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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 June 30, 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 (I.R.S. employer
incorporation 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 August 14, 1997: 24,177,805
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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 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 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. 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, 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 such items 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 a motor sports facility 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 racetrack during weekends in the months
of May through September of each year.
COMBINED OPERATIONS
The Colonel's Milan 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 the 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 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
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, 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 increased from $13,638,000
at December 31, 1996 to $14,913,000 at June 30, 1997. Consolidated current
liabilities decreased from $16,660,000 at December 31, 1996 to $12,384,000
at the end of the second quarter of 1997. See below for further discussion
of the Company's assets and liabilities at June 30, 1997.
Cash increased from $321,000 at December 31, 1996 to $1,283,000 at
June 30, 1997 due to a borrowing on the line of credit that was made just
prior to the end of the second quarter. This cash was subsequently used to
make the Company's final 1996 federal income tax payment on July 3, 1997.
Accounts receivable decreased by $272,000 at June 30, 1997 compared to
December 31, 1996. The decrease is the net effect of a decrease in
accounts receivable at The Colonel's due to decreased sales in the second
quarter of 1997, and an increase in accounts receivable at CTA due to
increased sales and fewer customers taking early-pay discounts offered by
CTA.
Inventories decreased slightly from December 31, 1996 to June 30,
1997, primarily due to decreased production at the bumper facility.
Inventory levels historically decline during the second quarter of the
year, but increase by late summer for anticipated fall and winter sales.
Prepaid expenses increased by $700,000 due to an advance payment of
$870,000 toward the rental of the Milan building. The building is leased
by The Colonel's from 620 Platt Road, Inc., a related party through common
ownership.
Property, plant and equipment increased by $1,100,000 from December
31, 1996 to June 30, 1997. The Colonel's added $1,300,000 in assets,
including $749,000 for tooling and $352,000 for semi-tractor trailers
obtained under a capital lease (see "Outstanding Debt" for further
discussion). CTA added approximately $500,000 in assets, including
$416,000 for tooling. BIR added $172,000 to property, plant & equipment,
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consisting of improvements to the racetrack and surrounding buildings.
Depreciation expense was approximately $900,000 for the three months ended
June 30, 1997.
Deposits decreased from $1,157,000 at December 31, 1996 to $503,000 at
June 30, 1997. The $654,000 decrease relates to the completion of various
tools for The Colonel's and CTA that were put in service and moved to
property, plant and equipment.
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.
Accounts payable decreased from $3,533,000 at December 31, 1996 to
$2,747,000 at June 30, 1997. The $786,000 decrease is primarily due to the
decrease in production which typically occurs during the second quarter.
Income taxes payable decreased by $744,000, primarily as a result of a
$350,000 payment made relating to 1996 federal income taxes and a $900,000
payment made relating to 1997 federal income taxes. These payments net
against the $700,000 payable remaining for 1996 federal income taxes for a
balance of $451,000 at June 30, 1997. On July 3, 1997, the Company paid
the balance due on its 1996 federal and Michigan income taxes.
OUTSTANDING DEBT
On May 28, 1997, the Company's primary lending institution granted it
additional financing. To this end, the Company executed a $7,000,000 term
note which requires monthly payments of $167,000 plus interest at prime
plus 0.25 percent. The term note has a maturity date of November 1, 2000.
The loan is secured by all of the Company's assets and had a balance of
$6,833,000 at June 30, 1997.
Proceeds from the $7,000,000 term note were used to pay the $2,200,000
balance due on a $6,000,000 loan facility obtained in April 1995 which
called for payments of $200,000 in principal plus interest on a monthly
basis.
The $7,000,000 term note proceeds were also used to pay the $657,000
balance due on The Colonel's mortgage on its former Owosso facility, as
well as the $1,000,000 note payable obtained in November 1996.
The Company's line of credit was also renegotiated on May 28, 1997.
The Company's $4,500,000 line of credit was increased to $6,000,000 and
now expires in May 1998. The line of credit is now secured by all of
-5-
the Company's assets. Interest is paid at prime on a monthly basis. The
outstanding balance on the line of credit was $3,150,000 at June 30, 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
June 30, 1997.
BIR has a mortgage in the amount of $400,000, 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.
In 1996, The Colonel's acquired 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.
Each lease includes an option to purchase the equipment for $1.00 upon
expiration of the lease term. The leases are collateralized by the
machinery. At June 30, 1997, the balance due on these three capital leases
was $5,548,000.
During 1997, the Company 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. The balance on this capital
lease was $311,000 at June 30, 1997.
RESULTS OF OPERATIONS
Revenues for the Company were $11,120,000 for the quarter ending June
30, 1997, compared to $8,544,000 for the same period in 1996. The increase
in 1997 was primarily due to sales by CTA. CTA had very limited bedliner
sales during the second quarter of 1996 when it was still in the start-up
process. Additionally, CTA's 1997 sales figure includes sales generated by
Truckware, the truck accessories retail store in California. CTA did not
acquire this store until March 1997.
Cost of sales increased from 75 percent of sales for the three months
ending June 30, 1996 to 76 percent for the same three months in 1997, in
part because of smaller profit margins obtained by CTA on its bedliner
sales.
Selling, general and administrative expenses as a percentage of sales
for the second quarter of 1997 decreased over the same period of 1996 by
five percent. The three-month comparison shows a decrease from 18 to 13
percent.
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Interest expense increased by $207,000 for the three months ending
June 30, 1997 over the same period of 1996. This increase is the result of
three capital leases outstanding at June 30, 1997 that were not added until
after June 30, 1996.
The provision for income taxes is greater at June 30, 1997 compared
to June 30, 1996 due to higher net income before taxes.
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 second 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.
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,
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(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.
A discussion of the results of voting at the Annual Meeting appears in
Item 4 of the Company's Report on Form 10-Q for the period ended March 31,
1997 and is herein incorporated by reference.
ITEM 5. OTHER INFORMATION.
Also on July 2, 1997, the Company's Board of Directors accepted the
resignation of Michael J. McClosky as Vice Chairman, Director and Chief
Executive Officer, effective June 30, 1997. Mark Stevens, the Company's
President, has assumed the responsibilities of Chief Executive Officer.
On July 28, 1997, John Darcy resigned from the Board of Directors.
Burt Reynolds has accepted an appointment to the Board of Directors to
fill the Board vacancy. Mr. Reynolds will become a Director at the next
meeting of the Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibits are filed as part of this
report.
EXHIBIT
NUMBER
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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 3.1 to the Company's
Report on Form 10-Q for the period ended March 31, 1997.
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3.2 Bylaws, as amended. Incorporated by reference from Exhibit 3.2
to the Company's Report on Form 10-Q for the period ended March
31, 1997.
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. On April 4, 1997, the Company filed a
Report on Form 8-K. This report included a press release dated March 26,
1997 in which CTA announced an exclusive order to supply Toyota Tacoma
pickup truck bedliners to Southeast Toyota Inc. No financial statements
were included on that Report on Form 8-K.
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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: August 14, 1997 By: /S/ RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Vice President-Finance and Chief
Financial Officer (Duly Authorized
Officer and Principal Financial
Officer of the Registrant)
-10-
APPENDIX A
-11-
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30 DECEMBER 31
1997 1996
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 1,283,319 $ 321,486
Accounts receivable - trade (net of allowance
for doubtful accounts of $600,000 and $575,000
at June 30, 1997 and December 31, 1996,
respectively) 3,333,112 3,605,281
Inventories (Note 2) 8,272,540 8,347,663
Prepaid expense (Note 3) 927,766 226,670
Deferred taxes - current 902,000 1,045,000
Current portion of deferred compensation 154,000 52,000
Other 40,000 40,000
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Total current assets 14,912,737 13,638,100
PROPERTY, PLANT, & EQUIPMENT - Net (Note 4) 28,182,905 27,028,350
OTHER ASSETS:
Long-term portion of deferred compensation 390,850 236,787
Deposits 502,735 1,156,868
Goodwill 336,097 366,497
Other 183,693 183,693
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Total other assets 1,413,375 1,943,845
TOTAL ASSETS $44,509,017 $42,610,295
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LIABILITIES & SHAREHOLDERS' EQUITY
JUNE 30 DECEMBER 31
1997 1996
(UNAUDITED) (AUDITED)
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CURRENT LIABILITIES:
Notes payable (Note 6) $ 3,150,000 $ 5,450,000
Current portion of long-term obligations (Note 7) 3,103,575 3,868,733
Accounts payable - trade 2,746,563 3,532,752
Accrued expenses (Note 5) 2,779,015 2,561,361
Current portion of deferred compensation 154,000 52,000
Income taxes payable 451,000 1,195,000
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Total current liabilities 12,384,153 16,659,846
LONG-TERM OBLIGATIONS, NET OF
CURRENT PORTION (Note 7) 10,371,748 6,321,175
LONG-TERM PORTION OF DEFERRED
COMPENSATION 390,850 236,787
DEFERRED TAXES - LONG-TERM 4,121,000 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 11,306,464 9,595,470
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Total shareholders' equity 17,241,266 15,443,487
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $44,509,017 $42,610,295
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDING THREE MONTHS ENDING
JUNE 30 JUNE 30
------------------------------ ------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
SALES $22,056,889 $18,444,304 $11,119,756 $ 8,544,230
COST OF SALES 15,977,771 13,392,519 8,420,377 6,383,613
----------- ----------- ----------- -----------
GROSS PROFIT 6,079,118 5,051,785 2,699,379 2,160,617
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,974,252 2,601,633 1,451,540 1,512,407
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 3,104,866 2,450,152 1,247,839 648,210
OTHER INCOME (EXPENSE):
Interest expense (628,474) (528,889) (279,309) (72,436)
Interest income 51,733 43,630 27,971 12,060
Rental income 30,000 25,000 15,000 15,000
Other 23,869 59,579 7,950 63,836
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Other income (expense), net (522,872) (400,680) (228,388) 18,460
NET INCOME BEFORE TAXES $ 2,581,994 $ 2,049,472 $ 1,019,451 $ 666,670
PROVISION FOR INCOME
TAXES (Note 8) 871,000 719,000 339,000 238,000
NET INCOME $ 1,710,994 $ 1,330,472 $ 680,451 $ 428,670
=========== =========== =========== ===========
EARNINGS PER SHARE (Note 9) $ 0.07 $ 0.06 $ 0.03 $ 0.02
=========== =========== =========== ===========
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING
JUNE 30
-----------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,710,994 $ 1,330,472
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,874,946 2,006,789
Deferred tax provision 315,000 76,000
(Gain) loss on sale of property (17,407) 5,255
Changes in assets & liabilities that provided (used) cash:
Accounts receivable 272,169 (209,099)
Inventories 75,123 (1,729,919)
Prepaid expenses (701,096) (334,340)
Accounts payable (786,189) (65,032)
Accrued expenses 217,654 468,196
Income taxes payable (744,000)
Net cash provided by investing activities 2,217,194 1,548,322
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant & equipment (874,933) (923,647)
Proceeds from sale of property, plant & equipment 21,500 28,419
Net change in deposits (1,122,422) (545,760)
Payments received on notes receivable- related party 490,000
Additions to notes receivable - other (771)
Payments received on notes receivable - other 290,502
Net cash provided by investing activities (1,975,855) (661,257)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable (2,300,000) 430,886
Proceeds from long-term obligations 7,000,000 75,000
Principal payments on long-term debt (3,606,050) (1,518,110)
Principal payments on obligations under capital leases (460,241) (181,128)
Cash contribution from related party 86,785
Net cash provided by (used in) financing activities 720,494 (1,193,352)
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NET INCREASE (DECREASE) IN CASH $ 961,833 $ (306,287)
=========== ===========
CASH, BEGINNING OF PERIOD 321,486 634,290
----------- -----------
CASH, END OF PERIOD $ 1,283,319 $ 328,003
=========== ===========
Supplemental Schedule of noncash investing activities:
Transfer of deposits to property, plant and equipment
relating to property placed in service $ 1,776,555 $ 2,525,478
=========== ===========
Property additions from the issuance of capital leases $ 351,705 $ 2,404,358
=========== ===========
Increase in deposits from noncash financing $ 1,267,294
===========
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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 six months ended June 30, 1997
are not necessarily indicative of the results expected for the
full year.
Note 2 INVENTORIES
Inventories are summarized as follows: JUNE 30, DEC 31,
1997 1996
---------- ----------
Finished products $7,372,662 $7,213,704
Raw materials 899,878 1,133,959
---------- ----------
Total inventories $8,272,540 $8,347,663
========== ==========
Note 3 PREPAID EXPENSES
Prepaid expenses consist of the following: JUNE 30, DEC 31,
1997 1996
-------- --------
Prepaid insurance $ 39,204 $101,381
Prepaid rent to related party through common 870,000
ownership
Prepaid other 18,582 125,289
-------- --------
Total $927,766 $226,670
======== ========
-17-
Note 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major
classification as follows:
JUNE 30, 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 1,234,624 707,076
Bleachers & fencing 731,886 731,886
Equipment (including equipment under capital lease) 14,416,144 14,316,710
Transportation equipment (including equipment 1,271,980 1,000,690
under capital lease)
Furniture & fixtures 620,855 611,510
Tooling 25,059,582 23,229,532
Construction in progress 155,328
------------ ------------
Total 49,437,866 46,544,871
Less accumulated depreciation (21,254,961) (19,516,521)
------------ ------------
Net property, plant and equipment $ 28,182,905 $ 27,028,350
============ ============
Note 5 ACCRUED EXPENSES
Accrued expenses consist of the following: JUNE 30, DEC 31,
1997 1996
---------- ----------
Accrued legal $ 833,859 $1,136,516
Accrued compensation for NuPar (Note 10) 100,000
Accrued environmental costs 598,717 598,717
Accrued taxes 1,041,971 417,165
Other 304,468 308,963
---------- ----------
Total $2,779,015 $2,561,361
========== ==========
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Note 6 NOTES PAYABLE
Notes payable consist of the following: JUNE 30, DEC 31,
1997 1996
---------- ----------
Line of credit with a bank, interest is due monthly
at the bank's prime rate (8.5% at June 30, 1997) $3,150,000 $4,450,000
Bridge note payable to a bank, interest is due monthly
at bank's prime rate plus 1/2%, due May 1997 0 1,000,000
---------- ----------
$3,150,000 $5,450,000
========== ==========
The Company has a line of credit with a bank which was
renegotiated in May 1997. Maximum borrowings were increased from
$4,500,000 to $6,000,000, and the line of credit now expires in
May 1998. The line of credit is now secured by all of the
Company's assets. Remaining availability under this line of
credit at June 30, 1997 was $2,850,000.
The bridge note payable from a bank represents amounts advanced to
the Company for the purchase of land in Florida. The bridge note
payable was paid in full in May 1997 with the proceeds from a
$7,000,000 term note (see Note 7).
Note 7 LONG-TERM OBLIGATIONS
Long-term obligations consist of the following: JUNE 30, DEC 31,
1997 1996
----------- -----------
Term note payable to a bank, monthly principal
payments of $167,000 plus interest at the bank's
prime rate plus 1/4% (effective rate of 8.75% at
June 30, 1997) through November 2000, and
secured by the Company's assets $ 6,833,000
Term note payable to a bank, monthly principal
payments of $200,000 plus interest at the bank's
prime rate plus 1/2% (effective rate of 8.75% at
December 31, 1996) through November 1997.
Paid in full in May 1997. $ 2,600,000
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Mortgage payable to a bank, interest at 9.25%,
payable in monthly installments of $52,000 through
May 1998 and secured by underlying property. Paid
in full in May 1997. 796,908
Mortgage payable to a bank, interest at the bank's
prime rate plus 2% (effective rate of 10.25% at
December 31, 1996), annual principal payments
of $50,000 plus interest due quarterly, through
September 2004. Secured by underlying property. 400,000 400,000
Capital lease obligations through December 2002;
monthly installments of $62,771 including interest
at rates between 7.5% and 8.75%, collateralized
by the related machinery and equipment 5,548,430 5,967,897
Capital lease obligation through March 1999;
monthly installments of $15,987 including interest
at 8.5% 310,930
Vehicle financing 199,636 231,365
Other 183,327 193,738
----------- -----------
Total 13,475,323 10,189,908
Less current portion (3,103,575) (3,868,733)
----------- -----------
Long-term portion $10,371,748 $ 6,321,175
=========== ===========
On May 28, 1997, the Company executed a $7,000,000 term note which
requires monthly principal payments of $167,000 plus interest. The
proceeds from this term note were used to pay the remaining balance
due on the term note obtained in April 1995 which called for
payments of $200,000 plus interest on a monthly basis. The proceeds
were also used to pay the remaining balance due on a mortgage
payable, which required monthly installments of $52,000 through May
1998. The $7,000,000 term note proceeds were also used to pay a
$1,000,000 bridge note payable (see Note 6).
Note 8 INCOME TAXES
The provision for income taxes reflects the Company's expected
estimated effective tax rate of approximately 34 percent.
Note 9 EARNINGS PER SHARE
The computation of earnings per share is based on the weighted
average number of shares of common stock outstanding during the
six-month period ended June 30, 1997.
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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 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 10 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 bedliners 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 bedliners 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.
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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 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 11 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 12 SUBSEQUENT EVENTS
On July 2, 1997, the Company's Board of Directors terminated the
preliminary agreement to acquire the new and used care dealerships
owned by Patsy Lou Williamson, a director and the Chairwoman of
the Board of the Company, as well as a major shareholder. The
Company had entered into the preliminary agreement on March 20,
1997 and made a public announcement of the preliminary agreement
on March 26, 1997. At this time, the Company has no intention to
acquire any automobile dealerships.
On July 3, 1997, the Company paid the remaining balance due of
its 1996 federal income taxes.
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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 3.1 to the Company's
Report on Form 10-Q for the period ended March 31, 1997.
3.2 Bylaws, as amended. Incorporated by reference from Exhibit 3.2
to the Company's Report on Form 10-Q for the period ended March
31, 1997.
4.1 Articles of Incorporation. See Exhibit 3.1 above.
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
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