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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 March 31, 1999
[ ] 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 identification no.)
incorporation or organization)
5550 OCCIDENTAL HIGHWAY, TECUMSEH, MICHIGAN 49286
(Address of principal executive offices) (Zip code)
(517) 423-4800
(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 June 7, 1999: 24,518,326
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements required under Item 1 of Part I 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
As discussed herein, The Colonel's International, Inc. (the "Company")
has four subsidiaries: The Colonel's, Inc. ("The Colonel's"), The Colonel's
Truck Accessories, Inc. ("CTA"), The Colonel's Rugged Liner, Inc. ("CRL")
and Brainerd International Raceway, Inc. ("BIR").
THE COLONEL'S, INC.
The Colonel's was organized in 1982 and began producing and selling
plastic bumpers and facias in 1983. By 1996, The Colonel's had grown
through acquisitions, joint ventures and normal expansion to two
manufacturing plants, five distribution warehouses (located in Dallas,
Texas; Houston, Texas; Glendale (Phoenix), Arizona; West Memphis, Arkansas;
and Totowa, New Jersey), and a network of independent distributors that
sell The Colonel's products throughout the United States, Canada, Mexico
and the District of Columbia.
Last year, the Company sold substantially all of the assets of The
Colonel's used in its bumper production operations to AutoLign Manufacturing
Group, Inc. pursuant to an Asset Purchase Agreement. This transaction
was completed on December 17, 1998. The sale consisted of substantially all of
The Colonel's inventory, machinery and equipment, accounts receivable and
prepaid items. AutoLign also assumed certain liabilities such as accounts
payable and purchase commitments. Certain real estate and transportation
equipment that was not part of the sale remains with The Colonel's.
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 began to acquire retail
outlet stores to sell its manufactured items and other truck accessories
that it purchases from third parties to wholesale sub-distributors and
dealerships. These retail outlet stores offer installation services and
direct sales to retail customers. CTA markets through these various
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methods to sell CTA's manufactured bedliners and other truck accessories
products.
CTA's first acquisition, in March 1997, was Truckware in Baldwin Park,
California. Truckware, which was the Company's pilot retail outlet store,
attempted to attract customers from a competitor's product to CTA's
manufactured bedliner. In addition to selling bedliners, it purchased
products from other manufacturers and sold them through a warehouse/retail
outlet store setting. In 1997, CTA purchased certain assets of Eastern Off
Road Equipment, Inc., which had similar retail outlet stores in
Pennsylvania, Maryland, Virginia and West Virginia. In 1998, CTA purchased
the assets of the following: Road and Truck, which is located in Thousand
Oaks, California; Dealers Choice, which is located in Collinsville,
Illinois and serves the St. Louis metropolitan area; Duraliner of Nashville
in Nashville, Tennessee; Sun Shade Custom located in Franklin, Tennessee;
Wild Bill's Truck Accessories in Upland, California; Bedliner Kingdom in
Los Angeles, California; Southland Shell in Pomona, California; Accessories
Plus in Santa Clara, California; Truck Stuff in South Sacramento,
California and Roseville, California; and Camper Place Warehouse with
locations in El Paso, Texas, and Las Cruces, Ruidoso, and Roswell, New
Mexico. All these facilities warehouse and sell bedliners, caps and tonneau
covers that CTA manufactures, as well as other purchased truck accessory
products to the wholesale and retail markets. In addition, CTA purchased
the assets of Horizon Coach, Inc., a manufacturing company located in
Riverside, California. This facility manufactures custom pick-up truck
caps, sport tops and tonneau covers. CTA uses this facility to supply
products to CTA's truck accessory outlet stores.
THE COLONEL'S RUGGED LINER, INC.
CRL was formed in March 1998 in connection with the acquisition by
merger of four Pennsylvania corporations: Rugged Liner, Inc., Triad
Management Group, Inc., Aerocover, Inc. and Ground Force, Inc.
(collectively, the "Rugged Liner Companies"). In this transaction, which
was consummated in April 1998, each of the Rugged Liner Companies merged
with and into CRL, with CRL being the surviving corporation. CRL, which is
located in Uniontown, Pennsylvania, manufactures non-skid bedliners and bed
mats, as well as ground lowering kits for sport utility vehicles (SUVs) and
three piece sliding tonneau covers for pickup trucks. CRL has a
distribution warehouse/service center in Pomona, California and also
markets its products through CTA's retail outlet stores. CRL, as successor
to the Rugged Liner Companies, concentrates its efforts on export bedliner
sales, and domestic ground effects, tonneau cover and bed mat sales.
THE COLONEL'S 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
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obtained from motor sports racing events at the racetrack. BIR schedules
racing and other events held at the racetrack during weekends in May
through September of each year. In 1998, BIR's name was changed from
Brainerd International Raceway, Inc. to The Colonel's Brainerd
International Raceway, Inc. to better reflect the racetrack's affiliation
with the Company and The Colonel's products.
In addition to spectator-related revenues, BIR receives: (i)
sponsorship fees from businesses which promote their products and services
at the Raceway; (ii) entry fees from participants in the races and other
events; and (iii) rent for use of the track for private racing events,
driving schools and the testing or filming of motor vehicle operations.
MAJOR SALE OF ASSETS
As mentioned above, the Company sold substantially all of the assets
of The Colonel's used in its bumper production operations to AutoLign
Manufacturing Group, Inc. pursuant to an Asset Purchase Agreement. This
transaction was completed on December 17, 1998. The sale consisted of
substantially all of The Colonel's inventory, machinery and equipment,
molds, accounts receivable, and prepaid items. AutoLign also assumed
certain accounts payable and other liabilities.
ACQUISITIONS
During 1998, CTA (or the Company) acquired seventeen retail outlet
stores and a competitor's manufacturing business: the Rugged Liner Companies,
long time competitors in the bedliner aftermarket; The Colonel's Factory
Outlets in Charlotte, North Carolina and Flint, Michigan; Wild Bill's
Truck Accessories in Upland, California; Bedliner Kingdom in Los Angeles,
California; Southland Shell in Pomona, California; Road N' Truck in Thousand
Oaks, California; Duraliner of Nashville in Nashville, Tennessee; Dealer's
Choice in Collinsville, Illinois (St. Louis); Sun Shade Custom in Franklin,
Tennessee; Accessories Plus in Santa Clara, California; Truck Stuff in
South Sacramento, California and Roseville, California; and Camper Place
Warehouse with locations in El Paso, Texas, Las Cruces, Ruidoso, and Roswell,
New Mexico.
FACILITIES
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 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 leased from a
company owned by Donald and Patsy Williamson, the majority shareholders of
the Company. (Mr. Williamson is also the Company's Chairman of the Board and
Chief Executive Officer.)
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CTA's cap and tonneau cover manufacturing plant is in Riverside,
California. The 45,000 square foot facility is located about 25 miles
southeast of Los Angeles and serves the western part of the country. CTA plans
to lease a 750,000 square foot manufacturing facility in Abilene, Texas that
was purchased by a related party for this purpose in August 1998. CTA plans
to begin manufacturing and distributing products in southern states during
the second quarter of 1999. Abilene is about 120 miles west of Dallas, Texas.
CTA's other facilities include 27 warehouse/retail outlet stores in the
Los Angeles, California area, the Pittsburgh, Pennsylvania area, the Southern
New Mexico area, Charlotte, South Carolina, Nashville, Tennessee, the St.
Louis, Missouri Area, Flint, Michigan, and the San Francisco, California area.
CRL manufactures, stores and sells bedliners mainly for export and
SUV ground lowering kits domestically in a 160,000 square foot building
in Uniontown, Pennsylvania, about one hour southeast of Pittsburgh,
Pennsylvania. This facility also serves as a master warehouse for the Eastern
Off Road retail outlet stores. It is leased from Mark German, the Company's
President.
BIR owns and operates a three-mile race track, including a one-quarter
mile drag strip, located approximately six miles northwest of Brainerd,
Minnesota. BIR's premises contain several buildings, including a four-story
tower with twelve executive viewing suites, a control tower, various single
story buildings containing concession stands, restrooms and storage and
service facilities located throughout the property. The buildings are concrete
or wood frame and are suitable for warm weather use only. Grandstand bleachers
for approximately 40,000 spectators are primarily located along the drag strip.
In April 1999, The Colonel's closed on the acquisition of a parcel of
real estate located at 5550 Occidental Highway, Tecumseh, Michigan. The
390,000 square foot plant facility is the new home for the corporate
headquarters offices. The Company's corporate offices house the
centralized accounting function and the computer/EDP departments. The
building will be used for future manufacturing operations. Currently the
warehouse section of the building is being leased by outside parties.
See "Subsequent Events" below.
FINANCIAL STATEMENT PRESENTATION
The comparative financial statements and the results of operations have
had previous years comparatives adjusted for discontinued operations that
occurred in December 1998. As noted above, in December 1998, the Company sold
its bumper manufacturing operations to AutoLign. The financial statements
set forth in Appendix A and the discussion below represent continuing
operations only.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated current assets decreased from $30,725,000
at December 31, 1998 to $20,564,000 at March 31, 1999. This decrease
primarily relates to capital expenditures made during this period with which
the Company paid cash. The Company's consolidated current liabilities
decreased from $13,628,000 at December 31, 1998 to $11,885,000 at March 31,
1999. This primarily relates to a $2,000,000 decrease in accounts payable.
See below for further discussion of these changes.
Cash decreased by $10,500,000 from year end 1998 to March 31, 1999
because cash acquisitions of property and an aircraft, reduction of
accounts payable, and pay offs of small vehicle loans. The cash balance
was unusually high at the end of 1998 because of the sale of the Company's
bumper operations, which was completed in December 1998. Proceeds were
subsequently used in 1999 to pay down the Company's line of credit and
other debt obligations.
Accounts receivable increased by approximately $72,000 as of March
31, 1999 over year end 1998. The increase is from the warehouse
distribution stores expanding to the local wholesale dealership market.
The Company's subsidiaries continue to offer early payment discounts and
incentives for prompt payments to their customers.
Inventories increased by approximately $263,000 at March 31, 1999 as
compared to December 31, 1998. Tools to produce bedliners are located in
Owosso, Michigan and Uniontown, Pennsylvania. Tools used to produce
tonneau cover inventory are located in Riverside, California and Uniontown,
Pennsylvania. Tools used to manufacture ground effects lowering packages
offered by CRL are located in Owosso, Michigan and Uniontown, Pennsylvania.
Prepaid expenses decreased $37,000 between December 31, 1998 and March
31, 1999 due to maturing of advance payments against insurance. The
Company's prepaids represent mostly advance rent payments and the last
month's rent when it leases a facility. The security deposits are recorded
in deposits while the advance and last month's rent is recorded in
prepaids.
Net deferred taxes at December 31, 1998 of $1,042,000 increased to
$1,168,000 as of March 31,1999.
Plant, property and equipment increased by approximately $1,442,000
from December 31, 1998 to March 31, 1999, primarily due to the net effect
of the purchase of an airplane for $890,000 and investment in land for
$1,400,000 offset by depreciation for the period of $811,000.
Notes receivable at March 31, 1999 were increased by $5,175,000 due to
a note to a related party. This note is secured with a personal guarantee
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and calls for monthly principal and interest payments. Previous notes from
a related party that were executed in 1998 have a balance at March 31, 1999
of $1,600,000.
Deferred compensation decreased by $13,000 from year end 1998 to the
end of the first quarter of 1999, due to normal payments of employee
compensation.
Deposits on tools and machinery decreased by approximately $145,000 at
March 31, 1999 compared to December 31, 1998, mainly due to the transfer of
deposits to depreciating assets for tools and equipment that were put into
service during the period.
Goodwill decreased by approximately $172,000 from December 31, 1998 to
March 31, 1999, primarily as a result of amortizing this goodwill over a
seven-year period. The balance in goodwill at March 31, 1999 was
$3,995,000.
LIABILITIES AND EQUITY
Accounts payable decreased from $3,077,000 at December 31, 1998 to
$1,142,000 at March 31, 1999. The decrease is a result of normal accounts
payable activity and the Company's ability to take advantage of vendor
early pay discounts.
Accrued expenses increased from $1,144,000 at December 31, 1998 to
$1,566,000 at March 31, 1999 due to increased advance sales deposits and
environmental accruals.
Income taxes payable decreased from $8,221,000 in 1998 to $8,003,000
at March 31, 1999 due to certain payments that the Company made.
OUTSTANDING LOANS
The Colonel's line of credit was paid off with proceeds from the sale
of the bumper production operations. The Colonel's has suspended its
credit facilities with its current lending institution until the Company
deems it necessary to reopen borrowing. Interest paid during 1998 on a
monthly basis was at prime and was secured by all of the Company's assets,
principally accounts receivable and inventory.
BIR has a term loan in the amount of $300,000 which is secured by
property. The loan requires quarterly interest payments at 2 percent above
prime and a single principal payment of $50,000 per year through 2004.
The Colonel's entered into a capital lease to finance equipment for
its Owosso, Michigan bedliner plant. In 1995, The Colonel's leased
$2,689,000 worth of equipment under a six-year agreement that calls for
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monthly payments of $41,000 and includes an option to purchase the
equipment for $1.00 upon expiration of the lease term. That amount
represents principal and interest at rates between 7.5 and 8.5 percent. The
lease is collateralized by the machinery. In 1996, The Colonel's leased
additional equipment in the amount of $3,744,000, structured in the same
manner as noted above. The balance on this leased equipment at March 31,
1999 was $3,627,000.
The Company believes that it will be able to satisfy ongoing cash
requirements for the next 12 months and thereafter with cash flows from
operations and the proceeds of the sale of the bumper production
operations, supplemented by borrowing arrangements that may be necessary
from time to time.
RESULTS OF OPERATIONS
Revenues for the Company were $8,724,000 in the three months ended
March 31, 1999, compared to $3,884,000 in the same period of 1998. The
$4,840,000 growth in 1999 was primarily due to the addition and
acquisitions of sixteen new factory warehouse/stores during 1997 and 1998.
CTA was started in 1996 and has grown through acquisitions of retail outlet
warehouses. BIR traditionally has little revenue during the first quarter
because the racing season doesn't begin until May of each year.
Cost of sales for both first quarters in 1999, and 1998 remained at
85%. The Company continues to sell at lower gross margins in an effort to
establish market share. Gross profit was 15% of sales as of March 31, 1998
and 1999.
Selling, general and administrative expenses increased from 20% in the
first quarter of 1998 to 26% in the first quarter of 1999. Sales increased
approximately 2.5 times in the first quarter of 1999 compared to the same
period in 1998. SG&A expenses increased 2.88 times, due to the greater number
of the retail outlet stores in 1999 than in 1998.
Interest expense decreased from $167,000 for the three months ending
March 31, 1998 to $121,000 for the same period in 1999. This decrease is
due to the Company's ability to pay off the vehicle financing during the
first quarter of 1999 and the reduction of debt amounts resulting in lower
interest amounts.
Interest income increased in 1999 by $139,000 over 1998 because of
short term investments of excess cash.
Results from continuing operations showed a loss for both quarters
ending March 31, 1998 and 1999. The Company plans to use the proceeds from
the sale of the bumper production operations to expand the truck
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accessories business and make certain other investments as described below
in "Subsequent Events."
DISCONTINUED OPERATIONS
As noted, in December 1998 the Company sold substantially all of the
assets of The Colonel's used in its bumper production operations.
MARKET RISK DISCLOSURE
The Company has assets, liabilities and inventory purchase commitments
outside the United States that are subject to foreign market fluctuations.
At present, all sales transactions are conducted in United States Dollars.
The Company does not believe that it faces significant exposure to foreign
currency fluctuations. However, as the Company's sales to foreign
countries continue to expand there is a risk that such markets may suddenly
change and that the Company may have to accept payment in foreign
currencies.
The Company has a Canadian currency account which fluctuates with the
rate of exchange. Because this account is seldom used and there presently
is less than $15,000 (Canadian) in it, the Company believes that the risks
associated with this account are not material.
The Company from time to time purchases products from outside the
United States. The Company usually pays for its purchases in U.S.
Dollars. These purchases are based on the foreign countries' economic
conditions and because the Company markets and sells its products
throughout the world, it could be affected by a weak economic condition
associated with a foreign entity.
The Company's loss from continuing operations during the first quarter
of 1999 may have an effect on its ability to borrow funds from lending
institutions.
The Company currently has no outstanding borrowings. When the Company
borrows money in the future, it may be exposed to changes in interest rates.
The Company's interest rates are usually based on the prime rate. If this
rate changes there could be an adverse effect on the Company's cash flow
and profits.
The Company deals in a marketplace that generally has been favorably
changing over the past five years. The SUV market has increased in the
last five years. More new SUVs and trucks are now sold in the United
States than new automobiles. This market change has had a positive impact
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on the Company. Any change in the buying habits of consumers would have an
adverse effect on the Company's marketplace and profit potential. Because
the Company invests up front money in tooling to manufacture models, any
downward trend would change the product mix analysis and drive costs
higher.
The Company's contract with the NHRA for the national race at the BIR
race facility is critical to the track. The track obtains 60% of its sales
and 70% of its profit from this race. The loss of the National race with
the NHRA would immediately impact the income potential at BIR.
The Company operates using a very thinly staffed management group.
The sudden loss of one of the key managers could have an immediate impact
on the Company because of the lack of redundant or cross trained personnel.
Management restructuring since the sale of the bumper manufacturing business
is expected to continue but the Company believes that the losses will be
corrected.
EFFECTS OF INFLATION
The Company believes that the relatively moderate inflation rate over
the last few years has not had a significant impact on the Company's
revenues or profitability. The Company does not expect inflation to have
any near-term material effect on the sales of its products, although there
can be no assurance that such an effect will not occur in the future.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133") which is effective for
fiscal years beginning after June 15, 2000. This statement standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, by recognition of these items as
assets and liabilities in the statement of financial position and
measurement at fair value. The Company will adopt this statement effective
January 1, 2001, as required. The impact of SFAS No. 133 on the Company's
financial position and results of operations has not yet been determined.
YEAR 2000 READINESS DISCLOSURE
With respect to the Company's computer systems, the Company continues
to implement changes designed to provide accurate date recognition and data
processing with respect to the year 2000, including modifying existing
computer programs and converting to new programs. The Company has examined
all these systems that it believes are affected by the year 2000 problem
and believes that all of the systems have been adequately upgraded or
replaced. This study has included all of the computer systems that are used
to operate the Company's accounting, billing and customers systems, inventory
control, purchasing and payroll, alarm systems, and machine controls.
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With respect to the Company's machinery and other equipment, the
Company's management has met with representatives of the primary
manufacturer of such equipment and has been assured that the equipment will
not experience any material system interruptions or failures as a result of
the year 2000 issue. While the Company has no reason to believe that the
manufacturer's statements are incorrect, the Company has not undertaken an
independent investigation of the year 2000 readiness of all of its
machinery and other equipment.
The Company has surveyed many of its significant suppliers and
customers to determine the extent to which the Company may be vulnerable to
a failure by any of these third parties to remediate their own year 2000
problems. Based on these surveys, the Company believes that these third
parties have satisfactory plans in place to address the year 2000 problem.
The Company does not have any computer or other data links with its
customers, suppliers or others.
To date, the Company has spent approximately $270,000 to address the
year 2000 issue and estimates that it will additionally spend less than
$10,000 before year end. Such costs are being expensed as incurred and are
not expected to have a material impact on the Company's results of
operations, liquidity or financial position. The projected costs of year
2000 modifications and the projected date on which the Company believes it
will complete the project are management's best estimates, based on a
variety of assumptions. There can be no guarantee that these estimates
will be achieved and actual results could differ materially from those
anticipated.
Management does not expect any material disruptions to the Company's
operations arising from the failure of the Company's computer systems or
other equipment to properly handle the year 2000 issue. In most cases, the
Company's inventories of products should be sufficient to support sales for
some period of time following any such failure. If such problems were to
continue for an extended period of time, however, they could have a
material impact on the Company's results of operations, liquidity and
financial position. In addition, the Company could face potential adverse
effects if external systems, such as telephone lines or electrical service,
were rendered inoperable due to the year 2000 issue. Furthermore, while as
noted above certain third parties have stated that they are year 2000
compliant or will be in the near future, there can be no assurances that
such third parties will not experience year 2000 problems of their own,
thereby disrupting the Company's operations.
The Company is currently developing a contingency plan to address the
year 2000 issue.
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FORWARD-LOOKING STATEMENTS
With the exception of historical matters, the matters discussed in
this report, particularly descriptions of the Company's plans to develop
and expand the business of CTA, contain forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates
and projections about the industries in which the Company operates, the
economy, and about the Company itself. Words such as "anticipates,"
"believes," "estimates," "expects," "intends," "is likely," "plans,"
"predicts," "projects," variations of such words and similar expressions
are intended to identify such forward-looking statements. These statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions ("Future Factors") that are difficult to
predict with regard to timing, extent, likelihood and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what may
be expressed or forecasted in such forward-looking statements.
Furthermore, the Company undertakes no obligation to update, amend or
clarify forward-looking statements, whether as a result of new information,
future events or otherwise.
Future Factors include, but are not limited to, uncertainties relating
to changes in demand for the Company's products or trucks and SUVs; the
cost and availability of inventories, raw materials and equipment to the
Company; the degree of competition by the Company's competitors; changes in
government and regulatory policies; and changes in economic conditions.
These matters are representative of the Future Factors that could cause a
difference between an ultimate actual outcome and a forward-looking
statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the discussion under "Market Risk Disclosure" in Item 2 above.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibits are filed as part of this
report.
EXHIBIT
NUMBER DESCRIPTION
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.
2.3 Amended and Restated Asset Purchase Agreement by and between
Colonel's Acquisition Corp. (later renamed AutoLign Manufacturing
Group, Inc.), The Colonel's International, Inc., The Colonel's,
Inc. and Donald J. Williamson dated November 23, 1998.
Incorporated by reference to Appendix A to the Company's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on December 7, 1998.
2.4 First Amendment to Amended and Restated Asset Purchase Agreement
by and between AutoLign Manufacturing Group, Inc. (formerly known
as Colonel's Acquisition Corp.), The Colonel's International, The
Colonel's, Inc. and Donald J. Williamson dated December 17, 1998.
Incorporated by reference to Exhibit 2(b) to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
December 30, 1998.
2.5 Agreement and Plan of Merger by and among The Colonel's
International, Inc., The Colonel's Rugged Liner, Inc., Rugged
Liner, Inc., Triad Management Group, Inc., Aerocover, Inc.,
Ground Force, Inc., and certain shareholders of the foregoing,
dated March 13, 1998. Incorporated by reference to Exhibit 2(a)
to the Registrant's Current Report on Form 8-K dated May 8, 1998.
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EXHIBIT
NUMBER DESCRIPTION
2.6 First Amendment to Agreement and Plan of Merger, by and among The
Colonel's International, Inc., The Colonel's Rugged Liner, Inc.,
Rugged Liner, Inc., Triad Management Group, Inc., Aerocover,
Inc., Ground Force, Inc., and certain shareholders of the
foregoing, dated April 23, 1998. Incorporated by reference to
Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated
May 8, 1998.
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 of the Company, 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.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. The Registrant did not file any
reports on Form 8-K during the quarter ended March 31, 1999.
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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.
Dated: June 15, 1999 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)
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APPENDIX A
A-1
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THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS:
Cash $ 7,718,931 $ 18,303,097
Accounts receivable - trade (net of allowance
for doubtful accounts of $1,021,000 and $1,048,000
at March 31, 1999 and December 31, 1998,
respectively) 3,144,833 3,072,330
Note receivable from majority shareholder (Note 2) 1,600,787 1,600,787
Inventories (Note 3) 6,351,022 6,088,332
Prepaid expense 485,442 522,793
Deferred taxes - current 1,168,000 1,042,000
Current portion of deferred compensation 95,667 95,667
------------- -------------
Total current assets 20,564,682 30,725,006
PROPERTY, PLANT, & EQUIPMENT - Net (Note 4) 18,371,478 16,929,227
OTHER ASSETS:
Note receivable from majority shareholder (Note 2) 5,175,000 0
Long-term portion of deferred compensation 160,678 173,678
Deposits 100,456 246,044
Goodwill 3,995,822 4,168,589
Other 179,749 180,349
------------- -------------
Total other assets 9,611,705 4,768,660
TOTAL ASSETS $ 48,547,866 $ 52,422,893
============= =============
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 1,076,773 1,089,138
Accounts payable - trade 1,142,437 3,077,409
Accrued expenses (Note 5) 1,566,551 1,144,370
Current portion of deferred compensation 95,667 95,677
Income taxes payable 8,003,988 8,221,895
-------------- -------------
Total current liabilities 11,885,417 13,628,479
LONG-TERM OBLIGATIONS, NET OF
CURRENT PORTION (Note 6) 3,627,111 3,942,686
LONG-TERM PORTION OF DEFERRED
COMPENSATION 153,400 173,678
DEFERRED TAXES - LONG-TERM 1,191,000 1,191,000
SHAREHOLDERS' EQUITY:
Common stock: 35,000,000 shares authorized
at $0.01 par value, 24,177,805 shares issued
and outstanding 246,318 246,318
Additional paid-in-capital 8,311,438 9,230,911
Retained earnings 23,133,182 24,009,821
-------------- -------------
Total shareholders' equity 30,690,938 33,487,050
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 48,547,866 $ 52,422,893
============== =============
</TABLE>
A-3
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31,
----------------------------------
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
SALES $ 8,724,834 $ 3,884,156
COST OF SALES 7,424,198 3,305,767
-------------- -------------
GROSS PROFIT 1,300,636 578,389
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,279,550 791,564
-------------- -------------
INCOME FROM OPERATIONS (978,914) (213,175)
OTHER INCOME (EXPENSE):
Interest expense (121,639) (167,207)
Interest income 142,611 3,030
Rental income 65,609 0
Other 15,694 (26,758)
-------------- -------------
Other (expense), net 102,275 (190,935)
NET INCOME BEFORE TAXES $ (876,639) $ (404,110)
PROVISION FOR INCOME
TAXES 0 0
NET INCOME $ (876,639) $ (404,110)
============== =============
BASIC AND DILUTED
EARNINGS PER SHARE (Note 8) $ (0.04) $ (0.02)
============== =============
</TABLE>
A-4
<PAGE>
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31,
-----------------------------------
1999 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (876,639) $ 1,065,686
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 810,742 1,245,506
Deferred tax provision 126,000 (114,000)
Changes in assets & liabilities that provided (used) cash:
Accounts receivable (72,503) (690,912)
Inventories (262,690) (1,966,177)
Prepaid expenses 67,351 (22,346)
Other current assets (1,200) 0
Accounts payable (1,937,912) (727,142)
Accrued expenses (422,181) 993,870
Goodwill (172,767) 4,800
Income taxes payable 167,907 454,024
Net cash provided by operating activities (2,573,892) 223,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant & equipment (2,252,993) (1,019,241)
Proceeds from sale of property, plant & equipment 0 0
Net change in deposits (145,588) (157,876)
Investment in subsidiary 0
Net cash used in investing activities (2,398,581) (1,201,295)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under notes payable 0 945,489
Principal payments on long-term debt (121,118) (520,728)
Principal payments on obligations under capital leases (315,575) (197,781)
Cash contribution to related party (5,175,000) 0
A-5
<PAGE>
Net cash provided by (used in) financing activities (5,611,693) 226,980
NET DECREASE IN CASH $ (10,584,166) $ (740,605)
=============== ===============
CASH, BEGINNING OF PERIOD 18,303,097 1,723,652
--------------- ---------------
CASH, END OF PERIOD $ 7,718,931 $ 983,047
=============== ===============
</TABLE>
A-6
<PAGE>
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, 1999
are not necessarily indicative of the results expected for the full
year.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," which is effective for fiscal
years beginning after December 15, 1997. The statement changes the
reporting of certain items currently reported in the shareholders'
equity section of the balance sheet and establishes standards for
reporting of comprehensive income and its components in a full set
of general purpose financial statements. The effect of SFAS No. 130
is not material to the financial position or results of operations
of the Company.
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information" applies to all public entities and is effective
for financial statement periods beginning after December 15, 1997.
However, SFAS No. 131 is not required to be applied to interim
financial statements in the initial year of application. Therefore,
the Company has elected not to adopt SFAS No. 131 at this time.
Note 2 NOTE RECEIVABLE FROM MAJORITY SHAREHOLDER
During the first quarter of 1999, a note receivable from the
majority shareholder of $5,175,000 was established. Additional
notes outstanding were $1,600,787.
A-7
<PAGE>
Note 3 INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C> <C>
Finished products $ 5,865,262 $ 5,701,017
Raw materials 485,760 387,315
----------- -------------
Total inventories $ 6,351,022 $ 6,088,332
=========== =============
</TABLE>
Note 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major classification
as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C> <C>
Land and improvements $ 4,476,217 $ 3,276,217
Track 1,796,310 1,781,299
Buildings 1,547,313 1,201,433
Leasehold improvements 243,846 751,642
Bleachers & fencing 760,955 755,662
Equipment 7,348,282 9,623,859
Transportation equipment 3,505,191 1,246,535
Furniture & fixtures 937,509 853,624
Tooling 4,611,151 3,483,510
Construction in progress 0 0
------------- -------------
Total 25,226,774 22,973,781
Less accumulated depreciation (6,855,296) (6,044,554)
------------- -------------
Net property, plant and equipment $ 18,371,478 $ 16,929,227
============= =============
</TABLE>
A-8
<PAGE>
Note 5 ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C> <C>
Accrued legal $ 503,464 $ 562,663
Accrued environmental costs 250,000 0
Accrued taxes 212,718 203,726
Advance ticket sales 113,019 0
Other 487,350 377,981
------------ -----------
Total $ 1,566,551 $ 1,144,370
============ ===========
</TABLE>
A-9
<PAGE>
Note 6 NOTE PAYABLE
Note payable consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C> <C>
Mortgage payable to a bank, interest at the bank's
prime rate plus 2% (effective rate of 10.0% at
March 31, 1999), annual principal payments
of $50,000 plus interest due quarterly, through
September 2004. Secured by underlying property. 300,000 300,000
Capital lease obligations through December 2002;
monthly installments include interest
at rates between 7.5% and 8.75%, collateralized
by the related machinery and equipment 4,186,655 5,214,866
Capital lease obligation through March 1999;
monthly installments includes interest
at 8.5% 138,916 226,744
Other 78,313 176,121
------------- -------------
Total 4,703,884 5,917,731
Less current portion (1,076,773) (3,166,741)
------------- -------------
Long-term portion $ 3,627,111 $ 2,750,990
============= =============
</TABLE>
Note 7 INCOME TAXES
The Company's income tax liability for the first quarter of 1999 is
estimated at zero. The Company's effective tax rate is usually
calculated at 24%.
Note 8 EARNINGS PER SHARE
In accordance with SFAS 128, basic earnings per share for March 31,
1999 and 1998 calculated as net income divided by the weighted
average number of common shares outstanding. Diluted earnings per
share was calculated as net income divided by the weighted average
number of common shares outstanding increased by the number of
additional common shares that would have been outstanding if the
A-10
<PAGE>
dilutive shares had been issued. Due to the small number of
additional potentially dilutive shares, there was no material effect
on earnings per share, therefore basic and diluted earnings per
share are the same.
Note 9 LITIGATION
No material developments in the litigation discussed in the
Company's Report on Form 10-K for the year ended December 31, 1998
occurred during the first quarter of 1999.
Note 10 ENVIRONMENTAL
No material developments in the environmental matters discussed in
the Company's Report on Form 10-K for the year ended December 31,
1998 occurred during the first quarter of 1999.
Note 11 SUBSEQUENT EVENTS
In June 1999, CTA purchased Traders in Southern California. Traders
is a mail order/retail outlet store.
Subsequent to the filing of this report on Form 10-Q, Richard S.
Schoenfeldt, the Company's Vice President-Finance and Chief
Financial Officer, resigned. The Company has begun searching for a
replacement.
The Company purchased a new facility in Tecumseh, Michigan in April
for $4,150,000. This new facility will house the general corporate
offices including accounting, and computer support operations.
A-11
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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.
2.3 Amended and Restated Asset Purchase Agreement by and between
Colonel's Acquisition Corp. (later renamed AutoLign Manufacturing
Group, Inc.), The Colonel's International, Inc., The Colonel's,
Inc. and Donald J. Williamson dated November 23, 1998.
Incorporated by reference to Appendix A to the Company's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on December 7, 1998.
2.4 First Amendment to Amended and Restated Asset Purchase Agreement
by and between AutoLign Manufacturing Group, Inc. (formerly known
as Colonel's Acquisition Corp.), The Colonel's International, The
Colonel's, Inc. and Donald J. Williamson dated December 17, 1998.
Incorporated by reference to Exhibit 2(b) to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on
December 30, 1998.
2.5 Agreement and Plan of Merger by and among The Colonel's
International, Inc., The Colonel's Rugged Liner, Inc., Rugged
Liner, Inc., Triad Management Group, Inc., Aerocover, Inc.,
Ground Force, Inc., and certain shareholders of the foregoing,
dated March 13, 1998. Incorporated by reference to Exhibit 2(a)
to the Registrant's Current Report on Form 8-K dated May 8, 1998.
2.6 First Amendment to Agreement and Plan of Merger, by and among The
Colonel's International, Inc., The Colonel's Rugged Liner, Inc.,
Rugged Liner, Inc., Triad Management Group, Inc., Aerocover,
Inc., Ground Force, Inc., and certain shareholders of the
foregoing, dated April 23, 1998. Incorporated by reference to
Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated
May 8, 1998.
<PAGE>
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 of the Company, 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.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED CONSOLIDATED STATEMENT OF INCOME, BALANCE SHEETS, AND STATEMENT
OF CASH FLOWS OF THE COLONEL'S INTERNATIONAL, INC. AND ITS SUBSIDIARIES AS OF
AND FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,718,931
<SECURITIES> 0
<RECEIVABLES> 3,144,833
<ALLOWANCES> 1,021,000
<INVENTORY> 6,351,022
<CURRENT-ASSETS> 20,564,682
<PP&E> 25,226,774
<DEPRECIATION> 6,855,296
<TOTAL-ASSETS> 48,547,866
<CURRENT-LIABILITIES> 11,885,417
<BONDS> 0
<COMMON> 246,318
0
0
<OTHER-SE> 30,640,537
<TOTAL-LIABILITY-AND-EQUITY> 48,547,866
<SALES> 8,724,834
<TOTAL-REVENUES> 8,724,834
<CGS> 7,424,198
<TOTAL-COSTS> 7,424,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 121,639
<INCOME-PRETAX> (876,639)
<INCOME-TAX> (876,639)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
