-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CrvztYBzWYcOg90/88/OCJ8lO+KaJ5syT4eoZdifHmvt26G5oJe0mtPkgb1VgNPS dduVuLakcVlalsqUZxwAhQ== 0000950152-97-008641.txt : 19971216 0000950152-97-008641.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950152-97-008641 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970929 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAZOS SPORTSWEAR INC /DE/ CENTRAL INDEX KEY: 0000856711 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 911770931 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-18054 FILM NUMBER: 97738642 BUSINESS ADDRESS: STREET 1: 3860 VIRGINIA AVE CITY: CINCINNATI STATE: OH ZIP: 45227 BUSINESS PHONE: 5132723600 MAIL ADDRESS: STREET 1: 3860 VIRGINIA AVE CITY: CINCINNATI STATE: OH ZIP: 45227 FORMER COMPANY: FORMER CONFORMED NAME: SUN SPORTSWEAR INC DATE OF NAME CHANGE: 19920703 8-K/A 1 BRAZOS SPORTSWEAR FORM 8-K/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------- FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: (Date of earliest event reported): September 29, 1997 BRAZOS SPORTSWEAR, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-18054 91-1770931 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION)
4101 FOUNDERS BOULEVARD BATAVIA, OHIO 45103-2553 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 513-753-3400 (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) ================================================================================ 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On September 29, 1997, Brazos Sportswear, Inc. (the "Company" or "Brazos") purchased substantially all the assets and assumed certain liabilities of CS Crable Sportswear, Inc., a wholly owned subsidiary of The Midland Company ("Midland") for total cash consideration of approximately $13.2 million. The transaction will be accounted for as a purchase with the majority of the purchase price being allocated to the fair value of the assets purchased. The Company also entered into a lease agreement with Midland with respect to CS Crable Sportswear, Inc.'s former facility. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS a) Financial statements of business acquired. The required audited financial statements of CS Crable Sportswear ("Crable") as of September 27, 1997 and for the period from January 1, 1997 to September 27, 1997 together with the report of independent public accountants are attached hereto as Exhibit 99.1 and are incorporated herein by reference. CS Crable Sportswear is comprised of substantially all of the net assets and operations of CS Crable Sportswear, Inc. The accompanying audited financial statements denote the continuing business acquired by Brazos and do not denote the legal entity CS Crable Sportswear, Inc. b) Pro forma financial information. An unaudited pro forma condensed combined balance sheet as of September 27, 1997 has been prepared giving effect to the acquisition of Crable as if it had occurred on such date. An unaudited pro forma condensed combined statement of operations for the thirty-nine weeks ended September 27, 1997 has been prepared giving effect to the acquisition of Crable on September 29, 1997, the issuance of $100 million of 10.5% senior notes due 2007 ("the Offering") on July 2, 1997, the acquisition of all of the outstanding common stock of SolarCo. Inc. on July 2, 1997, the acquisition of substantially all of the assets of Premier Sports Group, Inc. on July 2, 1997 and the merger of Sun Sportswear, Inc. with the Company ("Sun Merger") on March 14, 1997 as if each had occurred on the first day of fiscal 1997. The unaudited pro forma condensed combined balance sheet as of September 27, 1997 and the unaudited pro forma condensed combined statement of operations for the thirty-nine weeks ended September 27, 1997 are attached hereto as Exhibit 99.2 and are incorporated herein by reference. 3 c) Exhibits The following exhibits are filed herewith:
EXHIBIT DESIGNATION NATURE OF EXHIBIT ------------------ ---------------------------------------------------------------------------------------------------- 99.1 Audited Financial Statements of CS Crable Sportswear for the period ended September 27, 1997, as follows -- -- Report of independent public accountants -- Balance sheet as of September 27, 1997 -- Statement of operations for the period from January 1, 1997 to September 27, 1997 -- Statement of changes in intercompany to parent for the period from January 1, 1997 to September 27, 1997 -- Statement of cash flows for the period from January 1, 1997 to September 27, 1997 -- Notes to financial statements 99.2 Unaudited pro forma financial statements of Brazos Sportswear, Inc. as follows -- -- Pro forma condensed consolidated balance sheet as of September, 27, 1997 -- Pro forma condensed consolidated statement of operations for the thirty-nine weeks ended September 27, 1997
4 SIGNATURE 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. BRAZOS SPORTSWEAR, INC. /S/ F. CLAYTON CHAMBERS ----------------------- F. Clayton Chambers, Vice President and Chief Financial Officer DATE: December 15, 1997 EX-99.1 2 EXHIBIT 99.1 1 Exhibit 99.1 CS CRABLE SPORTSWEAR FINANCIAL STATEMENTS AS OF SEPTEMBER 27, 1997 TOGETHER WITH AUDITORS' REPORT 2 Report of Independent Public Accountants ---------------------------------------- To the Board of Directors of Brazos Sportswear, Inc.: We have audited the accompanying balance sheet of CS Crable Sportswear (a business acquired by Brazos Sportswear, Inc. effective September 29, 1997, formerly a business of CS Crable Sportswear, Inc., a wholly-owned subsidiary of The Midland Company) as of September 27, 1997, and the related statements of operations, changes in intercompany to parent and cash flows for the period from January 1, 1997 to September 27, 1997. These financial statements are the responsibility of the management of Brazos Sportswear, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CS Crable Sportswear as of September 27, 1997, and the results of its operations and its cash flows for the period from January 1, 1997 to September 27, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Cincinnati, Ohio, November 26, 1997 3
CS CRABLE SPORTSWEAR BALANCE SHEET AS OF SEPTEMBER 27, 1997 (DOLLARS IN THOUSANDS) ASSETS CURRENT ASSETS: Cash $ 285 Accounts receivable, net of allowances of $868 (Note 1(c)) 4,974 Inventory (Note 2(c)) 6,911 Prepaid expenses 51 -------- Total current assets 12,221 -------- PROPERTY AND EQUIPMENT, at cost (Note 2(d)): Office equipment 2,386 Production equipment 3,352 Automobiles 40 -------- 5,778 Less- accumulated depreciation (4,064) -------- 1,714 -------- Total assets $ 13,935 ======== LIABILITIES AND INTERCOMPANY TO PARENT ACCOUNTS PAYABLE $ 463 ACCRUED ROYALTIES AND LICENSE COMMITMENTS (Note 4) 283 ACCRUED ADVERTISING 277 OTHER ACCRUED LIABILITIES 1,173 -------- Total current liabilities 2,196 -------- COMMITMENTS INTERCOMPANY TO PARENT (Note 3): Intercompany 32,041 Retained deficit (20,302) -------- 11,739 -------- Total liabilities and intercompany to parent $ 13,935 ========
The accompanying notes are an integral part of these financial statements. 4 CS CRABLE SPORTSWEAR STATEMENT OF OPERATIONS FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 27, 1997 (DOLLARS IN THOUSANDS)
NET SALES (Note 1(c)) $ 22,774 COST OF GOODS SOLD 20,515 WRITEDOWN OF INVENTORY TO LOWER OF COST OR MARKET (Note 2(c)) 2,154 -------- Gross profit 105 -------- OPERATING EXPENSES: Selling expenses 4,214 General and administrative expenses 1,650 Severance and other employee benefits (Note 1(b)) 1,292 Management Fee to Parent (Note 3) 170 -------- Total operating expenses 7,326 -------- Operating loss (7,221) -------- OTHER EXPENSE (INCOME): Interest expense to Parent (Note 3) 808 Other (23) -------- Total other expense 785 -------- Loss before income taxes (8,006) INCOME TAXES (Note 5) -- -------- Net loss $ (8,006) --------
The accompanying notes are an integral part of these financial statements. 5 CS CRABLE SPORTSWEAR STATEMENT OF CHANGES IN INTERCOMPANY TO PARENT FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 27, 1997 (DOLLARS IN THOUSANDS)
RETAINED INTERCOMPANY DEFICIT TOTAL ------------- ---------------- ------------- Balance at January 1, 1997 $ 28,656 $(12,296) $ 16,360 Net loss -- (8,006) (8,006) Intercompany charges and borrowings from Parent 15,630 -- 15,630 Intercompany payments to Parent (12,245) -- (12,245) ------------- ---------------- ------------- Balance at September 27, 1997 $ 32,041 $(20,302) $ 11,739 ============= ================ =============
The accompanying notes are an integral part of these financial statements. 6 CS CRABLE SPORTSWEAR STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 27, 1997 (DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(8,006) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation 603 Increase in accounts receivable (919) Decrease in inventory 6,418 Increase in prepaid expenses (4) Decrease in accounts payable and accrued expenses (1,362) Net cash used in operating activities (3,270) ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (104) Net cash used in investing activities (104) ------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in intercompany to Parent 3,385 Net cash provided by financing activities 3,385 ------- NET INCREASE IN CASH 11 CASH, beginning of year 274 ------- CASH, end of year $ 285 ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 808 =======
The accompanying notes are an integral part of these financial statements. 7 CS CRABLE SPORTSWEAR NOTES TO FINANCIAL STATEMENTS SEPTEMBER 27, 1997 (1) Nature of Operations- --------------------- (a) BASIS OF PRESENTATION--The accompanying financial statements represent the financial position, results of operations and cash flows of CS Crable Sportswear ("Crable"), which is comprised of substantially all of the net assets and operations of CS Crable Sportswear, Inc., a wholly-owned subsidiary of The Midland Company ("Midland" or the "Parent"). This presentation is provided to show the continuing "business" of Crable, which was acquired by Brazos Sportswear, Inc. ("Brazos"), effective on September 29, 1997 (see (b) below). References to Crable or CS Crable Sportswear included herein denote the continuing business acquired by Brazos and do not denote the legal entity, CS Crable Sportswear, Inc. (b) ACQUISITION OF CRABLE BY BRAZOS--Effective on September 29, 1997, Brazos acquired substantially all the assets and assumed certain liabilities of Crable for total consideration of approximately $13.236 million. Brazos also agreed to lease Crable's facility from Midland for a ten-year period. Under the facility lease, Brazos will make monthly installment payments totaling $1.1 million annually beginning one year from the effective date of the acquisition. A reconciliation of the net assets included in the accompanying balance sheet to the purchase price paid by Brazos is as follows (dollars in thousands):
Total Crable assets included in the accompanying balance sheet $13,935 Less: Assets not acquired by Brazos- Cash (285) Employee receivables (59) Liabilities assumed by Brazos- Vacation (55) Commitments under license agreements (100) Other (315) Add: Transaction costs 115 ------- Total purchase price paid by Brazos $13.236 =======
8 -2- Certain former and continuing employees of Crable were provided benefits by Midland related to the acquisition of Crable by Brazos. Such benefits included severance, retention bonuses, health and dental insurance, and out-placement services. In addition, all Crable employees became fully vested in Midland's qualified pension plan and 401(k) contribution plan. The accompanying statement of operations includes costs of approximately $1.3 million related to this matter. The corresponding liability is included in the accompanying balance sheet under the caption "Intercompany" because it is an obligation of Midland. Brazos and Midland have also agreed on a sharing and pro-ration of certain costs such as certain salaries, utilities, rent and other miscellaneous costs for an approximate 60-day period subsequent to September 29, 1997. (c) OPERATIONS--Crable designs, sources, embellishes and markets officially licensed sports apparel for colleges, universities and professional sports teams. Distribution channels for Crable's products are major department store chains and specialty shops. Crable had net sales of approximately $10 million to 1 customer in the period ended September 27, 1997, representing 44% of total net sales for that period. The accompanying balance sheet at September 27, 1997 includes $2.5 million due from such customer. (2) Significant Accounting Policies- ------------------------------- (a) MANAGEMENT'S USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (b) REVENUE RECOGNITION--Sales are recognized when finished garments are shipped to customers from Crable's facility. (c) INVENTORY--Crable's inventory is stated at cost utilizing the first-in, first-out method. Cost includes the purchase price of blank garments and embellishment costs. Crable's major classes of inventory are as follows at September 27, 1997 (dollars in thousands): 9 -3-
Raw materials $7,327 Work-in-process 91 Finished goods 1,385 Supplies 262 Lower of cost or market reserves (2,154) ----------- $6,911 ===========
Lower of cost or market reserves reflect the difference between estimated fair value, based on the purchase price paid by Brazos, and Crable's historical cost. (d) PROPERTY AND EQUIPMENT-- Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method. The estimated useful life for each major asset category is as follows:
Office equipment 5 years Production equipment 7 years Automobiles 5 years
(e) ADVERTISING--Advertising costs are expensed as incurred. Advertising expense was approximately $920,000 in the period ended September 27, 1997. (3) Related Party Transactions- -------------------------- (a) FACILITY LEASE--Crable historically leased office, warehouse and manufacturing space from Midland. This lease required monthly payments of approximately $33,000, exclusive of operation and maintenance expenses, during 1997. The monthly lease payment amount was determined by Midland based on Crable's operating capacity within the facility. During the period ended September 27, 1997, Crable operated substantially below capacity. As a result, the monthly lease payment amount is below estimated fair value. Fair value is estimated to be $1.0 million annually based on the lease negotiated between Brazos and Midland (see Note 1(b)). Total rent expense for this lease included in the accompanying statement of operations is approximately $300,000. (b) WORKING CAPITAL ADVANCES--Midland historically provided working capital advances to Crable on an as-needed basis. The amount of such advances outstanding at September 27, 1997 was approximately $7,093,000. Such 10 -4- advances are included in the accompanying balance sheet under the caption "Intercompany". Crable was required to pay interest to Midland on the average outstanding balance of such advances at a rate equal to Midland's short-term cost of funds, approximately 5.5% during 1997. (c) ADMINISTRATIVE SERVICES--Midland historically provided certain administrative services to Crable related to human resources and corporate matters and charged Crable a management fee. The amount of this management fee was approximately $170,000 for the period ended September 27, 1997. (d) EMPLOYEE BENEFITS--Crable employees have historically participated in the employee benefit plans of Midland, including a qualified pension plan and 401(k) contribution plan. The qualified pension plan provides for payment of annual benefits to substantially all employees upon retirement. Annual benefit amounts are based on years of service and the employee's highest compensation during five consecutive years of employment. Total pension cost included in the accompanying statement of operations is approximately $326,000, including approximately $180,000 related to all Crable employees becoming fully vested as a result of the acquisition of Crable by Brazos. The 401(k) contribution plan is for employees who meet certain age and length of service requirements. Total cost for this plan included in the accompanying statement of operations is approximately $88,000. (4) Royalty and License Commitments- ------------------------------- Crable acquires rights to use trademarks, characters and logos on specified types of garments under license agreements with third parties. Pursuant to these license agreements, Crable pays royalties which generally range between 9% and 10% of the sales price of the garments sold. Royalty expense for Crable's license agreements was approximately $994,000 in the period ended September 27, 1997. Certain license agreements require that Crable guarantee a minimum royalty payment. Guaranteed minimum royalty commitments under all licensing agreements in place at September 27, 1997 are as follows:
1998 $595,000 1999 295,000 -------------- $890,000 ==============
11 -5- The accompanying balance sheet includes an allowance of approximately $250,000 to cover 1998 and 1999 minimum royalty commitments which are not anticipated to be recovered through licensed product sales. (5) Income Taxes- ------------ Crable, through CS Crable Sportswear, Inc., has historically been included in the consolidated tax return of Midland. Pursuant to a tax-sharing agreement between CS Crable Sportswear, Inc. and Midland, income taxes are allocated to Crable on the basis of a separate return calculation. There is no current or deferred tax expense or benefit recognized in the accompanying statement of operations because the Company is in a loss position. EX-99.2 3 EXHIBIT 99.2 1 EXHIBIT 99.2 PRO FORMA FINANCIAL INFORMATION The unaudited pro forma condensed combined financial statements have been derived from the financial statements of the Company, Sun Sportswear, Inc. (Sun Sportswear), SolarCo., Inc. (renamed Morning Sun, Inc. and referred to herein as Morning Sun), Premier Sports Group, Inc. (Premier) and Crable and are presented to show (i) the Sun Merger, which was a reverse merger acquisition of Sun Sportswear effected on March 14, 1997, (ii) the acquisitions of Morning Sun and Premier on July 2, 1997, (iii) the acquisition of Crable on September 29, 1997 and (iv) the Offering on July 2, 1997 and the application of the net proceeds therefrom. These acquisitions are accounted for under the purchase method of accounting pursuant to which the purchase price is allocated based on the fair value of the assets acquired and the liabilities assumed. The pro forma financial information is presented as of and for the thirty-nine weeks ended September 27, 1997. The following is a summary of the purchase price for the Crable acquisition:
(000'S OMITTED) Total Crable assets included in historical financial statements $13,935 Less: Assets not acquired by Brazos- Cash (285) Employee receivables (59) Liabilities assumed by Brazos- Vacation (55) Commitments under license agreements (100) Other (315) Add: Transaction Costs 115 ---------------- Total cash purchase price paid by Brazos $ 13,236 ================
The unaudited pro forma condensed combined statement of operations for the thirty-nine week period ended September 27, 1997 gives effect to the transactions referred to above as if each occurred on the first day of fiscal 1997. The unaudited pro forma condensed combined balance sheet as of September 27, 1997 gives effect to the Crable acquisition as if it had occurred on such date. The actual entries for the Crable acquisition are subject to the completion of purchase accounting and will be based upon more precise appraisals, evaluations and estimates of fair value, which are not currently complete, and may differ substantially from the pro forma adjustments. Potential additional operating synergies available in the future are not reflected. For example, substantial economies of scale are expected to be realized due to leasing the former Crable facility and the subsequent reorganization and consolidation of several of the Company's facilities into that facility. In the past, the former Crable facility operated at approximately 30% capacity and therefore incurred significant losses. The Company expects to utilize the facility at approximately 90% capacity. Savings associated 2 with the consolidation of facilities and the effective utilization of the former Crable facility are not reflected in the accompanying pro forma financial statements. Costs of the reorganization and consolidation are also not reflected in the accompanying pro forma financial statements. The pro forma operating results are not indicative of the results of operations had the Crable acquisition taken place at the beginning of the period or of future results, primarily because the Crable acquisition and related purchase price were based on financial terms and conditions that existed on the acquisition date, and not as of the beginning of the respective period discussed above. The unaudited pro forma condensed combined financial statements and the accompanying notes should be read in conjunction with the historical financial statements of Brazos Sportswear, Inc. included in its Current Report on Form 8-K/A dated May 12, 1997 and its Quarterly Reports on Form 10-Q for the quarters ended March 29, 1997, June 28, 1997 and September 27, 1997; Sun Sportswear included in Brazos' Annual Report on Form 10-K for the year ended December 31, 1996; Morning Sun included in Brazos' Current Report on Form 8-K dated July 2, 1997; and Crable appearing elsewhere herein. 3 PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 27, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
Pro Forma Brazos Crable Adjustments Pro Forma -------- -------- -------- --------- ASSETS Current Assets: Cash $ 1,031 $ 285 $ (285)(1) $ 1,031 Accounts receivable, net 64,823 4,974 (59)(1) 69,738 Inventories 67,393 6,911 -- 74,304 Prepaid expenses and other 9,434 51 209 (2) 9,694 Deferred taxes 3,160 -- -- 3,160 Income tax receivable 2,451 -- -- 2,451 -------- -------- -------- -------- Total current assets 148,292 12,221 (135) 160,378 Property, plant and equipment, net 9,269 1,714 -- 10,983 Other non current assets 559 -- -- 559 Intangible assets, net 61,779 -- 215 (3) 61,994 -------- -------- -------- -------- Total assets $219,899 $ 13,935 $ 80 $233,914 ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of subordinated debt $ 2,401 $ -- $ -- $ 2,401 Capital leases 358 -- -- 358 Borrowings pursuant to revolving credit agreement 31,795 -- 13,445 (4) 45,240 Accounts payable and accrued liabilities 54,567 2,196 (1,626)(5) 55,137 -------- -------- -------- -------- Total current liabilities 89,121 2,196 11,819 103,136 Long-term obligations-less scheduled maturities: Senior notes payable 99,258 -- -- 99,258 Capital leases, net of current maturities 887 -- -- 887 Subordinated debt due to related parties 5,500 -- -- 5,500 Deferred income taxes and other 1,340 -- -- 1,340 Due to parent -- 32,041 (32,041)(6) 0 -------- -------- -------- -------- Total liabilities 196,106 34,237 (20,222) 210,121 Mandatorily redeemable preferred stock 898 -- -- 898 Mandatorily redeemable convertible preferred stock 8,328 -- -- 8,328 Shareholders' equity: Common stock 4 -- -- 4 Additional paid-in capital 11,289 -- -- 11,289 Retained earnings (deficit) 3,274 (20,302) 20,302 (6) 3,274 -------- -------- -------- -------- Total shareholders' equity 14,567 (20,302) 20,302 14,567 -------- -------- -------- -------- Total liabilities and shareholders' equity $219,899 $ 13,935 $ 80 $233,914 ======== ======== ======== ========
4 NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 27, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) (1) To reflect cash and employee receivables not purchased by Brazos in the acquisition. (2) To reflect amount due Brazos from the former owner of Crable due to the use of estimated balances at closing to calculate an initial purchase price subject to future adjustment. (3) To reflect the effects of goodwill with an amortization period of 40 years. (4) To reflect a $13,445 net increase in the Company's revolving line of credit as a result of the acquisition. (5) To reflect accounts payable and certain other accruals not assumed by Brazos in the acquisition. (6) To reflect the elimination of Crable's intercompany accounts with its former parent and the elimination of Crable's retained deficit. 5 PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
Sun Morning Brazos (1) Sportswear (2) Sun (2) Premier (2) Crable ----------- ----------- ----------- ----------- ----------- Net sales $ 196,290 $ 9,190 $ 13,269 $ 12,217 $ 22,774 Cost of goods sold 144,849 8,786 10,106 9,968 22,669 ----------- ----------- ----------- ----------- ----------- Gross Profit 51,441 404 3,163 2,249 105 Operating Expenses 38,544 2,215 8,161 1,649 7,326 ----------- ----------- ----------- ----------- ----------- Operating income (loss) 12,897 (1,811) (4,998) 600 (7,221) Other expense (income): Interest Expense 6,403 72 223 175 808 Other expense (income), net 126 (15) 17 (2) (23) ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes 6,368 (1,868) (5,238) 427 (8,006) Provision (benefit) for income taxes 2,547 -- (3,085) -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss) 3,821 (1,868) (2,153) 427 (8,006) Dividends and accretion on preferred stock 657 -- -- -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss) available for common shareholders $ 3,164 $ (1,868) $ (2,153) $ 427 $ (8,006) =========== =========== =========== =========== =========== Per share data (a): Primary earnings (loss) per share $ 0.66 =========== Weighted average common and common equivalent shares outstanding 4,831,899 =========== Pro Forma Pro Adjustments Forma ----------- ----------- Net sales $ (4,252)(3) $ 249,488 Cost of goods sold (5,842)(4) 190,536 -------- ----------- Gross Profit 1,590 58,952 Operating Expenses (4,702)(5) 53,198 -------- ----------- Operating income (loss) 6,292 5,759 Other expense (income): Interest Expense 2,623 (6) 10,304 Other expense (income), net -- 103 -------- ----------- Income (loss) before income taxes 3,669 (4,648) Provision (benefit) for income taxes (1,321)(7) (1,859) -------- ----------- Net income (loss) 4,990 (2,789) Dividends and accretion on preferred stock 54 (8) 711 -------- ----------- Net income (loss) available for common shareholders $ 4,936 $ (3,500) =========== =========== Per share data (a): Primary earnings (loss) per share $ (0.78) =========== Weighted average common and common equivalent shares outstanding 4,487,962 =========== (a) Fully-diluted earnings per share is not presented because the effect would be anti-dilutive
6 NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS) GENERAL: (1) Includes the results of operations of Sun Sportswear since March 14, 1997 and Morning Sun and Premier since June 29, 1997. (2) Includes the results of operations of Sun Sportswear from January 1, 1997 through March 14, 1997, and the results of Morning Sun and Premier from January 1, 1997 through June 29, 1997.
Sun Morning Sportswear Sun Premier --------- --------- --------- (3) Elimination of intercompany sales to Brazos. $ - $ - $ (4,252) ========= ========= ========= (4) Elimination of cost of goods sold on inter-company sales to Brazos. Such amount is equal to the amount of sales in pro forma adjustment (3) above. $ - $ - $ (4,252) Reclassification of royalty expense to operating expense to conform with Brazos' financial reporting practices. (833) - - Decrease in depreciation of fixed assets based on their post-acquisition allocated fair values. (180) (24) - Elimination of non-recurring charges to dispose of certain inventory types and styles, commensurate with Brazos' business plan for Sun Sportswear. (553) - - --------- --------- --------- $ (1,566) $ (24) $ (4,252) ========= ========= ========= (5) Reclassification of royalty expense from cost of goods sold to conform with Brazos' financial reporting practices. $ 833 $ - $ - Decrease in depreciation of fixed assets based on their post-acquisition allocated fair values. (159) - (23) Amortization of goodwill over 40 years. - 347 92 Amortization of deferred financing costs over 10 years. - - - Decrease in compensation expense to reflect compensation levels on a post-acquisition basis pursuant to post-acquisition employment and advisory agreements. - (4,529) (70) Elimination of non-recurring expenses such as board of directors fees and other fees charged to Morning Sun and Crable by its former majority shareholder. - (114) - Elimination of Sun Merger acquisition expenses. (233) - - Increase in lease expense per Brazos lease agreement for the Crable facility. - - - Elimination of duplicate letter of credit fees. - - (48) Elimination of Crable severance costs payable by Midland included in historical financial statements relating to employees terminated as a result of the acquisition. - - - --------- --------- --------- ========= ========= ========= $ 441 $ (4,296) $ (49) ========= ========= ========= (6) Net increase in interest expense related to increased net indebtedness as follows: Interest on $100 million of 10.5% senior notes. $ - $ - $ - Interest on $4 million Premier subordinated obligation at 7%. - - 140 Interest on estimated average indebtedness of $33.3 million at 7.5%. - - - Reversal of interest expense on debt repaid. (72) (223) (175) --------- --------- --------- ========= ========= ========= $ (72) $ (223) $ (35) ======== ========= =========
7
Crable Offering Total --------- -------- ---------- (3) Elimination of intercompany sales to Brazos. $ - $ - $ (4,252) ========= ======== ========== (4) Elimination of cost of goods sold on inter-company sales to Brazos. Such amount is equal to the amount of sales in pro forma adjustment (3) above. $ - $ - $ (4,252) Reclassification of royalty expense to operating expense to conform with Brazos' financial reporting practices. - - (833) Decrease in depreciation of fixed assets based on their post-acquisition allocated fair values. - - (204) Elimination of non-recurring charges to dispose of certain inventory types and styles, commensurate with Brazos' business plan for Sun Sportswear. - - (553) --------- -------- ---------- $ - $ - $ (5,842) ========= ======== ========== (5) Reclassification of royalty expense from cost of goods sold to conform with Brazos' financial reporting practices. $ - $ - $ 833 Decrease in depreciation of fixed assets based on their post-acquisition allocated fair values. - - (182) Amortization of goodwill over 40 years. 4 - 443 Amortization of deferred financing costs over 10 years. - 210 210 Decrease in compensation expense to reflect compensation levels on a post-acquisition basis pursuant to post-acquisition employment and advisory agreements. - - (4,599) Elimination of non-recurring expenses such as board of directors fees and other fees charged to Morning Sun and Crable by its former majority shareholder. (170) - (284) Elimination of Sun Merger acquisition expenses. - - (233) Increase in lease expense per Brazos lease agreement for the Crable facility. 450 - 450 Elimination of duplicate letter of credit fees. - - (48) Elimination of Crable severance costs payable by Midland included in historical financial statements relating to employees terminated as a result of the acquisition. (1,292) - (1,292) ========= ======== ========== $ (1,008) $ 210 $ (4,702) ========= ======== ========== (6) Net increase in interest expense related to increased net indebtedness as follows: Interest on $100 million of 10.5% senior notes. $ - $ 5,322 $ 5,322 Interest on $4 million Premier subordinated obligation at 7%. - - 140 Interest on estimated average indebtedness of $33.3 million at 7.5%. - 1,325 1,325 Reversal of interest expense on debt repaid. (808) (2,886) (4,164) ========= ======== ========== $ (808) $ 3,761 $ 2,623 ========= ======== ==========
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Sun Morning Sportswear Sun Premier ----------- ---------- ---------- (7) Incremental income tax effects for pro forma adjustments, S-Corporation income, and Sun Sportswear and Crable losses at an effective tax rate of 40%. $ - $ - $ - =========== =========== ========== (8) Dividends on 8% paid-in-kind convertible preferred stock. $ 22 $ - $ - Accretion of discount related to fair value allocated to common stock purchase warrants. 32 - - =========== =========== ========== $ 54 $ - $ - =========== =========== ========== Crable Offering Total ---------- --------- --------- (7) Incremental income tax effects for pro forma adjustments, S-Corporation income, and Sun Sportswear and Crable losses at an effective tax rate of 40%. $ - $ (1,321) $ (1,321) ========== ========= =========== (8) Dividends on 8% paid-in-kind convertible preferred stock. $ - $ - $ 22 Accretion of discount related to fair value allocated to common stock purchase warrants. - - 32 ---------- --------- ----------- $ - $ - $ 54 ========== ========= ===========
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