===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 2-98277C
THE COLONEL'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3262264
(State or other jurisdiction (I.R.S. employer
of incorporation or organization identification no.)
620 SOUTH PLATT ROAD, MILAN, MICHIGAN 48160
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 439-4200
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 Par Value
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 ______
Number of shares outstanding of the registrant's Common Stock, $0.01 par
value as of August 13, 1996: 24,177,830
===========================================================================
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements required under Item 1 are set forth in
Appendix A to this Report on Form 10-Q and are herein incorporated by
reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BACKGROUND
Effective December 31, 1995, Brainerd International, Inc. ("Brainerd")
merged (the "Merger") with and into The Colonel's International, Inc. (the
"Company"). The Company was the surviving corporation in the Merger.
Prior to the Merger, Brainerd had 677,830 shares of its common stock
outstanding and traded on the Nasdaq SmallCap Market (symbol BIRI).
Pursuant to the Merger, these shares were converted into the same number of
shares of common stock in the Company.
Also effective December 31, 1995, Brainerd Merger Corporation, a
Michigan corporation and a wholly owned subsidiary of Brainerd, merged with
and into The Colonel's, Inc. ("The Colonel's"). The Colonel's was the
surviving corporation in this merger. In consideration of this merger, the
Company issued 23,500,000 shares of its common stock to Donald J.
Williamson and Patsy L. Williamson, who were the sole shareholders in The
Colonel's. In addition, Brainerd transferred all of its operating assets
to its newly formed subsidiary, Brainerd International Raceway.
As a result of these transactions, the Company now has two wholly
owned subsidiaries: The Colonel's and Brainerd International Raceway.
For accounting purposes, the transaction was treated as a
recapitalization of the Company with the Company as the acquiror (a reverse
acquisition). The effective date of the Merger was December 31, 1995.
Therefore, the assets acquired and liabilities assumed are included in the
Company's balance sheet at December 31, 1995. The historical financial
statements prior to December 31, 1995 are those of The Colonel's only and do
not include any operating results of Brainerd. Beginning January 1, 1996,
the incomes of both The Colonel's and Brainerd International Raceway are
reflected and reported as combined income in the consolidated income
statement.
2
THE COLONEL'S, INC.
The Colonel's was organized in 1982 and began producing and selling
plastic bumpers and facias in 1983. By the start of 1996, The Colonel's
had grown through acquisitions, joint ventures, and normal expansion to two
manufacturing plants, four distribution warehouses and a network of
independent distributors that sell The Colonel's products throughout the
United States, Canada, Mexico, Puerto Rico, Bahamas, and the District of
Columbia. The recent start up of a new truck accessory division that
manufactures and sells pickup truck bedliners and tail gate covers, and
the formation of Brainerd International Raceway as a subsidiary of the
Company, represent efforts by the Company to begin to diversify into
other areas outside the automotive collision parts industry.
BRAINERD INTERNATIONAL RACEWAY, INC.
From the time of its formation in 1982, Brainerd has operated a motor
sports facility located approximately six miles northwest of Brainerd,
Minnesota. As of 1996, this facility is now operated by Brainerd
International Raceway, a subsidiary of the Company. Substantially all of
Brainerd International Raceway's revenues are obtained from motor sports
racing events at the raceway. Historically, Brainerd International
Raceway has scheduled racing and other events to be held at the racetrack
during weekends in the months of May through September each year.
COMBINED OPERATIONS
The Colonel's Milan manufacturing plant is a 350,000 square foot
facility (plus a 45,000 square foot covered crane bay) situated on a
62 acre site on the outskirts of Milan, Michigan. Milan is located
approximately 10 miles south of Ann Arbor, Michigan, 60 miles west of
Detroit, and 25 miles northwest of Toledo, Ohio. There is sufficient
room to expand the physical plant. The Milan plant manufactures the
aftermarket bumper facias. This facility is leased from a company
owned by Donald and Patsy Williamson.
The Colonel's new Owosso manufacturing facility occupies a 210,000
square foot building located on 27 acres on the outskirts of Owosso,
Michigan. Owosso is located about 100 miles northwest of Milan,
Michigan and about 30 miles northeast of Lansing, Michigan. The
building has power capacities exceeding current use and would permit
expansion if necessary. This plant manufactures truck accessories.
It is also leased from a company owned by Donald and Patsy Williamson.
Brainerd International Raceway owns and operates a three-mile race
track including a one-quarter mile drag strip located approximately six
miles northwest of Brainerd, Minnesota. The terrain of the 600 acre site
is slightly rolling hills and partially wooded. The track and various
roads are composed of blacktop. The Brainerd International Raceway
3
contains several buildings, including a four-story tower containing twelve
executive viewing suites, a control tower, various single story buildings
containing concession stands, restrooms, and storage and service facilities
located throughout the property. The buildings are concrete or wood frame
and are suitable for warm weather use only. Grandstand bleachers for
approximately 18,000 spectators are primarily located along the dragstrip.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated current assets increased from $11,483,000
at December 31, 1995 to $12,954,000 at June 30, 1996. Current liabilities
increased slightly from $15,236,000 at December 31, 1995 to $15,153,000 in
the first two quarters of 1996. The change in current assets was due to
the build up of inventory for the bedliner division. Current liabilities
were affected by the new lease less normal retirement of long-term debt
and changes in trade accounts payable. The Company's subsidiaries made
all of their scheduled principal and interest payments on their
outstanding debt during the second quarter of 1996.
Accounts receivables increased from $2,292,000 at December 31, 1995,
to $2,501,000 at June 30, 1996. This increase is due largely to the
increased sales activity during this period and some customers opting not
to take early payment discounts and incentives for prompt payments.
Inventories increased by $1,730,000 during the quarter ended June 30
because of the heavy production of bedliners to build initial warehouse
stock and the need to build an inventory of bumpers in anticipation of
fall sales. The Colonel's routinely attempts to keep a minimum 60-day
supply available to ship for each application. Inventory levels
traditionally fall during the first quarter of each year and are
replenished by late summer.
Prepaid expenses increased due to an advance payment of rent for the
Owosso building.
The Colonel's signed permanent capital leases to replace interim
leases for the additional bedliner division equipment during the second
quarter of 1996. Approximately $2,400,000 of amounts held in deposits
on machinery was added to plant property and equipment upon delivery of
equipment and signing the permanent leases.
Notes receivable have dropped by $780,000 in the six months ended
June 30 as a result of the collection of money due under these notes.
This includes a related party note of $240,000 that was paid in full.
The Colonel's deposits on tools and machinery were reduced by
$3,247,000 due to the signing of the $2,400,000 in permanent leases. In
addition, $820,000 of plant, property and equipment represents completed
tools that were put in service during the first two quarters of 1996.
4
As a result of the Merger, the acquisition value of Brainerd
International Raceway exceeded the value of the assets by $425,000. The
associated amortization expense for the six-month period ended June 30
was $59,000.
OUTSTANDING LOANS
The Colonel's has a $4,500,000 line of credit secured by accounts
receivable and inventory with a term that expires in August 1996. The
Colonel's expects to negotiate a renewal with its current lending
institution. Interest is paid at prime on a monthly basis. The
outstanding balance on the line of credit was $4,500,000 at June 30, 1996.
Brainerd International Raceway has a $300,000 line of credit which is
secured by all of its assets, of which $74,000 was outstanding at June 30,
1996.
The Colonel's received new financing of $6,000,000 in April 1995,
under a facility which calls for payments of $200,000 in principal plus
interest on a monthly basis calculated at 1/2 percent over prime on the
outstanding balance. The loan is secured by machinery and equipment and
had a balance of $3,600,000 at June 30, 1996. If the need arose in the
future, the Company believes it could obtain additional financing using
machinery and equipment as collateral.
Brainerd International Raceway has a mortgage in the amount of
$525,000, which is secured by property. This loan requires quarterly
interest payments at 2 percent above prime and a single principal payment
of $50,000 per year through 2004.
The balance on the Colonel's mortgage of its former Owosso facility
was $1,011,000 at the end of the second quarter of 1996.
The Colonel's entered into a capital lease to finance equipment for
the new Owosso location. The Colonel's leased $2,689,000 worth of that
equipment under a six-year agreement that calls for monthly payments of
$41,000 and includes an option for the Company to purchase the equipment
for $1.00 upon expiration of the lease term. That amount represents
principal and interest at 7.5 percent. The leases are collateralized by
the machinery. During the second quarter, The Colonel's signed a second
lease under the same terms for $2,404,000. Payments for this lease are
$38,000 per month. In addition, The Colonel's has also financed interim
leases in the amount of $950,000 which are deposits paid to the machinery
manufacturers. As the machinery is delivered and accepted by The
Colonel's, final payments will be made by the leasing company. The balance
left to pay on the equipment is $650,000. Once the equipment has been paid
for, The Colonel's will sign a permanent lease.
5
RESULTS OF OPERATIONS
Revenues for The Colonel's were $8,544,000 for the quarter ending June
30, 1996, compared to $6,832,000 for the same period in 1995. The growth
in 1996 was primarily due to the fairly severe winter conditions resulting
in increased sales of automotive crash parts, the addition of a new
warehouse, and sales from the new bedliner division. Revenues for the six-
month period ended June 30, 1996 increased nearly $3,800,000 over the same
period in 1995.
Cost of sales have increased from 67 percent of sales at June 30, 1995
to 74 percent for the same six months in 1996, in part because of the start
up costs of the bedliner division.
Gross profits for the three-month period ended June 30, 1996 dropped
from 33 percent in 1995 to 26 percent in 1996. The gross profit for the
six-month period ended June 30, 1996, is 27 percent, compared to 33 percent
in the same period in 1995.
Selling, general and administrative expenses continued to decrease,
from 18 percent of sales for the second quarter of 1995 to 16 percent of
sales in the same period in 1996. The six-month comparison has dropped
from 16 percent in 1995 to 14 percent of sales in 1996. Duplicated services
that were performed at each site are in the process of being eliminated
and/or automated.
Interest expense increased by $250,000 over the same period last year,
due mainly to the addition of the new equipment leases (permanent and
interim) that the Company has for the Owosso facility.
To date, the Company has accrued $608,000 for income taxes, which
reflects the Company's expected effective tax rate of 37 percent.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the second quarter of 1996, there were no material
developments in legal proceedings involving the Company or its
subsidiaries. These proceedings were described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On June 11, 1996, the Company held its 1996 Annual Meeting of
Shareholders. The purposes of the meeting were: to elect two directors for
three-year terms expiring in 1999; and to consider and ratify the
appointment of Deloitte & Touche LLP as the Company's independent auditors
for the current fiscal year.
Two candidates nominated by management were elected by the shareholders to
serve as Directors of the Company at the meeting. The following sets forth
the results of the voting with respect to each candidate:
NAME OF CANDIDATE SHARES VOTED
Lisa K. Alexander For 23,657,697
Authority Withheld 410
Broker Non-Votes 0
Richard L. Roe For 23,657,667
Authority Withheld 440
Broker Non-Votes 0
The following persons remained as Directors of the Company with terms
expiring in 1998: Donald J. Williamson and Ted M. Gans. The following
persons remained as Directors of the Company with terms expiring in 1997:
J. Daniel Frisina and Gary Moore.
The shareholders also voted to approve the appointment of Deloitte & Touche
LLP by the Board of Directors as independent auditors of the Company for
the current fiscal year. The following sets forth the results of the
voting with respect to this matter:
SHARES VOTED
For 23,654,187
Against 3,920
Abstentions 0
Broker Non-votes 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K.
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
7
2.1 Agreement and Plan of Merger between The Colonel's, Inc. and
Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to
the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
2.2 Agreement and Plan of Reorganization among Brainerd
International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
3.1 Articles of Incorporation of the Company, as amended.
Incorporated by reference from Exhibit E to the Proxy Statement
of Brainerd International, Inc. for the Annual Meeting of
Shareholders of Brainerd International, Inc. held on November 21,
1995.
3.2 Certificate of Amendment to the Articles of Incorporation
changing name from "The Colonel's Holdings, Inc." to "The
Colonel's International, Inc." Incorporated by reference from
Exhibit 3.2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995.
3.3 Bylaws of the Company. Incorporated by reference from Exhibit F
to the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
10.1 The Company's 1995 Long-Term Incentive Plan. Incorporated by
reference from Exhibit G to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
10.2 Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
10.3 Form of Non-Statutory Stock Option Agreement used under the
Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
8
10.4 Form of Incentive Stock Option Agreement used under the Incentive
Stock Option Plan. Incorporated by reference from the Annual
Report on Form 10-K of Brainerd International Inc. for the fiscal
year ended December 31, 1987.
10.5 Office Lease Agreement dated January 23, 1991 between Brainerd
International, Inc. and Woodland Office Partnership.
Incorporated by reference from the Annual Report on Form 10-K of
Brainerd International Inc. for the fiscal year ended December
31, 1990.
10.6 Amendment dated December 11-12, 1991 to Office Lease Agreement
(see Exhibit 10(e) above) between Brainerd International, Inc.
and Woodland Office Partnership. Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10.7 $404,700 Promissory Note dated January 1, 1992, from Brainerd
International, Inc. payable to Gene Snow and James W. Littlejohn.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
10.8 Lease Agreement between Issuer and National Hot Rod Association,
Inc. consisting of March 17, 1984 Lease Agreement; April 28, 1986
letter extending term to 1991; March 12, 1987 Letter of
Amendment; and April 7, 1992 letter extending term to 1996 and
amending agreement. Incorporated by reference from Brainerd
International, Inc.'s Registration Statement on Form S-1
(Registration No. 33-055876).
10.9 November 8, 1988 Sponsorship Agreement between Champion Auto
Stores, Inc. and National Hot Rod Association, Inc. Incorporated
by reference from Brainerd International, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-055876).
10.10 June 22, 1992 Title Rights Sponsorship Agreement between Champion
Auto Stores, Inc. and National Hot Rod Association, Inc.
Incorporated by reference from Brainerd International, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-055876).
10.11 February 16, 1994 Loan Agreement with American National Bank of
Brainerd; $550,000 Promissory Note; and $300,000 Line of Credit
Note. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
9
10.12 December 21, 1993 Agreement among Issuer, Motor Stadium, Inc. and
Gene M. Snow providing for termination of March 23, 1993
Financing Agreement, dissolution of Motor Sports Stadium, Inc.
and grant of interest by Mr. Snow in potential future project.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993.
10.13 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10(e) and 10(f)). Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993.
10.14 September 1994 Stock Purchase Agreement among Gene M. Snow, James
W. Littlejohn and Donald J. Williamson. Incorporated by
reference from Brainerd International, Inc.'s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993.
10.15 December 1994 Letter of Intent between Issuer and The Colonel's,
Inc. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.16 Addendum to Lease dated December 16, 1994 (See Exhibits 10(e),
10(f) and 10(m)). Incorporated by reference from Brainerd
International, Inc.'s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993.
10.17 Variable Rate-Installment Note ($6,000,000) between The Colonel's
and Comerica Bank dated April 14, 1995. Incorporated by reference
from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.18 Master Revolving Note ($4,500,000) between The Colonel's and
Comerica Bank dated May 1, 1995. Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.19 Security Agreement between The Colonel's and Comerica Bank (f/k/a
Manufacturers National Bank of Detroit) dated December 4, 1991.
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.20 Amended and Restated Security Agreement between The Colonel's and
Comerica Bank (f/k/a Manufacturers National Bank of Detroit)
dated December 4, 1991. Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10
10.21 Amended and Restated Guaranty between Donald and Patsy Williamson
and Comerica Bank dated October 8, 1992. Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.22 Lease Agreement between 620 Platt Road, Inc. and The Colonel's
dated June 18, 1993 (for Milan, Michigan manufacturing facility).
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.23 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's dated June 16,
1995. Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.24 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's dated August 1, 1993 (for
Houston, Texas warehouse distribution facility). Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.25 Lease Agreement between Industrial Properties Corporation and The
Colonel's dated September 15, 1992 (for Dallas, Texas warehouse
distribution facility). Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.26 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's dated February 5, 1993 (for Phoenix (Glendale), Arizona
warehouse distribution facility). Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.27 Interim Equipment Lease Schedule ($2,729,370) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.28 Interim Equipment Lease Schedule ($2,044,000) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
11
10.29 Interim Equipment Lease Schedule ($383,468) between The Colonel's
and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.30 Lease Schedule ($3,464,557) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.30 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.31 Interim Lease Schedule ($960,000) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.31 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.32 Interim Lease Schedule ($542,811) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.32 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.33 Interim Lease Schedule ($85,800) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.33 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.34 Interim Lease Schedule ($52,556) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.34 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.35 Interim Lease Schedule ($584,250) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.35 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.36 Interim Lease Schedule ($364,650) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.36 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.37 Interim Lease Schedule ($178,200) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.37 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
12
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
13
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.
THE COLONEL'S INTERNATIONAL, INC.
Date: August 14, 1996 _____________________________________________
Vice President, Secretary and General Counsel
(Duly Authorized Signatory for Registrant)
Date: August 14, 1996 _____________________________________________
Vice President-Finance and Chief Financial
Officer (Principal Financial Officer and Duly
Authorized Signatory for Registrant)
14
APPENDIX A
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30 DEC 31
1996 1995
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 328,003 $ 634,290
Accounts receivable--trade (net of allowance 2,501,211 2,292,112
for doubtful accounts of $401,200 and
$476,300 at December 31, 1995 and
June 30, 1996, respectively)
Inventories (Note 2) 8,535,825 6,805,906
Prepaid expenses 499,032 164,692
Notes receivable:
Related party 0 240,000
Other 12,669 302,401
Deferred taxes - current 950,000 917,000
Current portion of deferred compensation 52,000 52,000
Assets held for sale 75,000 75,000
Total current assets 12,953,740 11,483,401
PROPERTY, PLANT, AND EQUIPMENT - Net (Note 3) 24,748,804 20,876,669
OTHER ASSETS:
Notes receivable--related party 0 250,000
Long-term portion of deferred compensation 235,300 266,163
Deposits 1,510,330 4,757,342
Goodwill 366,495 425,609
Other 184,801 184,802
Total other assets 2,296,926 5,883,916
TOTAL ASSETS $39,999,470 $38,243,986
15
JUNE 30 DEC 31
1996 1995
(UNAUDITED) (AUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,500,000 $ 4,180,000
Current portion of long-term obligations 4,911,632 5,424,455
Accounts payable-trade 2,873,461 2,938,494
Accrued expenses (Note 4) 2,899,270 2,431,074
Current portion of deferred compensation 52,000 52,000
Total current liabilities 15,236,363 15,026,023
LONG-TERM OBLIGATIONS, NET OF CURRENT 6,201,240 6,064,705
PORTION (Note 5)
LONG-TERM PORTION OF DEFERRED COMPENSATION 235,300 266,163
DEFERRED TAXES - LONG-TERM 4,123,000 4,014,000
SHAREHOLDERS' EQUITY:
Common stock: 35,000,000 shares authorized at $0.01
par value, 24,177,830 shares issued and outstanding 241,778 241,778
Additional paid-in capital 5,557,833 5,557,833
Retained earnings 8,403,956 7,073,484
Total shareholders' equity 14,203,567 12,873,095
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $39,999,470 $38,243,986
16
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDING THREE MONTHS ENDING
JUNE 30 JUNE 30
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
SALES $18,444,304 $14,651,145 $8,544,230 $6,831,901
COST OF SALES 13,392,519 9,807,373 6,383,613 4,555,715
GROSS PROFIT 5,051,785 4,843,772 2,160,617 2,276,186
SELLING, GENERAL AND
ADMINISTRATIVE 2,536,633 2,338,068 1,387,407 1,234,315
INCOME FROM OPERATIONS 2,515,152 2,505,704 773,210 1,041,871
OTHER INCOME (EXPENSE):
Interest expense (528,889) (251,124) (63,922) (49,773)
Interest income 43,630 107,215 12,060 48,021
Rental income 25,000 36,000 15,000 18,000
Other 59,579 3,225 55,322 (2,421)
Other income (expense), net (400,680) (104,684) 18,460 13,827
NET INCOME BEFORE
TAXES $ 2,114,472 $ 2,401,020 $ 754,750 $1,055,698
PROVISION FOR INCOME
TAXES (Note 5) 784,000 363,000
NET INCOME $ 1,330,472 $ 2,401,020 $ 391,750 $1,055,698
EARNINGS PER SHARE
(Note 6) $ 0.06 $ 0.02
PRO FORMA EARNINGS
PER SHARE (Note 6) $ 0.06 $ 0.02
17
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING
JUNE 30
1996 1995
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,330,472 $ 1,345,324
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and Amortization 2,006,789 661,500
Change in Deferred Taxes 76,000
Loss on sale of assets 5,255
Changes in assets and liabilities that provided (used) cash:
Accounts receivable:
Trade (209,099) (90,526)
Related Parties (272,418)
Insurance 4,352,239
Inventories (1,729,919) 230,350
Prepaid expenses (334,340) 20,997
Accounts payable (65,032) 169,002
Accrued expenses 468,196 (81,974)
Net cash provided by operating activities 1,548,322 6,334,493
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (4,718,419) (1,296,559)
Proceeds from sale of property, plant and equipment 28,419
Net change in deposits (principally for tooling and equipment) 3,247,012 (123,200)
Additions to notes receivable-related party (427,944)
Payments received on notes receivable - related party 490,000 8,795
Additions to notes receivable - other (771)
Payments received on notes receivable - other 290,502 57,971
Net cash used in investing activities (661,257) (1,780,937)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (Payments) under notes payable 430,886 (1,050,000)
Proceeds from long-term obligations 75,000
Principal payments on long-term debt (1,518,110) (1,127,453)
Principal payment on obligations under capital leases (181,128)
Distributions paid to shareholders (2,449,631)
Net cash used in financing activities (1,193,352) (4,627,084)
18
NET DECREASE IN CASH $ (306,287) $ (73,528)
CASH BEGINNING OF YEAR 634,290 164,286
CASH END OF PERIOD $ 328,003 $ 90,758
19
THE COLONEL'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 BASIS OF PRESENTATION
The financial information included herein is unaudited; however
such information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the results of
operations, financial position and cash flows for the periods
presented.
The results of operations for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the
results expected for the full year.
Note 2 INVENTORIES
Inventories are summarized as follows:
JUNE 30 DEC 31
1996 1995
Finished products $6,699,387 $6,168,440
Raw materials 1,836,438 637,466
Total inventories 8,535,825 6,805,906
Note 3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major
classification as follows:
20
JUNE 30 DEC 31
1996 1995
Land and improvements $ 2,808,223 $ 2,269,400
Track 1,406,634 1,537,800
Buildings 1,172,860 622,000
Leasehold improvements 157,681 707,076
Bleachers & fencing 432,200 432,200
Equipment (including equipment under
capital lease) 15,004,870 10,460,954
Transportation equipment (including
equipment under capital lease 724,824 609,097
Furniture & fixtures 541,632 537,230
Tooling 20,480,083 19,658,447
Total 42,729,007 38,834,204
Less accumulated depreciation and
amortization (17,980,203) (15,957,535)
Net property, plant and equipment 24,748,804 20,876,669
Note 4 ACCRUED EXPENSES
Accrued expenses consist of the following:
JUNE 30 DEC 31
1996 1995
Accrued legal $ 264,442 $ 349,331
Accrued compensation for NuPar (Note 7) 550,000 900,000
Accrued environmental costs 598,717 598,717
Accrued federal income taxes 816,721 276,619
Accrued taxes 144,390 240,407
Other 525,000 66,000
Total $2,899,270 $2,431,074
21
Note 5 INCOME TAXES
Effective December 31, 1995 The Colonel's, Inc. changed its tax
status from an "S" corporation to a "C" corporation. The
provision for income taxes reflects the Company's expected
estimated effective tax rate of approximately 37 percent.
Note 6 EARNINGS PER SHARE
The computation of earnings per share is based on the weighted
average number of shares of common stock outstanding during
the three-month and six-month periods ended June 30, 1996. The
proforma earnings per share for the three-month and six-month
periods has been calculated as if the Merger and the Company's
change in tax status had occurred on January 1, 1995.
Note 7 LITIGATION
In connection with the acquisition of a facility in Florida
(known as "NuPar") The Colonel's signed employment agreements with
the former NuPar shareholders for the three-year period beginning
December 1991. In 1994, the former NuPar shareholders filed a
lawsuit against The Colonel's for $1,800,000, claiming they had met
the conditions of the agreement and were therefore entitled to the
payments thereunder. In July, 1995, the Company settled these
actions for $1.4 million, payable in installments through January
1997, and has accrued remaining compensation of $550,000 at June
30, 1995.
A suit was filed against The Colonel's in 1992 claiming The Colonel's
violated antitrust laws and alleging that The Colonel's 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. The Company has
offered to settle the dispute for $160,000. The Company 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
the Company's operating results for the particular reporting
period in which an adjustment of the estimated liability is
recorded, the Company believes that any resulting liability
should not materially affect its financial position.
22
The Company is involved in various other legal proceedings which
have arisen in the normal course of the operations. The Company
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
the Company's operating results for the particular reporting
period in which an adjustment of the estimated liability is
recorded, the Company believes that any resulting liability
should not materially affect its financial position.
Note 8 ENVIRONMENTAL REMEDIATION
The Company is responsible for the remediation of hazardous
materials and ground contamination located at its former
manufacturing facility in Owosso, Michigan that was destroyed by
fire in June of 1993. In August 1993, the Michigan Department of
Natural Resources required that the Company perform a complete
hydrogeological study of the site to determine the extent of the
contamination. The Company has engaged environmental
consultants to determine the extent of the hazardous materials
located at this site, if any, and the cost of any remediation.
The Company 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 the Company's operating results for the
particular reporting period in which an adjustment of the
estimated liability is recorded, the Company believes that any
resulting liability should not materially affect its financial
position.
As part of the lease agreement with a related party for the
Milan, Michigan facility, the Company is also responsible for the
remediation of hazardous material, if any, up to an amount of
$2,000,000, which existed at this site prior to The Colonel's
entering into the lease in June 1993. The Company has accrued
for estimated remediation costs based on an environmental study
of the site. The Company 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 the Company's operating results
for the particular reporting period in which an adjustment of the
estimated liability is recorded, the Company believes that any
resulting liability should not materially affect its financial
position.
23
EXHIBIT INDEX
2.1 Agreement and Plan of Merger between The Colonel's, Inc. and
Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to
the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
2.2 Agreement and Plan of Reorganization among Brainerd
International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
3.1 Articles of Incorporation of the Company, as amended.
Incorporated by reference from Exhibit E to the Proxy Statement
of Brainerd International, Inc. for the Annual Meeting of
Shareholders of Brainerd International, Inc. held on November 21,
1995.
3.2 Certificate of Amendment to the Articles of Incorporation
changing name from "The Colonel's Holdings, Inc." to "The
Colonel's International, Inc." Incorporated by reference from
Exhibit 3.2 to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995.
3.3 Bylaws of the Company. Incorporated by reference from Exhibit F
to the Proxy Statement of Brainerd International, Inc. for the
Annual Meeting of Shareholders of Brainerd International, Inc.
held on November 21, 1995.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
10.1 The Company's 1995 Long-Term Incentive Plan. Incorporated by
reference from Exhibit G to the Proxy Statement of Brainerd
International, Inc. for the Annual Meeting of Shareholders of
Brainerd International, Inc. held on November 21, 1995.
10.2 Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
10.3 Form of Non-Statutory Stock Option Agreement used under the
Incentive Stock Option Plan. Incorporated by reference from the
Annual Report on Form 10-K of Brainerd International Inc. for the
fiscal year ended December 31, 1987.
24
10.4 Form of Incentive Stock Option Agreement used under the Incentive
Stock Option Plan. Incorporated by reference from the Annual
Report on Form 10-K of Brainerd International Inc. for the fiscal
year ended December 31, 1987.
10.5 Office Lease Agreement dated January 23, 1991 between Brainerd
International, Inc. and Woodland Office Partnership.
Incorporated by reference from the Annual Report on Form 10-K of
Brainerd International Inc. for the fiscal year ended December
31, 1990.
10.6 Amendment dated December 11-12, 1991 to Office Lease Agreement
(see Exhibit 10(e) above) between Brainerd International, Inc.
and Woodland Office Partnership. Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.
10.7 $404,700 Promissory Note dated January 1, 1992, from Brainerd
International, Inc. payable to Gene Snow and James W. Littlejohn.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
1991.
10.8 Lease Agreement between Issuer and National Hot Rod Association,
Inc. consisting of March 17, 1984 Lease Agreement; April 28, 1986
letter extending term to 1991; March 12, 1987 Letter of
Amendment; and April 7, 1992 letter extending term to 1996 and
amending agreement. Incorporated by reference from Brainerd
International, Inc.'s Registration Statement on Form S-1
(Registration No. 33-055876).
10.9 November 8, 1988 Sponsorship Agreement between Champion Auto
Stores, Inc. and National Hot Rod Association, Inc. Incorporated
by reference from Brainerd International, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-055876).
10.10 June 22, 1992 Title Rights Sponsorship Agreement between Champion
Auto Stores, Inc. and National Hot Rod Association, Inc.
Incorporated by reference from Brainerd International, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-055876).
10.11 February 16, 1994 Loan Agreement with American National Bank of
Brainerd; $550,000 Promissory Note; and $300,000 Line of Credit
Note. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
25
10.12 December 21, 1993 Agreement among Issuer, Motor Stadium, Inc. and
Gene M. Snow providing for termination of March 23, 1993
Financing Agreement, dissolution of Motor Sports Stadium, Inc.
and grant of interest by Mr. Snow in potential future project.
Incorporated by reference from Brainerd International, Inc.'s
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1993.
10.13 Amendment dated February 1, 1994 to Office Lease Agreement (See
Exhibits 10(e) and 10(f)). Incorporated by reference from
Brainerd International, Inc.'s Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993.
10.14 September 1994 Stock Purchase Agreement among Gene M. Snow, James
W. Littlejohn and Donald J. Williamson. Incorporated by
reference from Brainerd International, Inc.'s Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993.
10.15 December 1994 Letter of Intent between Issuer and The Colonel's,
Inc. Incorporated by reference from Brainerd International,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993.
10.16 Addendum to Lease dated December 16, 1994 (See Exhibits 10(e),
10(f) and 10(m)). Incorporated by reference from Brainerd
International, Inc.'s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993.
10.17 Variable Rate-Installment Note ($6,000,000) between The Colonel's
and Comerica Bank dated April 14, 1995. Incorporated by reference
from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.18 Master Revolving Note ($4,500,000) between The Colonel's and
Comerica Bank dated May 1, 1995. Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.19 Security Agreement between The Colonel's and Comerica Bank (f/k/a
Manufacturers National Bank of Detroit) dated December 4, 1991.
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.20 Amended and Restated Security Agreement between The Colonel's and
Comerica Bank (f/k/a Manufacturers National Bank of Detroit)
dated December 4, 1991. Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
26
10.21 Amended and Restated Guaranty between Donald and Patsy Williamson
and Comerica Bank dated October 8, 1992. Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.22 Lease Agreement between 620 Platt Road, Inc. and The Colonel's
dated June 18, 1993 (for Milan, Michigan manufacturing facility).
Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.23 First Amendment to Lease Agreement between 620 Platt Road, L.L.C.
(f/k/a 620 Platt Road, Inc.) and The Colonel's dated June 16,
1995. Incorporated by reference from Amendment No. 1 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.24 Industrial/Warehouse Lease between JMB/Warehouse Associates
Limited Partnership and The Colonel's dated August 1, 1993 (for
Houston, Texas warehouse distribution facility). Incorporated by
reference from Amendment No. 1 to Brainerd International, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-91374).
10.25 Lease Agreement between Industrial Properties Corporation and The
Colonel's dated September 15, 1992 (for Dallas, Texas warehouse
distribution facility). Incorporated by reference from Amendment
No. 1 to Brainerd International, Inc.'s Registration Statement on
Form S-4 (Registration No. 33-91374).
10.26 Standard Industrial Lease between Revco D.S., Inc. and The
Colonel's dated February 5, 1993 (for Phoenix (Glendale), Arizona
warehouse distribution facility). Incorporated by reference from
Amendment No. 1 to Brainerd International, Inc.'s Registration
Statement on Form S-4 (Registration No. 33-91374).
10.27 Interim Equipment Lease Schedule ($2,729,370) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.28 Interim Equipment Lease Schedule ($2,044,000) between The
Colonel's and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
27
10.29 Interim Equipment Lease Schedule ($383,468) between The Colonel's
and Comerica Leasing Corporation dated July 27, 1995.
Incorporated by reference from Amendment No. 2 to Brainerd
International, Inc.'s Registration Statement on Form S-4
(Registration No. 33-91374).
10.30 Lease Schedule ($3,464,557) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.30 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.31 Interim Lease Schedule ($960,000) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.31 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.32 Interim Lease Schedule ($542,811) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.32 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.33 Interim Lease Schedule ($85,800) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.33 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.34 Interim Lease Schedule ($52,556) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.34 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.35 Interim Lease Schedule ($584,250) between The Colonel's, Inc. and
Comerica Leasing Corporation dated December 27, 1995.
Incorporated by reference from Exhibit 10.35 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.36 Interim Lease Schedule ($364,650) between The Colonel's, Inc. and
Comerica Leasing Corporation dated January 26, 1996.
Incorporated by reference from Exhibit 10.36 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
10.37 Interim Lease Schedule ($178,200) between The Colonel's, Inc. and
Comerica Leasing Corporation dated February 16, 1996.
Incorporated by reference from Exhibit 10.37 to the Registrant's
Report on Form 10-K for the fiscal year ended December 31, 1995.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
28