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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 September 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 of (I.R.S. employer
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
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Number of shares outstanding of the registrant's Common Stock, $0.01 par
value as of November 13, 1996: 24,177,830
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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, Inc.
("Brainerd International Raceway, Inc.").
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.
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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 (the
"Bedliner Division"), 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
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is slightly rolling hills and is partially wooded. The track and various
roads are composed of blacktop. The Brainerd International Raceway
contains several buildings, including a four-story tower containing twelve
executive viewing suites, a control tower, various single story buildings
containing concession stands, rest rooms, 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 drag strip.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated current assets slightly decreased from
$11,483,000 at December 31, 1995 to $11,271,000 at September 30, 1996.
Current liabilities decreased from $15,026,000 at December 31, 1995 to
$13,966,000 at September 30, 1996. The change in current liabilities
resulted primarily from a $1,400,000 decrease in accounts payable. The
decrease was offset by additional financing of equipment/lease
obligations at the Bedliner Division. The Company's subsidiaries made
all of their scheduled principal and interest payments on their
outstanding debt and leases during the third quarter of 1996.
Inventories increased by $800,000 at September 30, 1996 compared to
December 31, 1995 due to increased production to build initial warehouse
stock needed in anticipation of fall sales. The Colonel's routinely
attempts to maintain a 60-day supply of each product available for
immediate shipment. Inventory levels traditionally decline during the
first quarter of the year and are replenished by late summer. During the
nine months ending September 30, 1996 the Company wrote down inventory
$600,000 with a corresponding charge to Cost of Sales for manufacturing
cost variations.
Deposits on tools and machinery decreased at September 30, 1996
compared to December 31, 1995, due to a reclassification to property, plant
and equipment. When equipment is delivered and accepted by the Company,
the recorded deposits are reclassified to property, plant and equipment.
Prepaid expenses decreased from December 31, 1995 to September 30,
1996 due to normal amortization for the 9 month period.
The Colonel's signed permanent capital leases to replace interim
leases for the additional Bedliner Division equipment during the second
quarter of 1996. Approximately $960,000 remains in deposits on machinery
financed by interim leases.
Notes receivable that were outstanding at December 31, 1995 have all
been repaid at September 30, 1996.
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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 twelve-month period ending December
31, 1996 will be $52,000. The Company has chosen to expense this at one
time instead of amortizing throughout the year.
OUTSTANDING DEBT
The Colonel's has a $4,500,000 line of credit secured by accounts
receivable and inventory with a term that expires in May 1997. The
Colonel's expects to negotiate renewals as necessary 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 September 30,
1996. Brainerd International Raceway has a $300,000 line of credit which
is secured by all of its assets, of which $272,000 was outstanding at
September 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 0.5 percent over prime on the
outstanding balance. The loan is secured by machinery and equipment and
had a balance of $3,000,000 at September 30, 1996. If the need arose, the
Company believes it could obtain additional financing using its machinery
and equipment as collateral.
Brainerd International Raceway has a mortgage in the amount of
$468,000, which is secured by property. This loan requires quarterly
interest payments at 2 percent above prime and a single principal payment
made in the third quarter of $50,000 per year through 2004.
The balance on The Colonel's mortgage of its former Owosso facility
was $979,000 at the end of the third quarter of 1996.
The Colonel's entered into a capital lease to finance equipment for
the new Owosso location. The Colonel's leased $5,095,000 worth of that
equipment under a six-year agreement with monthly payments of $79,000 which
includes an option for the Company to purchase the equipment for $1.00 upon
expiration of the lease term. The leases are collateralized by the
machinery. The Colonel's has also financed interim leases in the amount of
$960,000 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 by signing a permanent lease. The remaining
balance is $650,000.
RESULTS OF OPERATIONS
Revenues for The Colonel's were $11,200,000 for the quarter ending
September 30, 1996, compared to $7,062,000 for the same period in 1995.
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The growth in 1996 was primarily due to direct sales efforts, the addition
of the Bedliner Division, the addition of revenues from Brainerd
International Raceway which were not reflected in last year's pre-merger
revenues, and the addition of a new warehouse in Totowa, New Jersey.
Revenues for the nine-month period ended September 30, 1996 increased
approximately $8,000,000 over the same period in 1995. The Bumper Division
(which includes all direct warehouses) led this growth with an increase in
sales over last year by $3,500,000. Brainerd International Raceway
contributed $2,500,000, and the Bedliner Division contributed $2,000,000.
Cost of sales have increased from 70 percent of sales for the nine
months ending September 30, 1995 to 73 percent for the same nine months in
1996, in part because of the start-up costs of the Bedliner Division.
Gross profits for the three-month period ended September 30, 1996
increased from 22 percent in 1995 to 26 percent in 1996. The gross profit
for the nine-month period ended September 30, 1996, is 27 percent, compared
to 30 percent in the same period in 1995.
Selling, general and administrative expenses as a percentage of sales
were consistent with the percent of sales for the third quarter 1995 of 14
percent. The nine-month comparison continues to decrease from 15 percent
in 1995 to 14 percent of sales in 1996. Although more sales staff were
added in the third quarter, the increase in sales associated with the costs
of the additional staff continues to be favorable.
Interest expense increased by $250,000 for the nine months ending
September 30, 1996 over the same period last year, due to the addition of
the new equipment leases that the Company has at the Bedliner Division.
To date, the Company has accrued $1,189,000 for income taxes, which
reflects the Company's expected effective tax rate of 37 percent.
SUBSEQUENT EVENTS
Director Richard L. Roe resigned effective October 11, 1996.
The Company borrowed an additional $1,000,000 from their primary
lending bank to purchase prime property in Florida.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As described in the Company's Report on Form 10-K for the year ended
December 31, 1995, The Colonel's was a defendant and counterplaintiff in a
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suit filed December 5, 1991, in the United States District Court for the
Eastern District of Michigan, in a private action seeking damages under the
Federal Antitrust statutes. The Colonel's settled this lawsuit on
September 30, 1996. The terms of the settlement are restricted from
disclosure but call for The Colonel's to pay out certain amounts in cash
and merchandise. The Company has accrued for the settlement.
During the third quarter of 1996, there were no other 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.
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:
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.
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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.
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).
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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.
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).
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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).
10.21 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).
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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).
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.
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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.
10.38 Lease Schedule between The Colonel's, Inc. and Comerica Leasing
Corporation dated May 31, 1996.
10.39 Lease Agreement between The Colonel's, Inc. and Gamma Realty Co.
for lease of premises in Totowa, New Jersey.
10.40 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated June 17, 1996.
10.41 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated August 30, 1996.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed
during the quarter for which this report is filed.
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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 thereunto duly authorized.
THE COLONEL'S INTERNATIONAL, INC.
Date: November 13, 1996 /S/ RICHARD S. SCHOENFELDT
Vice President-Finance and Chief
Financial Officer (Principal Financial
Officer and Duly Authorized Signatory
for Registrant)
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APPENDIX A
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPT 30 DEC 31
1996 1995
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 285,099 $ 634,290
Accounts receivable--trade (net of allowance 2,282,398 2,292,112
for doubtful accounts of $401,200 and
$521,800 at December 31, 1995 and
September 30, 1996, respectively)
Inventories (Note 2) 7,601,557 6,805,906
Prepaid expenses 44,504 164,692
Notes receivable:
Related party 0 240,000
Other 0 302,401
Deferred taxes - current 931,000 917,000
Current portion of deferred compensation 52,000 52,000
Assets held for sale 75,000 75,000
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Total current assets 11,271,558 11,483,401
PROPERTY, PLANT, AND EQUIPMENT - Net (Note 3) 24,358,186 20,876,669
OTHER ASSETS:
Notes receivable--related party 0 250,000
Long-term portion of deferred compensation 235,300 266,163
Deposits 1,814,193 4,757,342
Goodwill 366,497 425,609
Other 9,802 184,802
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Total other assets 2,425,792 5,883,916
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TOTAL ASSETS $38,055,536 $38,243,986
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SEPT 30 DEC 31
1996 1995
(UNAUDITED) (AUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 4,500,000 $ 4,180,000
Current portion of long-term obligations 5,785,598 5,424,455
Accounts payable-trade 1,534,339 2,938,494
Accrued expenses (Note 4) 2,094,994 2,431,074
Current portion of deferred compensation 52,000 52,000
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Total current liabilities 13,966,931 15,026,023
LONG-TERM OBLIGATIONS, NET OF CURRENT 4,814,382 6,064,705
PORTION (Note 5)
LONG-TERM PORTION OF DEFERRED COMPENSATION 235,300 266,163
DEFERRED TAXES - LONG-TERM 4,226,000 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 5,557,832 5,557,833
Retained earnings 9,013,313 7,073,484
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Total shareholders' equity 14,812,923 12,873,095
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $38,055,536 $38,243,986
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDING THREE MONTHS ENDING
SEPT 30 SEPT 30
------------------------------ ------------------------------
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- ----------
SALES $29,654,986 $21,713,181 $11,210,682 $7,062,030
COST OF SALES 21,719,135 15,283,285 8,326,616 5,475,917
----------- ----------- ----------- ----------
GROSS PROFIT 7,935,851 6,429,896 2,884,066 1,586,113
SELLING, GENERAL AND
ADMINISTRATIVE 4,207,152 3,302,302 1,670,519 964,237
----------- ----------- ----------- ----------
INCOME FROM OPERATIONS 3,728,699 3,127,594 1,213,547 621,876
OTHER INCOME (EXPENSE):
Interest expense (775,532) (513,402) (246,643) (262,277)
Interest income 54,615 137,452 10,985 30,237
Rental income 45,000 54,000 20,000 18,000
Other 76,047 4,458 18,061 1,229
----------- ----------- ----------- ----------
Other income (expense), net (598,277) (317,492) (197,597) (212,811)
----------- ----------- ----------- ----------
INCOME BEFORE TAXES $ 3,130,422 $ 2,810,102 $ 1,015,950 $ 409,065
PROVISION FOR INCOME
TAXES (Note 5) 1,189,000 708,000
----------- ----------- ----------- ----------
NET INCOME $ 1,941,422 $ 2,810,102 $ 307,950 $ 409,065
=========== =========== =========== ==========
EARNINGS PER SHARE
(Note 6) $ 0.08 $ 0.01
=========== ===========
PRO FORMA EARNINGS
PER SHARE (Note 6) $ 0.10 $ 0.05
=========== ==========
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDING
SEPT 30
------------------------------
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,939,829 $ 1,345,324
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and Amortization 2,985,534 661,499
Deferred Tax Provision 198,000
Gain on sale of assets 5,255
Changes in assets and liabilities that provided (used) cash:
Accounts receivable:
Trade 9,714 (90,526)
Related Parties (272,418)
Insurance 4,352,239
Inventories (795,651) 230,350
Prepaid expenses 120,188 20,997
Accounts payable (1,404,154) 169,002
Accrued expenses (336,080) (81,974)
----------- -----------
Net cash provided by operating activities 2,722,635 6,334,493
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (6,257,695) (1,296,559)
Proceeds from sale of property, plant and equipment 19,500
Net change in deposits (principally for tooling and equipment) 2,943,149 (123,200)
Additions to notes receivable-related party 0 (427,944)
Payments received on notes receivable - related party 490,000 8,795
Additions to notes receivable - other (770)
Payments received on notes receivable - other 303,170 57,971
----------- -----------
Net cash used in investing activities (2,502,646) (1,780,937)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable 320,000 (1,050,000)
Proceeds from long-term obligations 75,000
Principal payments on long-term debt (916,585) (1,127,453)
Principal payment on obligations under capital leases (47,595)
Distributions paid to shareholders 0 (2,449,631)
Net cash used in financing activities (569,180) (4,627,084)
----------- -----------
NET DECREASE IN CASH $ (349,191) $ (73,528)
=========== ===========
CASH BEGINNING OF YEAR 634,290 164,286
=========== ===========
CASH END OF PERIOD $ 285,099 $ 90,758
=========== ===========
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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 nine month periods
ended September 30, 1996 are not necessarily indicative of the
results expected for the full year.
Note 2 INVENTORIES
Inventories are summarized as follows:
SEPT 30 DEC 31
1996 1995
---------- ----------
Finished products $7,225,390 $6,168,440
Raw materials 376,167 637,466
---------- ----------
Total inventories $7,601,557 $6,805,906
========== ==========
Note 3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major
classification as follows:
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SEPT 30 DEC 31
1996 1995
------------ ------------
Land and improvements $ 3,214,815 $ 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 831,369 609,097
under capital lease)
Furniture & fixtures 541,632 537,230
Tooling 20,480,083 19,658,447
------------ ------------
Total 43,242,144 38,834,204
Less accumulated depreciation and amortization (18,883,958) (15,957,535)
------------ ------------
Net property, plant and equipment $ 24,358,186 $ 20,876,669
============ ============
Note 4 ACCRUED EXPENSES
SEPT 30 DEC 31
1996 1995
---------- ----------
Accrued expenses consist of the following:
Accrued legal $ 531,176 $ 349,331
Accrued compensation for NuPar (Note 7) 200,000 900,000
Accrued environmental costs 598,717 598,717
Accrued taxes 759,951 276,619
Other 5,150 240,407
---------- ----------
Total $2,094,994 $2,431,074
========== ==========
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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 nine-month periods ended September 30, 1996. The
pro forma earnings per share for the three-month and nine-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 $200,000 at
September 30, 1996.
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 predatory
prices. The Colonel's has settled the dispute. The Settlement
restricts disclosure of the terms. The Colonel's has accrued for
the settlement and costs.
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 these 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.
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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, which 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.
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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.
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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.
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
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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).
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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).
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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.
10.38 Lease Schedule between The Colonel's, Inc. and Comerica Leasing
Corporation dated May 31, 1996.
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10.39 Lease Agreement between The Colonel's, Inc. and Gamma Realty Co.
for lease of premises in Totowa, New Jersey.
10.40 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated June 17, 1996.
10.41 Interim Lease Schedule between The Colonel's, Inc. and Comerica
Leasing Corporation dated August 30, 1996.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
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