stock are based on the weighted average
number of common shares outstanding during each year. The weighted average
number of shares outstanding was 3,265,391, 3,286,783, and 3,270,583 for 1997,
1996, and 1995, respectively. The potential dilution from shares issuable
under the employee stock option plan and warrants granted are excluded from the
computation of weighted average number of common shares outstanding since they
are not significant.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management make estimates and assumptions that
affect the reported amounts of assets and liabilities, at the date of the
financial statements, and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present. Statement 121 also addresses the accounting for assets
that are expected to be disposed of. The adoption of this standard in fiscal
year 1997 had no effect on the consolidated financial statements of the
Company.
In 1997, FASB issued Statement No. 128, Earnings Per Share, which (i) replaces
the presentation of primary earnings per share (EPS) with a presentation of
basic EPS; (ii) requires dual presentation of basic and diluted EPS on the face
of the consolidated statements of operations regardless of whether basic and
diluted EPS are the same; and (iii) requires a reconciliation of the numerator
and denominator used in computing basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS
pursuant to Accounting Principles Board Opinion 15.
F-10
<PAGE> 24
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. Statement 128 requires restatement of all prior-period EPS data
presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements in order for them to conform to the 1997 presentation.
NOTE C - LOANS - OFFICERS
The loans receivable, officers, are due April 30, 1999, including interest at
seven percent. Interest income amounted to approximately $17,000, $17,000 and
$26,000 in 1997, 1996 and 1995, respectively.
NOTE D - RETIREMENT PLANS
The Company maintains two defined contribution pension plans that cover
substantially all hourly employees. Contributions are based on eligible
compensation and hours worked. Pension expense approximated $127,000, $126,000
and $110,000 in 1997, 1996 and 1995, respectively.
The Company also has a profit-sharing and 401(k) plan in which all salaried
employees are eligible to participate. The plan provides for discretionary and
required contributions by the Company and allows participants to make pre-tax
contributions. Company contributions approximated $36,000, $33,000 and $38,000
in 1997, 1996 and 1995, respectively.
NOTE E - STOCK OPTIONS
In 1995, the Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123") for transactions
entered into during 1996 and thereafter. The Statement established a fair
value method of accounting for employee stock options and similar equity
instruments such as warrants, and encourages all companies to adopt that method
of accounting for all of their employee stock compensation plans. However, the
Statement allows companies to continue measuring compensation cost for such
plans using accounting guidance in place prior to SFAS No. 123. Companies that
elect to remain with the former method of accounting must make pro-forma
disclosures of net earnings and earnings per share as if the fair value method
provided for in SFAS No. 123 had been adopted.
The Company has not adopted the fair value accounting provisions of SFAS No.
123. Accordingly, SFAS No. 123 has no impact on the Company's consolidated
financial position or results of operation.
F-11
<PAGE> 25
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE E - STOCK OPTIONS (CONTINUED)
The Company accounts for the stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." No compensation costs have been
recognized for the plan.
In connection with the acquisition of Oak Farms, the Company granted three key
employees options to purchase a total of 150,000 shares of the Company's common
stock at $4.00 per share. The options vest over four years and expire October
31, 1997. At April 27, 1997, April 28, 1996, and April 30, 1995, 112,500,
75,000, and 37,500 options, respectively, were vested.
Effective October 1993, the Company adopted an executive incentive stock option
plan, authorizing the Company to grant up to 417,000 shares of the Company's
common stock to key employees. In 1994, the Company granted options to
purchase 417,000 shares at $4.00 per share. The options vest over five years
and expire October 31, 1998. At April 27, 1997, April 28, 1996, and April 30,
1995, 250,200, 166,800 and 83,400 options, respectively, were vested.
NOTE F - FINANCING ARRANGEMENTS
Effective June 23, 1994, the Company entered into an $11,700,000 loan agreement
with a bank. Under the terms of the agreement, the Company may borrow up to
$7,700,000 in revolving credit loans, and $4,000,000 in term loans.
Borrowings under the revolving credit loan are due June 1, 1997 and bear
interest at one and three-quarters percent above the bank's prime rate (10.0%
at April 27, 1997). Long-term debt consists of the following at April 27, 1997
and April 28, 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Revolving credit loans $4,089,791 $6,118,094
Term loan, bank, due in monthly installments of $40,000, plus interest
at 1.75 percent over the bank's prime rate until July 1, 1999, collateralized
by substantially all of the Company's assets and are limited by formulas based
upon eligible accounts receivable and inventory. - 1,560,000
Notes payable, due in monthly installments of $17,472, including
interest at 10.50 percent, until October 18, 2016, collateralized by real
property and its contents and personally guaranteed by the Chairman of the
Board. 1,737,249 -
</TABLE>
F-12
<PAGE> 26
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE F - FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment note payable, due in monthly installments of $14,583,
including interest at 10.20 percent, until October 17, 2000, collateralized by
food processing equipment and personally guaranteed by the Chairman of the
Board. 547,500 -
Equipment note payable, due in monthly installments of $5,000, no stated
interest (interest imputed at 9.5 percent), until October 14, 2000,
collateralized by a cogeneration system. 170,917 219,015
Capitalized lease obligations, due in monthly installments, including
interest at various rates from 8.7 and 13.0 percent, until May 20,
2003, collateralized by equipment. 249,237 100,211
Notes payable, due in monthly installments, including interest at
various interest rates from 7.8 to 10.5 percent, until February 29, 2000,
collateralized by vehicles. 36,746 55,159
---------- ----------
Long-term Debt 6,831,440 8,052,479
Less current portion 4,384,516 636,715
---------- ----------
$2,446,924 $7,415,764
========== ==========
</TABLE>
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of debt approximates
its carrying value.
The annual maturities of long-term debt during the next five years (excluding
the capital lease obligations) are as follows:
<TABLE>
<CAPTION>
ANNUAL
FISCAL YEAR MATURITIES
----------- ----------
<S> <C>
1998 $4,354,161
1999 272,173
2000 268,219
2001 81,959
2002 41,774
Thereafter 1,563,917
----------
$6,582,203
==========
</TABLE></Tabl
F-13
<PAGE> 27
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE F - FINANCING ARRANGEMENTS (CONTINUED)
Outstanding letters of credit amounted to $1,150,000 at April 27, 1997.
The Company's banking arrangement provides that substantially all of its cash
receipts are wire transferred on a daily basis to the bank as payment against
the revolving credit facility. Disbursements are funded on a daily basis by
borrowing against the revolving credit facility. Accounts payable, as
reflected on the consolidated balance sheet, includes disbursements to be
funded by transfers from the bank, in accordance with the banking arrangement.
This amounted to $823,000 at April 27, 1997 and $1,800,000 at April 28, 1996,
respectively. Substantially all cash, as reflected on the consolidated balance
sheet, will be applied to the outstanding balance on the revolving credit
facility in the following week.
The equipment note payable was issued in connection with the purchase of
certain equipment. Under the terms of the purchase, the Company has reserved
250,000 shares of its common stock which the vendor may acquire for nominal
consideration in the event the Company defaults on the equipment note payable.
Property under capital leases, included in property, plant and equipment,
consists of the following at April 27, 1997 and April 28, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Equipment $728,563 $461,165
Less accumulated depreciation 227,776 192,047
-------- --------
Total property under capital lease $500,787 $269,118
======== ========
</TABLE>
Future minimum rents for property under capital leases are as follows:
<TABLE>
<CAPTION>
1997
---------
<S> <C>
1998 $ 52,170
1999 46,670
2000 46,670
2001 45,159
2002 37,430
Thereafter 110,376
---------
Total minimum lease obligation 338,475
Less amount representing interest 89,238
---------
Present value of total minimum lease obligations $249,237
=========
</TABLE>
F-14
<PAGE> 28
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE G - INCOME TAXES
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the basis of assets and liabilities for financial reporting
purposes and such basis as measured by tax laws and regulations. The
components of deferred income tax assets and liabilities as of April 27, 1997
and April 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
DEFERRED TAX DEFERRED TAX
---------------------- -----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Depreciation $ - $158,000 $ - $226,000
Prepaid bonuses - 40,000 - 54,000
Vacation expense 67,000 - 65,000 -
Bad debts 34,000 - 51,000 -
Medical expenses - - 34,000 -
Other 60,000 - 62,000 -
--------- --------- --------- ---------
$161,000 $198,000 $212,000 $280,000
========= ========= ========= =========
</TABLE>
Major differences between the income tax expense at the federal statutory rate
of 34 percent and the Company's provision for taxes on income are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
APRIL 27, APRIL 28, APRIL 30,
TAX DIFFERENCES 1997 1996 1995
--------------------------- ----------- --------- -----------
<S> <C> <C> <C>
Federal statutory rate $33,000 $(61,000) $(146,000)
Officers' life insurance expense 14,000 3,000 20,000
Meals and entertainment 17,000 15,000 16,000
Amortization of goodwill 8,000 9,000 9,000
Other - - 21,000
----------- -------- ----------
Provision (benefit) for income taxes $72,000 $(34,000) $(80,000)
=========== ======== ===========
</TABLE>
NOTE H - COMMITMENTS
The Company is obligated under noncancelable operating leases through November
30, 2004. The lease agreements include payment of real property tax as well as
operating expenses. Approximate minimum future lease payments are as follows:
<TABLE>
<S> <C>
1998 $ 310,000
1999 314,000
2000 320,000
2001 322,000
2002 295,000
Thereafter 492,000
----------
Total $2,053,000
==========
</TABLE>
F-15
<PAGE> 29
CATTLEMAN'S, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
APRIL 27, 1997 AND APRIL 28, 1996
NOTE H - COMMITMENTS (CONTINUED)
Rent expense amounted to approximately $309,000, $391,000 and $395,000 during
1997, 1996 and 1995, respectively.
NOTE I - CONTINGENCIES
The Company may from time to time, be involved in routine litigation and
various legal efforts incidental to the normal operations of its business. In
management's opinion, none of these matters presently will result in a material
liability.
In late September, early October, 1996, there was an apparent outbreak of
Legionnaires' Disease in the Farmington/Farmington Hills area. In a press
statement issued by the Oakland County Health Department on November 8, 1996,
Oakland County indicated that they found Legionella bacteria in the water
cooling condenser located on top of Cattleman's retail facility located in
Farmington, Michigan. There were thirty reported cases and four reported
fatalities. Cattleman's is cooperating with the County to take all actions
necessary to clean its water tower condenser.
Cattleman's is currently investigating the County's investigative procedures
and findings in this regard. Cattleman's believes that there was no negligence
on its part and Cattleman's believes that it has adequate insurance to cover
any lawsuits which might arise. The effect on sales is unknown.
F-16
<PAGE> 30
CATTLEMAN'S
SCHEDULE II
Consolidated Schedule of Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT BALANCE
FOR THE BEGINNING AT END
YEAR ENDED DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
April 27, 1997 Allowance for Doubtful
Accounts Receivable $150,000 $67,246 $117,246 $100,000
April 28, 1996 Allowance for Doubtful
Accounts Receivable $175,000 $96,401 $121,401 $150,000
</TABLE>
F-17
<PAGE> 31
SIGNATURES
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.
CATTLEMAN'S, INC.
a Delaware corporation
By: /s/ DAVID S. ROHTBART
--------------------------------------
David S. Rohtbart
lts: President and Chief Executive Officer
Date: July 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ MARKUS ROHTBART /s/ DAVID S. ROHTBART
- -------------------------------------- -------------------------------------
(Markus Rohtbart, Chairman of the (David S. Rohtbart, President,
Board and Treasurer) Chief Executive Officer and Director)
/s/ SAMUEL FEIG /s/ MATTHEW G. MARTIN
- -------------------------------------- -------------------------------------
(Samuel Feig, Director) (Matthew G. Martin, Chief Operating
and Financial Officer)
<PAGE> 32
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-27-1997
<PERIOD-START> APR-29-1996
<PERIOD-END> APR-27-1997
<CASH> 919
<SECURITIES> 0
<RECEIVABLES> 4,529
<ALLOWANCES> 100
<INVENTORY> 4,071
<CURRENT-ASSETS> 10,196
<PP&E> 11,628
<DEPRECIATION> 6,083
<TOTAL-ASSETS> 16,634
<CURRENT-LIABILITIES> 9,103
<BONDS> 2,547
0
0
<COMMON> 3
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,634
<SALES> 119,776
<TOTAL-REVENUES> 119,776
<CGS> 114,604
<TOTAL-COSTS> 114,604
<OTHER-EXPENSES> 4,422
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> 95
<INCOME-TAX> 72
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
