SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Report Date (Date of earliest event reported): December 29, 1995
THE COLONEL'S INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
MICHIGAN 2-98277C 38-3262264
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification
Number)
620 SOUTH PLATT ROAD
MILAN, MICHIGAN 48160
(Address of principal executive offices) (Zip Code)
(313) 439-4200
(Registrant's telephone number, including area code)
BRAINERD INTERNATIONAL, INC.
(Former name or former address, if changed since last report)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
As previously reported on Form 8-K, dated January 12, 1996,
effective December 31, 1995, Brainerd International, Inc. merged with and
into The Colonel's International, Inc., with The Colonel's International,
Inc. as the surviving corporation (the "Brainerd Merger"). The 677,830
shares of Brainerd International, Inc. common stock outstanding before the
Brainerd Merger remained outstanding as 677,830 shares of common stock of
The Colonel's International, Inc. following the Brainerd Merger.
Additionally, effective December 31, 1995, Brainerd Merger Corporation, a
wholly owned subsidiary of The Colonel's International, Inc., merged with
and into The Colonel's, Inc. ("The Colonel's Merger"). As consideration
for The Colonel's Merger, The Colonel's International, Inc. issued
23,500,000 shares of common stock to shareholders of The Colonel's, Inc.
The shareholders of The Colonel's, Inc. were Donald J. Williamson and Patsy
Williamson. Prior to The Colonel's Merger, Mr. Williamson owned 67,080
shares of Brainerd International, Inc. common stock, representing 9.9% of
Brainerd's outstanding stock. Following The Colonel's Merger, Mr. and Mrs.
Williamson beneficially own 23,567,080 shares of The Colonel's
International, Inc. common stock representing 97.5% of it's outstanding
stock.
The merger transactions were previously reported and described in
further detail in the Registrant's Proxy Statement dated October 23, 1995
as filed with the Securities and Exchange Commission on October 25, 1995.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported on Form 8-K, dated January 12, 1996,
effective December 31, 1995, Brainerd International, Inc. merged with and
into The Colonel's International, Inc. and Brainerd Merger Corporation
merged with and into The Colonel's, Inc., as set forth in Item 1.
Immediately prior to the mergers, Donald J. Williamson owned 67,080 shares
of Brainerd International, Inc. common stock. The merger transactions and
the nature of any material relationship between Donald J. Williamson and
the Registrant and its directors or officers were previously reported and
described in the Registrant's Proxy Statement dated October 23, 1995 as
filed with the Securities and Exchange Commission on October 25, 1995.
The purpose of this amendment of the Form 8-K dated January 12, 1996,
is to include the required financial statements of the business acquired
and pro forma financial information that was not previously available.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The Financial Statements of Business Acquired required by this
Item follow on pages 5-26 and are filed as part of this report.
(b) The Pro Forma Financial Information required by this Item follows
on pages 27-28 and is filed as part of this report.
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(c) Exhibits:
2 Agreement and Plan of Merger, incorporated herein by
reference from the registrant's definitive Proxy Statement filed with the
Securities and Exchange Commission on October 25, 1995.
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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 hereunto duly authorized.
THE COLONEL'S
INTERNATIONAL, INC.
Date: March 12, 1996 By: /S/ JEFFREY A. CHIMOVITZ
Jeffrey A. Chimovitz
Vice President, General Counsel
and Secretary
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INDEPENDENT AUDITORS' REPORT
To the Stockholders of
The Colonel's International, Inc.
Milan, Michigan
We have audited the accompanying consolidated balance sheets of The Colonel's
International, Inc. (the "Company") as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years ended December 31, 1995. 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, in conformity with generally accepted
accounting principles.
March 4, 1996
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 634,290 $ 164,286
Accounts receivable:
Trade (net of allowance for doubtful accounts of
$401,200 and $345,900 at December 31, 1995
and 1994, respectively) (Note 7) 2,292,112 2,474,565
Insurance (Note 14) 4,352,239
Inventories (Note 4 and 7) 6,805,906 5,696,584
Prepaid expenses 164,692 239,935
Notes receivable:
Related party (Notes 6 and 13) 240,000 863,658
Other (Note 6) 302,401 222,381
Deferred taxes - current (Note 10) 917,000
Current portion of deferred compensation (Note 11) 52,000 204,436
Assets held for sale (Note 14) 75,000 350,000
Total current assets 11,483,401 14,568,084
PROPERTY, PLANT AND EQUIPMENT - Net
(Notes 5, 8 and 11) 20,876,669 12,552,006
OTHER ASSETS:
Notes receivable:
Related party (Notes 6 and 13) 250,000 1,969,645
Other (Note 6) 43,285
Long-term portion of deferred compensation (Note 11) 266,163 624,136
Deposits 4,757,342 1,247,727
Goodwill 425,609
Other 184,802 525,000
Total other assets 5,883,916 4,409,793
TOTAL ASSETS (Note 8) $ 38,243,986 $ 31,529,883
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 7) $ 4,180,000 $ 6,000,000
Current portion of long-term obligations (Note 8) 5,424,455 1,843,218
Accounts payable - trade 2,938,494 2,809,113
Accrued expenses (Note 9) 2,431,074 5,194,411
Current portion of deferred compensation (Note 11) 52,000 204,436
Total current liabilities 15,026,023 16,051,178
LONG-TERM OBLIGATIONS, NET OF CURRENT
PORTION (Note 8) 6,064,705 1,366,615
LONG-TERM PORTION OF DEFERRED
COMPENSATION (Note 11) 266,163 624,136
DEFERRED TAXES - LONG TERM (Note 10) 4,014,000
STOCKHOLDERS' EQUITY:
Common stock; 35,000,000 shares authorized at
$.01 par value, 24,177,830 shares issued and
outstanding (Note 3) 241,778
Common stock; 10,000,000 shares authorized at
$.10 par value, 6,021,000 shares issued and
outstanding 602,100
Additional paid-in capital 5,557,833 1,244,511
Retained earnings 7,073,484 11,641,343
Total stockholders' equity 12,873,095 13,487,954
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,243,986 $ 31,529,883
See notes to consolidated financial statements.
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995<F1> 1994 1993
SALES (Note 13) $ 28,503,726 $ 28,492,013 $ 25,174,656
COST OF SALES (Note 13) 19,998,308 19,599,470 19,396,926
GROSS PROFIT 8,505,418 8,892,543 5,777,730
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,534,648 5,101,270 6,318,782
PLANT CLOSING COSTS (Note 15) 1,389,368
Income (loss) from operations 4,970,770 2,401,905 (541,052)
OTHER INCOME (EXPENSE):
Interest expense (971,623) (785,969) (864,681)
Interest income (Note 13) 119,628 106,773 206,480
Gain on insurance settlement (Note 14) 9,081,662 9,043,282
Rental income (Note 13) 71,000 73,000 87,750
Other 5,699 10,343 (169,573)
Other income (expense), net (775,296) 8,485,809 8,303,258
NET INCOME BEFORE INCOME TAXES 4,195,474 10,887,714 7,762,206
PROVISION FOR INCOME TAXES (Note 10) 2,333,000
NET INCOME $ 1,862,474 $ 10,887,714 $ 7,762,206
PROFORMA EARNINGS PER SHARE (Note 18) $ 0.11
<FN>
<F1> The merger by which The Colonel's, Inc. became a subsidiary
of The Colonel's International, Inc. was effective December 31,
1995. Therefore, the statements of income reflect only the
results of operations of The Colonel's, Inc. See Note 3 for
the proforma results of operations of The Colonel's, Inc. and
CII as if they had been combined for 1995.
</FN>
See notes to consolidated financial statements.
-8-
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
ADDITIONAL NOTE
COMMON STOCK PAID IN RECEIVABLE - RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
BALANCE, JANUARY 1, 1994 6,021,000 $ 602,100 $ 1,244,511 $ (4,500,000) $ 9,252,867 $ 6,599,478
Net income 7,762,206 7,762,206
Transactions with stockholders
(Notes 6 and 13) 1,500,000 (9,334,273) (7,834,273)
BALANCE, DECEMBER 31, 1994 6,021,000 602,100 1,244,511 (3,000,000) 7,680,800 6,527,411
Net income 10,887,714 10,887,714
Transactions with stockholders
(Notes 6 and 13) 3,000,000 (6,927,171) (3,927,171)
BALANCE, DECEMBER 31, 1994 6,021,000 602,100 1,244,511 None 11,641,343 13,487,954
Net income 1,862,474 1,862,474
Transactions with stockholders
(Notes 6 and 13) (6,430,333) (6,430,333)
Change in par value from $.10
to $.01 (596,079) 596,079
Exchange of common shares to
affect merger (see Note 3) 18,156,830 235,757 3,717,243 3,953,000
BALANCE, DECEMBER 31, 1995 24,177,830 $ 241,778 $ 5,557,833 None $ 7,073,484 $ 12,873,095
See notes to consolidated financial statements.
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,862,474 $ 10,887,714 $ 7,762,206
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 2,673,758 3,075,351 3,052,275
Deferred tax provision 2,333,000
Net book value of property and equipment
destroyed in fire 1,588,670
Provision for impairment of assets held for sale 1,109,368 200,000
(Gain) loss on sale of property and equipment 22,573 1,584 (2,499)
Changes in assets and liabilities that provided
(used) cash, net of effects from the
acquisition:
Accounts receivable:
Trade 182,453 (875,598) 146,064
Related parties 173,400 (48,055)
Insurance 4,352,239 (53,036) (4,299,203)
Inventories (683,346) (2,457,547) 228,732
Prepaid expenses 90,998 85,342 (150,020)
Accounts payable 71,600 (1,131,386) 2,079,525
Accrued expenses (2,855,361) 24,414 4,071,571
Net cash provided by operating activities 8,050,388 10,839,606 14,629,266
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Brainerd, net of cash
acquired (Note 3) 277,237
Expenditures for property, plant and equipment (5,584,083) (5,905,381) (3,468,238)
Proceeds from sale of property, plant and
equipment 8,964 2,802 10,300
Net change in deposits (principally for tooling
and equipment) (3,509,615) 1,384,885 (1,929,881)
Additions to notes receivable - related party (1,243,291) (886,369) (1,303,744)
Payments received on notes receivable -
related party 1,205,117 35,604 203,155
Payments received on notes receivable - other 237,209 237,663 37,422
Proceeds from sale of assets held for sale 275,000
Net cash used in investing activities (8,333,462) (5,130,796) (6,450,986)
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable (1,820,000) 3,900,000
Proceeds from long-term obligations 8,087,062 1,700,000
Principal payments on long-term debt (2,956,790) (5,993,777) (3,631,459)
Proceeds from issuance of capital leases 2,731,277
Principal payment on obligations under
capital leases (126,218) (173,995) (151,665)
Distributions paid to stockholders (5,162,253) (1,810,047) (7,834,273)
Net cash provided by (used in)
financing activities 753,078 (7,977,819) (6,017,397)
NET INCREASE (DECREASE) IN CASH 470,004 (2,269,009) 2,160,883
CASH, BEGINNING OF YEAR 164,286 2,433,295 272,412
CASH, END OF YEAR $ 634,290 $ 164,286 $ 2,433,295
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION - Cash paid during
the year for interest $ 910,706 $ 901,327 $ 821,167
SUPPLEMENTAL SCHEDULES OF
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Reclassification of note receivable as
stockholder distribution $ 1,482,024 $ 3,000,000 $ 1,500,000
Property received as payment on note
receivable $ 473,477
Inventory received as payment on note
receivable $ 425,976
Stockholder contribution of note receivable $ 213,944
Notes payable received on sale of property $ 60,000
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THE COLONEL'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION
The Colonel's International, Inc. ("CII") is a holding company for two
wholly-owned subsidiaries, The Colonel's, Inc. ("The Colonel's") and
Brainerd International Raceway, Inc. ("BIRI") (See Note 3). The Colonel's
was incorporated in Michigan in 1982 and principally designs, manufactures
and distributes plastic automotive bumper fascias and miscellaneous
reinforcement beams and brackets, as replacement collision parts to the
automotive aftermarket industry in North America. The Colonel's
manufactures its products using reaction injection molding and plastic
injection molding technology and sells its products throughout North
America through its warehouses and a network of distributors. BIRI was
incorporated in Minnesota in 1982 and operates a multi-purpose motor sports
facility in Brainerd, Minnesota. BIRI organizes and promotes various
spectator events relating to road and drag races.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts
of CII and its subsidiaries, the Colonel's and BIRI, from the date of
acquisition. All significant intercompany accounts and transactions have
been eliminated.
INVENTORIES are stated at the lower of cost or market, and cost is
determined by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets as follows:
Track 7 years
Buildings 15 years
Leasehold improvements 10-25 years
Equipment 5-10 years
Bleachers and fencing 5 years
Furniture and fixtures 3-10 years
Vehicles 3-7 years
Tooling 5-7 years
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Leasehold improvements are amortized over the shorter of the life of the
lease or their estimated useful life of 10-25 years.
Expenditures for major renewals and betterments that extend the useful life
of the related property, plant and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. When
properties are retired or sold, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss on
disposition is recognized.
REVENUE RECOGNITION - Sales and trade accounts receivable are recognized at
the time the product is shipped to the Company's customers.
ASSETS HELD FOR SALE - Assets held for sale include certain machinery,
equipment and real estate not needed in CII's operations. These assets
have been valued at the lower of cost or net realizable value, and are
classified as short or long term based on the anticipated time of sale.
GOODWILL - Goodwill is being amortized using the straight-line method over
15 years, the estimated period of benefit.
ACCRUED LEGAL FEES - Anticipated legal and other professional fees are
accrued in the same period that the related legal matters are accrued.
ACCRUED ENVIRONMENTAL COSTS - CII accounts for environmental costs when
environmental assessments or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals
coincide with the earlier of a feasibility study or CII's commitment to a
plan of action based on the known facts. Accruals are recorded based on
existing technology available, presently enacted laws and regulations, and
without giving effect to insurance proceeds. Such accruals are not
discounted. As assessments and cleanups proceed, environmental accruals
are periodically reviewed and adjusted as additional information becomes
available as to the nature or extent of contamination, methods of
remediation required, and other actions by governmental agencies or private
parties.
INCOME TAX - Effective December 31, 1995, The Colonel's changed its tax
status from an S Corporation to a C Corporation for federal income tax
purposes. As a result this change from a non-taxable entity to a taxable
entity, The Colonel's recorded a $2,333,000 charge to income, to reflect
the tax consequences of differences between the tax bases of The Colonel's
assets and liabilities at that date. Prior to December 31, 1995, The
Colonel's income was not taxable to the company and was passed through to
its stockholders.
FINANCIAL INSTRUMENTS - The carrying value of financial instruments
included in the balance sheets approximate fair value.
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USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the operating period. Actual results could differ from
those estimates.
RECLASSIFICATIONS - Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
3. BUSINESS COMBINATION
Effective December 31, 1995, CII completed its merger with The Colonel's.
CII issued 23,500,000 shares of its common stock in exchange for all of the
outstanding common stock of The Colonel's. For accounting purposes, the
acquisition has been treated as a recapitalization of The Colonel's with
The Colonel's as the acquirer ("reverse acquisition"). The historical
financial statements prior to December 31, 1995 are those of The
Colonel's. In addition, the weighted average common shares outstanding
for purposes of calculating the earnings per share have been retroactively
restated to give effect to the recapitalization.
The purchase price was $3,953,000 based on the fair value of CII at the
consummation date of the acquisition, which was allocated to the assets
acquired and liabilities assumed based on the estimated fair values at the
date of acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired has been recorded as goodwill, which
will be amortized over 15 years. The estimated fair value of assets and
liabilities acquired are summarized as follows:
Cash $ 277,237
Property and equipment 4,682,400
Goodwill 425,609
Other 25,556
Accrued liabilities (83,810)
Accrued federal income tax (66,000)
Debt (543,992)
Deferred tax liability (764,000)
Total $ 3,953,000
There are no operating results of this acquisition included in CII's
consolidated results of operations since the date of acquisition was
December 31, 1995. The following unaudited proforma summary presents
the consolidated results of operations as if the acquisition had
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occurred at the beginning of the period presented, giving effect to
certain adjustments for the amortization of goodwill and the effect
of income taxes. These proforma results have been prepared for
comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made at the
beginning of the period presented or of results that may occur in the
future.
(In Thousands) 1995 1994
Revenue $ 31,382 $ 30,942
Income before taxes $ 4,385 $ 10,886
Net income $ 2,915 $ 7,126
Earnings per share $ 0.12 $ 0.29
4. INVENTORIES
Inventories at December 31 are summarized as follows:
1995 1994
Finished products $ 6,168,440 $ 5,320,211
Raw materials 637,466 376,373
Total inventories $ 6,805,906 $ 5,696,584
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5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized by major
classifications as follows:
1995 1994
Land and improvements $ 2,269,400 $ 30,000
Track 1,537,800
Buildings 622,000
Lease improvements 707,076 381,883
Bleachers and fencing 432,200
Equipment (including equipment under capital lease) 10,460,954 6,500,354
Transportation equipment (including equipment
under capital lease) 609,097 1,465,918
Furniture and fixtures 537,230 364,906
Tooling 19,658,447 17,107,267
Total 36,834,204 25,850,328
Less accumulated depreciation and amortization (15,957,535) (13,298,322)
Net property, plant and equipment $ 20,876,669 $ 12,552,006
Included in the amounts above are trucks and equipment under capital
leases with a net book value of $2,666,598 and $228,629 at December
31, 1995 and 1994, respectively.
6. NOTES RECEIVABLE
Notes receivable at December 31 are summarized as follows:
1995 1994
Notes receivable from a company affiliated through
common control and ownership, due on demand,
bearing interest at the prime rate, collateralized
by property and assets $ 490,000 $ 695,117
Notes receivable from customer, aggregate monthly
installments of $20,629 including interest at 7%,
commencing February 1, 1993, secured by shares
of common stock of a company 28,457 242,887
Mortgage receivable from an individual, monthly
interest payments at 8% per annum, principal due
November 15, 1998, collateralized by land, paid
in March 1996 213,944
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Land contract receivable from an individual, due
in monthly installments of $650, including
interest at 9% per annum, collateralized by land,
paid in March 1996 60,000
Note receivable from a company affiliated through
common control and ownership repaid in 1995 2,138,186
Other 22,799
Total 792,401 3,098,969
Less current portion (542,401) (1,086,039)
Long-term $ 250,000 $ 2,012,930
7. NOTES PAYABLE
Notes payable at December 31 consist of the following short-term credit
facilities:
1995 1994
Line of credit with a bank, interest is due monthly at
the bank's prime rate (9.0% and 8.5% at December 31,
1995 and 1994, respectively) $ 4,180,000 $ 4,500,000
Bridge notes payable to a bank, repaid in 1995 1,500,000
$ 4,180,000 $ 6,000,000
CII's has a line of credit with a bank which provides for maximum
borrowings of $4,500,000, based upon eligible accounts receivable and
inventories. Remaining availability under the line of credit at December
31, 1995 was $320,000. The line of credit expires August 1, 1996.
CII also has a second line of credit with a bank which provides for maximum
borrowings of $300,000 with interest at prime plus 1-1/2% (effective rate
of 10% at December 31, 1995), of which none was outstanding at December 31,
1995.
The short-term credit facilities are with the same bank as the term note
(Note 8) and are secured by the same collateral. The weighted average
interest rate on the short-term credit facilities were 8.81% and 7.25%
in 1995 and 1994, respectively.
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8. LONG-TERM OBLIGATIONS
Long-term obligations at December 31 consist of the following:
1995 1994
Term note payable to a bank, monthly principal
payments of $200,000 plus interest at the bank's
prime rate plus 1/2% (effective rate of 9% at
December 31, 1995) through November 1997 $ 4,800,000
Term note payable to a bank, repaid in 1995 $ 1,275,000
Mortgage payable to bank, interest at 9.25%,
payable in monthly installments of $52,000
through May 1998, and secured by underlying
property 1,326,825 1,808,615
Mortgage payable to a bank, interest at the bank's
prime rate plus 2% (effective rate of 10.5% at
December 31, 1995), monthly principal
payments of $50,000 plus interest, through
September 2004. Secured by underlying
property 450,000
Capital lease obligations through December 2002;
monthly installments of $41,245 including
interest at rates between 7.5% and 8.75%,
collateralized by the related machinery and
equipment (see Note 11) 2,689,007
Bridge financing from a bank for future equipment
leases, interest due monthly at the bank's prime
rate (effective rate of 8.5% at December 31,
1995) 2,087,065
Other 136,263 126,218
Total 11,489,160 3,209,833
Less current portion (5,424,455) 1,843,218)
Long-term $ 6,064,705 $ 1,366,615
The term note is part of a bank loan agreement that includes CII's
short-term credit facilities (Note 7). This bank loan agreement is
guaranteed by certain stockholders of CII and collateralized by a first
priority security interest in substantially all CII's assets and by all of
CII's issued and outstanding shares of common stock and contains certain
covenants which requires CII to maintain minimum levels of net worth and
not to exceed certain debt ratios.
The bridge financing from a bank represents amounts advanced to CII for the
purchase of tooling and machinery that CII expects to refinance as capital
leases on a long-term basis.
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In 1994, CII assumed the outstanding mortgage payable of approximately
$2,100,000 on CII's Owosso facility from its stockholders. The
assumption of the mortgage was treated as a distribution to the
stockholders in the 1994 financial statements.
The scheduled future repayments of long-term obligations at December 31,
1995 are as follows:
1996 $ 5,424,455
1997 3,373,164
1998 644,040
1999 452,405
2000 469,966
Thereafter 1,125,130
Total $ 11,489,160
9. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
1995 1994
Accrued legal (Note 16) $ 349,331 $ 1,095,406
Accrued compensation for NuPar (Note 16) 900,000 1,800,000
Accrued environmental costs (Note 17) 598,717 850,000
Accrued taxes 276,619 661,230
Accrued plant closing costs (Note 15) 355,000
Other 306,407 432,775
Total $ 2,431,074 $ 5,194,411
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10. INCOME TAXES
Effective December 31, 1995, The Colonel's changed its tax status from a
non-taxable entity to a taxable entity. The tax provision for 1995
reflects the charge to income for the changes in The Colonel's tax status.
CII expects its future effective tax rate to approximately 37%, at 34%
statutory federal rate and 3% state tax rate, net of federal benefit. The
temporary differences at December 31, 1995 that give rise to the recorded
deferred taxes, including amounts acquired in the acquisition (Note 3) are
as follows:
DEFERRED
TAX ASSET
(LIABILITY)
Deferred tax assets:
Allowance for doubtful accounts $ 140,000
Inventory 124,300
Accrued expenses 652,700
Net operating loss carryforwards 433,000
Other 77,000
Total 1,427,000
Valuation allowance (510,000)
917,000
Deferred liability:
Depreciation (3,494,000)
Other (520,000)
(4,014,000)
Total net deferred tax liability $ (3,097,000)
At December 31, 1995, CII has net operating loss carryforwards for tax
purposes relating to its BIRI subsidiary as follows:
EXPIRATION DATE AMOUNT
2004 $ 342,000
2005 599,000
2008 332,000
CII has put a valuation allowance on 100% of these amounts because
management believes it is more likely than not that the net operating loss
carryforwards will not be utilized due to limitations in existing tax laws
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on their use. Should such net operating losses be utilized, the effect
will be a reduction in the amount of goodwill.
11. COMMITMENTS
CII leases trucks and equipment under capital leases (see Notes 5 and 8).
CII also leases warehouse space under noncancelable operating agreements.
The warehouse leases require that CII pay the taxes, insurance and
maintenance expense related to the leased property. Minimum future lease
payments under noncancelable leases at December 31, 1995 are summarized as
follows:
CAPITAL OPERATING
LEASES LEASES
Years ending December 31:
1996 $ 494,937 $ 1,422,300
1997 494,937 1,143,228
1998 494,937 1,041,424
1999 494,937 934,248
2000 494,937 847,854
Thereafter 989,874 4,200,000
Total 3,464,559 $ 9,589,054
Less amount representing interest 775,552
Present value of minimum lease payments 2,689,007
Less current maturities 302,279
Long-term portion of capital lease obligations $ 2,386,728
Rent expense, including month to month rentals, was approximately
$1,447,000, $2,242,000 and $2,072,000 for the three years ended December
31, 1995, 1994 and 1993, respectively. Included in rent expenses are
amounts paid to the related parties of CII for rental of its principal
operating facilities (see Note 13).
CII had a ten-year employment agreement ending in 1997 with a key employee
who is related to the CII's majority stockholder. CII recorded a liability
and related deferred costs for the remaining compensation due under the
terms of the agreement based upon the net present value of such payments.
In 1995, the employee terminated the agreement and relinquished these
rights to further compensation.
CII entered into a ten-year consulting agreement beginning January 1, 1994,
with the former president of the Company. The agreement guarantees him
$52,000 per year. CII may terminate this agreement, but is obligated to
pay the remaining compensation due under the terms of the agreement. CII
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recorded a liability and related deferred costs for the remaining
compensation due under the terms of the agreement based upon the net
present value of such payments. The deferred cost amount is being
amortized to operations over the term of the agreement.
12. STOCK OPTIONS
CII has an incentive stock option plan that provides for up to
3,000,000 shares of common stock options to key employees, executive
officers and outside directors, and also permits the grant or award
of restricted stock, stock appreciation rights or stock awards.
There have been no issuances under this plan.
13. RELATED PARTY TRANSACTIONS
The primary parties related to the Company are as follows:
- The majority stockholders, with whom various transactions are made,
including payment of monthly rent for the Owosso facility through
March 1994;
- 620 Platt Road, Inc. ("Platt"), a company affiliated through common
ownership, to which rental payments are made for the Milan facility;
- The Colonel's Factory Outlet of Arkansas, Inc. ("Arkansas"), a
company affiliated through common ownership, with which various
transactions are made, including sales and purchases of inventory,
and payment for and reimbursement of Arkansas' expenses; and
- Blain Buick - GMC, Inc. ("Blain"), a company affiliated through
common ownership, from which automobiles, parts, and service are
purchased, and rental income is earned.
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A summary of transactions with these related parties is as follows:
1995 1994 1993
Majority Stockholder:
Short-term advances to stockholders $ 5,162,753 $ 13,802,190 $ 8,040,744
Cash payments on short-term advances (500) (11,992,143) (206,471)
Reduction of note receivable 1,482,024 3,000,000 1,500,000
Assumption of land contract receivable (213,944)
Assumption of mortgage 2,117,124
Stockholder distributions 6,430,333 6,927,171 9,334,273
Rental expense 280,000 840,000
Platt - rental expense 840,000 840,000 490,000
Arkansas:
Sales of inventory 346,000 309,500 568,300
Purchases of inventory 744,600 224,300 300,400
Inventory in satisfaction of note receivable 425,976
Property, plant and equipment in
satisfaction of note receivable 473,477
Cash in satisfaction of note receivable 1,000,000
Blain:
Purchases of automobiles, parts and
service 73,500 147,000 52,000
Rental income 11,000 12,000 12,000
Interest income on note receivable 43,400 48,000 52,000
14. PLANT FIRE
In 1993, CII's leased facility in Owosso, Michigan which included its
headquarters, sales offices and the principal manufacturing and warehouse
facilities, was destroyed by a fire. The fire caused a complete loss of
the approximate 280,000 square foot facility and damaged inventory,
equipment and other contents therein. In late 1993, CII relocated its
principal operations and headquarters to Milan, Michigan and is leasing a
350,000 square foot facility from a company owned by certain stockholders
of CII.
In 1994, CII finalized negotiations with its insurance carrier for
amounts to be received on all coverages in effect at the date of the fire.
Total insurance proceeds received for the replacement cost of lost
property, lost profits and other direct costs of the fire were
approximately $31,000,000, of which approximately $6,630,000 was due
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to a stockholder as indemnification of damages to the Owosso facility.
CII has recognized in other income a net gain of approximately $9,082,000
and $9,043,000 in 1994 and 1993, respectively, which represents the amount
by which CII's insurance proceeds of $24,381,000 exceeded the sum of the
net book value of the assets destroyed and the liabilities resulting from
the fire.
15. PLANT CLOSING
In 1994, CII ceased operations and took the steps necessary to close its
Florida facility. At December 31, 1994, CII accrued estimated costs
required to close the facility. Such costs include approximately
$1,034,000 for the write down of assets to their net realizable value of
$350,000 and $355,000 for costs of the storage, dismantling and disposing
of the equipment, and other related expenses. Assets held at the facility
that are not expected to be transferred to the Milan facility have been
classified as short-term assets held for sale. At December 31, 1995,
approximately $75,000 of such assets remain.
16. LITIGATION
In connection with the acquisition of a facility in Florida (known as
"NuPar"), CII signed employment agreements with the former NuPar
stockholders for the three year period beginning December 1991. In
1994, the former NuPar stockholders filed a lawsuit against CII for
$1,800,000 claiming they had met the conditions of the agreements and
are therefore entitled to the payments thereunder. In July 1995, CII
settled these actions for $1.4 million, payable in installments through
January 1997, and has accrued for remaining compensation of $900,000 at
December 31, 1995.
A suit was filed against CII in 1992 claiming CII violated anti-trust
laws and alleging that CII has engaged in predatory pricing,
monopolization and anti-competitive acquisitions. Discovery has
narrowed the plaintiffs' theories of recoveries and the allegedly
offending predatorily priced sales at issue to only two bumper models
of which fewer than 2,000 parts were sold during the relevant period.
CII has offered to settle this dispute for $160,000. CII has accrued
its best estimate of the cost of litigation based on known facts. It
is possible that this estimate may change in the near term as the
lawsuit progresses. Although the final resolution of any such matters
could have a material effect on CII's operating results for the
particular reporting period in which an adjustment of the estimated
liability is recorded, CII believes that any resulting liability
should not materially affects its financial position.
The outside designer and installer of the automated paint line system
for the CII's Milan, Michigan facility abandoned the project before it
was completed, leaving his suppliers and subcontractors owed more than
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CII owed to the installer under the sales contract if he had finished it.
CII arranged with third parties to have the installation completed. CII
bypassed the contractor and settled directly with all of the 14 unpaid
subcontractors for $270,000 and a release of all liens. CII still has
a damage claim against the main contractor.
CII is involved in various other legal proceedings which have arisen in
the normal course of its operations. CII has accrued its best estimate
of the cost of litigation based on known facts. It is possible that this
estimate may change in the near term as the lawsuits progress. Although
the final resolution of any such matters could have a material effect on
CII's operating results for the particular reporting period in which an
adjustment of the estimated liability is recorded, CII believes that any
resulting liability should not materially affects its financial position.
17. ENVIRONMENTAL REMEDIATION
CII is responsible for the remediation of hazardous materials and ground
contamination located at the Owosso facility as a result of the fire (see
Note 14). In August 1993, the Michigan Department of Natural Resources
required that CII perform a complete hydrogeological study of this site to
determine the extent of the contamination. CII plans to engage
environmental consultants in the summer of 1996 to determine the extent
of the hazardous materials located at this site, if any, and the cost of
any remediation. CII has accrued its best estimate of the cost of
remediation based on known facts. It is possible that this estimate may
change in the near term as the project progresses. Although the final
resolution of any such matters could have a material effect on CII's
operating results for the particular reporting period in which an
adjustment of the estimated liability is recorded, CII believes that
any resulting liability should not materially affects its financial
position.
As part of the lease agreement with a related party for the Milan,
Michigan facility, CII is also responsible for the remediation of
hazardous material, up to an amount of $2,000,000, which existed at
this site prior to CII entering into the lease in June 1993. CII has
accrued for estimated remediation costs based on an environmental study
of the site. CII has accrued its best estimate of the cost of
remediation based on known facts. It is possible that this estimate
may change in the near term as the project progresses. Although the
final resolution of any such matters could have a material effect on
CII's operating results for the particular reporting period in which
an adjustment of the estimated liability is recorded, CII believes that
any resulting liability should not materially affects its financial
position.
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18. PROFORMA EARNINGS PER SHARE (UNAUDITED)
The following unaudited proforma earnings per share has been derived
from the income statement of CII for year ended December 31, 1995,
adjusted to give effect to the change in tax status of The Colonel's
as if such change had occurred at the beginning of the period.
Net income before taxes $ 4,195,474
Proforma revision for income taxes 1,470,000
Proforma net income $ 2,725,474
Proforma earnings per share $ 0.11
Proforma weighted average common shares $24,177,830
* * * * * *
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1995
PRO FORMA FINANCIAL STATEMENTS
COMBINED
HISTORICAL 1995 PRO FORMA PRO FORMA
COLONEL'S BRAINERD ADJUSTMENTS 1995
Net Sales $ 28,503,726 $ 2,878,161 $ 31,381,887
Cost of Sales $ 19,998,308 $ 1,826,675 $ 144,000<F3> $ 21,968,983
Gross Profit $ 8,505,418 $ 1,051,486 $ 144,000 $ 9,412,904
Selling, General and
Administrative Expenses $ 3,534,648 $ 612,189 $ 28,000<F4> $ 4,174,837
Income from Operations $ 4,970,770 $ 439,297 $ 5,238,067
Interest Expense, net $ (851,995) $ (59,962) $ (911,957)
Other $ 76,699 $ (17,831) $ 58,868
Net Income before income
taxes $ 4,195,474 $ 361,504 $ 4,384,978
Tax (provision) benefit $ -- $ -- $ 77,000<F2>
$ (1,547,000)<F1> $ (1,470,000)
Net Income $ 4,195,474 $ 361,504 $2,914,978.00
Net Income per Share $ 0.70 $ 0.53 $ 0.12
Number of Shares 6,021,000 677,800 24,177,800
____________________
<FN>
<F1> Represents the current year effect of the deferred tax provision.
<F2> Represents the adjustment to record the current year tax liability.
<F3> Represents adjustment for additional depreciation expense due to step up
of basis of property and equipment of approximately $2.4 million.
<F4> Represents the amortization of goodwill from the acquisition over 15
years.
</FN>
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1994
PRO FORMA FINANCIAL STATEMENTS
COMBINED
HISTORICAL 1994 PRO FORMA PRO FORMA
COLONEL'S BRAINERD ADJUSTMENTS 1994
Net Sales $ 28,492,013 $ 2,449,923 $ 30,941,936
Cost of Sales $ 19,599,470 $ 1,750,676 $ 144,000<F3> $ 21,494,146
Gross Profit $ 8,892,543 $ 699,247 $ 144,000 $ 9,447,790
Selling, General and
Administrative
Expenses $ 5,101,270 $ 464,894 $ 28,000<F4> $ 5,594,164
Plant Closing Costs $ 1,389,368 $ 1,389,368
Income from Operations $ 2,401,905 $ 234,353 $ 2,464,258
Interest Expense, net $ (679,196) $ (64,172) $ (743,368)
Gain on Insurance
Settlement $ 9,081,662 $ 9,081,662
Other $ 83,343 $ $ 83,343
Net Income before income
taxes $ 10,887,714 $ 170,181 $ 172,000 $ 10,885,895
Tax (provision) benefit $ -- $ -- $ 363,000<F1>
$ (4,123,000)<F2> $ (3,760,000)
Net Income $ 10,887,714 $ 170,181 $ (3,760,000) $ 7,125,895
Net Income per Share $ 1.81 $ 0.25 $ 0.29
Number of Shares 6,021,000 677,830 24,177,830
_____________________
<FN>
<F1> Represents the current year effect of the deferred tax provision.
<F2> Represents the adjustment to record the current year tax liability.
<F3> Represents adjustment for additional depreciation expense due to step up of
basis of property and equipment of approximately $2.4 million.
<F4> Represents the amortization of goodwill from the acquisition over 15 years.
</FN>
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EXHIBIT INDEX
EXHIBIT DOCUMENT SEQUENTIALLY
NUMBERED PAGE
2 Agreement and Plan of Merger, n/a
incorporated herein by reference
from the registrant's definitive Proxy
Statement filed with the Securities
and Exchange Commission on
October 25, 1995.
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