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 March 31, 1997
[ ] 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 incorporation (I.R.S. employer
or organization) identification no.)
620 SOUTH PLATT ROAD, MILAN, MICHIGAN 48160
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(313) 439-4200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 of the registrant's Common Stock, $0.01 par value,
outstanding as of May 9, 1997: 24,177,805
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 at the time 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., a Minnesota corporation ("BIR").
For accounting purposes, the transaction was treated as a
recapitalization of the Company with the Company as the acquirer (a reverse
acquisition). The effective date of the Merger was December 31, 1995.
Beginning January 1, 1996, the incomes of both The Colonel's and BIR are
reflected and reported as combined income in the consolidated income
statement.
The truck accessory division of The Colonel's was incorporated under
Michigan law as The Colonel's Truck Accessories, Inc. ("CTA") in January
1997 and became a wholly owned subsidiary of the Company.
As a result of these transactions, the Company now has three wholly
owned subsidiaries: The Colonel's, CTA and BIR.
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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. Since that time, The Colonel's
has 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, the Bahamas and the District of
Columbia.
THE COLONEL'S TRUCK ACCESSORIES, INC.
CTA manufactures and sells pickup truck bedliners and tail gate covers
through a distributor network. In March 1997, CTA finalized its purchase
out of bankruptcy of the assets of Truckware, Inc., a truck accessories
warehouse and distributor located in California. Truckware was in the
business of selling truck accessories to wholesale subdistributors and
dealerships and also offering installation services and direct sales to
retail customers. CTA plans to continue these activities and also to sell
CTA's manufactured bedliners and other truck accessories.
BRAINERD INTERNATIONAL RACEWAY, INC.
BIR operates the Brainerd International Raceway, which is located
approximately six miles northwest of Brainerd, Minnesota. Substantially all
of BIR's revenues are obtained from motor sports racing events at the
raceway. BIR schedules racing and other events held at the raceway during
weekends in the months of May through September of each year.
COMBINED OPERATIONS
The Colonel's bumper 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 aftermarket
bumper facias. This facility is leased from a company owned by Donald and
Patsy Williamson.
CTA's bedliner 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.
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BIR owns and operates the Brainerd International Raceway, which includes
a one-quarter mile drag strip located approximately six miles northwest of
Brainerd, Minnesota. The terrain of BIR's 600 acre site is slightly rolling
hills and is partially wooded. The track and various roads are composed of
blacktop. BIR's premises features several buildings, including a four-story
tower with twelve executive viewing suites, a control tower, various single
story buildings containing concession stands and 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
$13,638,000 at December 31, 1996 to $13,628,000 at March 31, 1997. See
below for further discussion of the Company's assets at March 31, 1997.
Consolidated current liabilities decreased from $16,660,000 at
December 31, 1996 to $16,542,000 at the end of the first quarter of 1997.
The decrease in current liabilities is due to a $50,000 decrease in the
outstanding balance on the line of credit (described below), a $144,000
decrease in the current portion of long-term debt and a $588,000 decrease
in accounts payable, offset by a $456,000 increase in income taxes. See
"Outstanding Debt" below for further discussion of the Company's outstanding
debt at March 31, 1997.
Inventories increased by $300,000 at March 31, 1997 compared to
December 31, 1996, due to increased production at the bedliner facility and
the short winter season. The Colonel's routinely attempts to maintain a
60-day supply of each product available for immediate shipment. Inventory
levels historically decline during the second quarter of the year, but
increase by late summer for anticipated fall sales.
Prepaid expenses decreased due to the amortization of prepaid
insurance and property taxes.
Property, plant and equipment increased slightly from December 31,
1996 to March 31, 1997. New equipment purchases exceeded depreciation
costs by $90,000 during this period.
As a result of the Merger, the acquisition value of BIR exceeded the
value of the assets by $425,000. The associated amortization expense for
the twelve-month period ending December 31, 1997 will be $60,000. The
Company has chosen to expense $15,000 each quarter throughout the year
instead of taking a one-time charge in the first quarter, as it did during
the first quarter of 1996.
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OUTSTANDING DEBT
The Colonel's has a $4,500,000 line of credit that is 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 $4,400,000 at March 31, 1997.
BIR has a $300,000 line of credit which is secured by all of its assets;
however, there was no outstanding balance on this line of credit at March 31,
1997.
The Colonel's received $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 $2,200,000 at March 31, 1997.
BIR 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 $50,000 principal payment in the third quarter of
each year through 2004.
The balance on The Colonel's mortgage on its former Owosso facility
was $657,000 at the end of the first quarter of 1997.
The Company has applied to its primary lending institution for
additional financing of $7,000,000, which would pay off the current long
term debt and a land purchase of $1,000,000, as well as the mortgage of
$657,000, and would increase the Company's borrowing capacity by $3,250,000.
The Colonel's entered into three capital leases to finance equipment
for CTA. The Colonel's leased $6,435,000 worth of that equipment under a
six-year agreement with monthly payments of approximately $100,000. The
lease includes an option to purchase the equipment for $1.00 upon expiration
of the lease term. The leases are collateralized by the machinery.
The Company has also entered into a 24-month lease extension on the
semi-tractor trailers that it was already leasing from its lending
institution. Pursuant to the extension agreement, the Company continues to
lease the vehicles for an aggregate monthly payment of $15,987. Under the
extension agreement, the Company has an option to buy the trailers for
$1.00 upon completion of the extended term.
RESULTS OF OPERATIONS
Revenues for the Company were $10,937,000 for the quarter ending March
31, 1997, compared to $9,900,000 for the same period in 1996. The increase
in 1997 was primarily due to direct sales efforts and sales by CTA. CTA
had very limited sales during its start-up period in the first quarter of
1996.
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Cost of sales decreased from 71 percent of sales for the three months
ending March 31, 1996 to 69 percent for the same three months in 1997, in
part because of start-up costs of CTA incurred in 1996. Cost of sales as a
percentage of sales was 70 percent for the fiscal year ended December 31,
1996.
Selling, general and administrative expenses as a percentage of sales
for the first quarter of 1997 increased over the same period of 1996 by
three percent. The three-month comparison shows an increase from 11 to 14
percent. However, it also shows a decrease from 17 percent at December 31,
1996 to 14 percent of sales during the first quarter of 1997. Although
more sales staff expenses were added in the first quarter, the increase in
sales associated with the costs of the additional staff continues to be
favorable. In addition, due to changes in management during the first
quarter of 1997, payroll expense has increased.
Interest expense decreased by $100,000 for the three months ending
March 31, 1997 over the same period in 1996, due to the normal retirement
of debt.
To date, the Company has accrued $532,000 for income taxes, which
reflects the Company's expected effective tax rate of 34 percent.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company was both a defendant and counter-plaintiff in a suit filed
December 5, 1991 in the United States District Court, Eastern District of
Michigan, in a private action seeking damages under the federal antitrust
statutes. On September 30, 1996, the Company settled this case for cash
and merchandise deliverable through December 1997. The Company has accrued
for the settlement.
During the first quarter of 1997, 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, 1996.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On April 22, 1997 the Company held its 1997 Annual Meeting
of Shareholders at its corporate offices in Milan, Michigan. The purposes
of the meeting were (1) to elect seven Directors to the Board of Directors,
(2) to consider and approve certain amendments to the Company's 1995 Long-
Term Incentive Plan, including increasing the number of shares of Common
Stock available for issuance under this plan from 3,000,000 to 4,000,000,
(3) to consider and approve the Company's 1997 Stock Option and Restricted
Stock Plan for Selected Non-Employees and (4) to confirm the appointment of
Deloitte & Touche LLP as the independent auditors of the Company for the
current fiscal year.
Seven 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
- ----------------- ------------
Patsy L. Williamson For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
Michael J. McCloskey For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
Mark D. Stevens For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
Ben C. Parr For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
John M. Darcy For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
J. Daniel Frisina For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
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Donald R. Gorman For 23,574,776
Authority Withheld 320
Broker Non-Votes 602,709
Ted M. Gans remained as a Director of the Company with a term
expiring in 1998. Thus, the expiration dates of the Directors' current
terms of office are as follows:
Nominee Year Term Expires
------- -----------------
Michael J. McCloskey 2000
Mark D. Stevens 2000
John M. Darcy 2000
J. Daniel Frisina 1999
Ben C. Parr 1999
Patsy L. Williamson 1998
Donald R. Gorman 1998
Ted M. Gans 1998
The shareholders also voted to approve certain amendments to the
Company's 1995 Long-Term Incentive Plan. The following sets forth the
results of the voting with respect to this matter:
For 23,574,756
Against 320
Abstentions 20
Broker Non-votes 602,709
The shareholders also voted to approve the Company's 1997 Stock Option
and Restricted Stock Plan for Selected Non-Employees. The following sets
forth the results of the voting with respect to this matter:
For 23,574,656
Against 420
Abstentions 20
Broker Non-votes 602,709
The shareholders also voted to approve the appointment of Deloitte &
Touche LLP by the Board of Directors as independent auditors of the Company
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for the current fiscal year. The following sets forth the results of the
voting with respect to this matter:
For 23,575,096
Against 0
Abstentions 0
Broker Non-votes 602,709
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed as part of this
report.
EXHIBIT
NUMBER
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.
3.2 Bylaws, as amended.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. The Company filed two reports on Form
8-K during the quarter ended March 31, 1997. The first Form 8-K was filed
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on February 20, 1997, and related to the Company's Press Release of the
same date announcing new Directors and Officers. The second Form 8-K was
filed on March 20, 1997, and related to the Company's Press Release of the
same date announcing the signing of a letter of intent relating to the
acquisition of the Patsy Lou Williamson group of automobile dealerships.
Neither report contained financial statements. In addition, on April 4,
1997, the Company filed a Form 8-K relating to a Press Release dated March
26, 1997, which announced a contract between Southeast Toyota Inc. and CTA.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: MAY 12, 1997 By: /S/ MICHAEL J. MCCLOSKEY
MICHAEL J. MCCLOSKEY
CHIEF EXECUTIVE OFFICER AND DIRECTOR
(DULY AUTHORIZED OFFICER OF THE REGISTRANT)
DATED: MAY 12, 1997 BY: /S/ RICHARD S. SCHOENFELDT
RICHARD S. SCHOENFELDT
VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL OFFICER OF THE
REGISTRANT)
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APPENDIX A
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DEC 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 211,562 $ 321,486
Accounts receivable - trade (net of allowance
for doubtful accounts of $689,600 and
$575,000 at March 31, 1997 and December
31, 1996, respectively) 3,490,347 3,605,281
Inventories (Note 2) 8,636,190 8,347,663
Prepaid expense 96,376 226,670
Deferred taxes - current 1,000,000 1,045,000
Current portion of deferred compensation 154,000 52,000
Other 40,000 40,000
------------ ------------
TOTAL CURRENT ASSETS 13,628,475 13,638,100
PROPERTY, PLANT, & EQUIPMENT - NET (NOTE 3) 27,119,558 27,028,350
OTHER ASSETS:
Long-term portion of deferred compensation 440,787 236,787
Deposits 1,467,165 1,156,868
Goodwill 351,297 366,497
Other 183,693 183,693
------------ ------------
Total other assets 2,442,942 1,943,845
TOTAL ASSETS $ 43,190,975 $ 42,610,295
============ ============
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MARCH 31, DEC 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ---------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 5,400,000 $ 5,450,000
Current portion of long-term obligations 3,725,225 3,868,733
Accounts payable - trade 2,944,942 3,532,752
Accrued expenses (note 4) 2,666,629 2,561,361
Current portion of deferred compensation 154,000 52,000
Income taxes payable 1,651,000 1,195,000
----------- ------------
Total current liabilities 16,541,796 16,659,846
LONG-TERM OBLIGATIONS, NET OF
CURRENT PORTION 5,667,577 6,321,175
LONG-TERM PORTION OF DEFERRED
COMPENSATION 440,787 236,787
DEFERRED TAXES - LONG-TERM 3,980,000 3,949,000
SHAREHOLDERS' EQUITY:
Common stock: 35,000,000 shares authorized
at $0.01 par value, 24,177,805 shares
issued and outstanding 241,778 241,778
Additional paid-in-capital 5,693,024 5,606,239
Retained earnings 10,626,013 9,595,470
----------- ------------
Total shareholders' equity 16,560,815 15,443,487
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $43,190,975 $ 42,610,295
=========== ============
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDING
MARCH 31
--------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
SALES $ 10,937,133 $ 9,900,074
COST OF SALES 7,557,394 7,008,906
------------ -----------
GROSS PROFIT 3,379,739 2,891,168
SELLING, GENERAL & ADMINISTRATIVE
EXPENSES 1,522,712 1,089,226
------------ -----------
INCOME FROM OPERATIONS 1,857,027 1,801,942
Other income (expense):
Interest expense (349,165) (456,453)
Interest income 23,762 31,570
Rental income 15,000 10,000
Other 15,919 (4,257)
------------ -----------
Other income (expense), net (294,484) (419,140)
------------ -----------
NET INCOME BEFORE TAXES $ 1,562,543 $ 1,382,802
PROVISION FOR INCOME TAXES (Note 5) 532,000 481,000
------------ -----------
NET INCOME $ 1,030,543 $ 901,802
============ ===========
EARNINGS PER SHARE (Note 6) $ 0.04 $ 0.04
============ ===========
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING
MARCH 31
--------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,030,543 $ 901,802
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 936,872 833,813
Deferred tax provision 76,000 (100,000)
(Gain) loss on sale of property (14,407) 5,255
Changes in assets & liabilities that provided (used) cash:
Accounts receivable 114,934 (783,477)
Inventories (288,527) 736,026
Prepaid expenses 130,294 (98,581)
Accounts payable (587,810) (1,352,612)
Accrued expenses 105,268 477,510
Income taxes payable 456,000
Net cash (used in) provided by investing activities 1,959,167 619,736
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant & equipment (641,354) (38,147)
Proceeds from sale of property, plant & equipment 17,000 19,500
Net change in deposits (684,417) (279,439)
Payments received on notes receivable- related party 60,000
Additions to notes receivable - other (770)
Payments received on notes receivable - other 290,502
Net cash (used in) provided by investing activities (1,308,771) 51,646
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable (50,000) (280,000)
Proceeds from long-term obligations 75,000
Principal payments on long-term debt (564,982) (560,435)
Principal payments on obligations under capital leases (232,123) (47,595)
Cash contribution from related party 86,785
Net cash (used in) financing activities (760,320) (813,030)
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NET INCREASE (DECREASE) IN CASH $ (109,924) $ (141,648)
=========== ===========
CASH, BEGINNING OF PERIOD 321,486 634,290
CASH, END OF PERIOD $ 211,562 $ 492,642
=========== ===========
Supplemental Schedule of noncash investing activities:
Transfer of deposits to property, plant and equipment
relating to property placed in service $ 374,120 $ 194,800
=========== ===========
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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 months ended March 31, 1997,
are not necessarily indicative of the results expected for the full
year.
Note 2 INVENTORIES
Inventories are summarized as follows: MARCH 31, DEC 31,
1997 1996
--------- -------
Finished products $ 8,019,725 $ 7,213,704
Raw materials 616,465 1,133,959
------------ ------------
Total inventories $ 8,636,190 $ 8,347,663
============ ============
Note 3 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major classification
as follows:
MARCH 31, DEC 31,
1997 1996
--------- -------
Land and improvements $ 3,619,717 $ 3,619,717
Track 1,533,760 1,533,760
Buildings 793,990 793,990
Leasehold improvements 986,076 707,076
Bleachers & fencing 731,886 731,886
Equipment (including equipment under capital lease) 14,363,310 14,316,710
Transportation equipment (including equipment 920,275 1,000,690
under capital lease)
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Furniture & fixtures 620,855 611,510
Tooling 23,895,152 23,229,532
------------ ------------
TOTAL 47,465,021 46,544,871
LESS ACCUMULATED DEPRECIATION (20,345,463) (19,516,521)
------------ ------------
Net property, plant and equipment $ 27,119,558 $ 27,028,350
============ ============
Note 4 ACCRUED EXPENSES
Accrued expenses consist of the following: MARCH 31, DEC 31,
1997 1996
--------- -------
Accrued legal $ 935,926 $ 1,136,516
Accrued compensation for NuPar (Note 7) 100,000
Accrued environmental costs 598,717 598,717
Accrued taxes 739,788 417,165
Other 392,198 308,963
----------- ------------
Total $ 2,666,629 $ 2,561,361
=========== ============
Note 5 INCOME TAXES
The provision for income taxes reflects the Company's expected
estimated effective tax rate of approximately 34 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 period ended March 31, 1997.
In February 1997, the Financial Accounting Standards Board
issued Statement of Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," effective for both interim and annual
periods ending after December 15, 1997. SFAS No. 128
specifies the computation, presentation and disclosure of
earnings per share for entities with publicly held common
stock or potential common stock (e.g., securities convertible
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into common stock). The Company will provide the required
disclosures in its year-end report. The effect of SFAS No.
128 on the Company's earnings per share is not expected to be
material.
Note 7 LITIGATION
In connection with the acquisition of a facility in Florida
(known as "NuPar"), the Company 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 Company for $1,800,000, claiming they had met
the conditions of the agreements 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. In
January 1997, the Company made the final payment toward this
settlement.
The Company was both a defendant and counter-plaintiff in a
suit filed December 5, 1995, in the United States District
Court, Eastern District of Michigan, in a private action
seeking damages under the federal antitrust statutes. In
September 1996, the Company settled this case for cash and
merchandise deliverable through December 1997.
The Company has been served with various lawsuits pertaining
to a class action suit arising from the production of
bedliners. The suits allege that the liners insulate a gas
can when filled which may cause a static charge that could
result in a fire. The Company has formed a coalition with
other bedliner manufacturers to defend this class action
suit. Though the Company did not produce liners at the time
of the alleged incidents, the Company has elected to
participate in the class action suit.
The Company has been served with a lawsuit by a competitor
pertaining to a possible infringement of their patent
associated with their bedliner. The Company has recently
received its patent from the U.S. Patent office and believes
that the patent was issued after the office's strict due
diligence. In addition, the Company has filed a separate
suit alleging the same competitor is infringing on the
Company's bedliner patent.
The Company and its subsidiaries are involved in various
other legal proceedings which have arisen in the normal
course of their 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
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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 in the summer of 1997 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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Note 9 LETTER OF INTENT
On March 20, 1997, the Company entered into a letter of
intent regarding the acquisition of four new and one used car
dealerships owned and controlled by Patsy Lou Williamson, a
Director and the Chairman of the Board of the Company, as
well as a major shareholder. As contemplated in the letter
of intent, the Company will purchase 100% of the stock of the
dealerships and certain related assets employed by the
dealerships, but owned by the seller and/or her affiliates,
for a purchase price equal to $60 million less any agreed
upon indebtedness or other liabilities assumed by the
Company. However, no definitive terms have been established
by the parties, and no party to the letter of intent is bound
to buy or sell the dealerships unless all appropriate parties
have executed and delivered a definitive agreement mutually
acceptable to each party and their counsel and, in the case
of the Company, to the independent members of its Board of
Directors.
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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.
3.2 Bylaws, as amended.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
11.1 Computation of Per Share Earnings.
27.1 Financial Data Schedule.