<PAGE> 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)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 0-18054 91-1770931
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
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)
================================================================================
<PAGE> 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.
<PAGE> 3
c) Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
DESIGNATION NATURE OF EXHIBIT
------------------ ----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 1
Exhibit 99.1
CS CRABLE SPORTSWEAR
FINANCIAL STATEMENTS
AS OF
SEPTEMBER 27, 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE> 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
<PAGE> 3
<TABLE>
<CAPTION>
CS CRABLE SPORTSWEAR
BALANCE SHEET
AS OF SEPTEMBER 27, 1997
(DOLLARS IN THOUSANDS)
<S> <C>
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
========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 4
CS CRABLE SPORTSWEAR
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 27, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
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)
--------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 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)
<TABLE>
<CAPTION>
RETAINED
INTERCOMPANY DEFICIT TOTAL
------------- ---------------- -------------
<S> <C> <C> <C>
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
============= ================ =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
<PAGE> 6
CS CRABLE SPORTSWEAR
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 27, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
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
=======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE> 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):
<TABLE>
<CAPTION>
<S> <C>
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
=======
</TABLE>
<PAGE> 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):
<PAGE> 9
-3-
<TABLE>
<CAPTION>
<S> <C>
Raw materials $7,327
Work-in-process 91
Finished goods 1,385
Supplies 262
Lower of cost or market reserves (2,154)
-----------
$6,911
===========
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Office equipment 5 years
Production equipment 7 years
Automobiles 5 years
</TABLE>
(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
<PAGE> 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:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $595,000
1999 295,000
--------------
$890,000
==============
</TABLE>
<PAGE> 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.
<PAGE> 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:
<TABLE>
<CAPTION>
(000'S
OMITTED)
<S> <C>
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
================
</TABLE>
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
<PAGE> 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.
<PAGE> 3
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 27, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Brazos Crable Adjustments Pro Forma
-------- -------- -------- ---------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
<PAGE> 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.
<PAGE> 5
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Sun Morning
Brazos (1) Sportswear (2) Sun (2) Premier (2) Crable
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
----------- -----------
<S> <C> <C>
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
===========
<FN>
(a) Fully-diluted earnings per share is not presented because the effect would be anti-dilutive
</TABLE>
<PAGE> 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.
<TABLE>
<CAPTION>
Sun Morning
Sportswear Sun Premier
--------- --------- ---------
<S> <C> <C> <C>
(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)
======== ========= =========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Crable Offering Total
--------- -------- ----------
<S> <C> <C> <C>
(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
========= ======== ==========
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Sun Morning
Sportswear Sun Premier
----------- ---------- ----------
<S> <C> <C> <C>
(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
---------- --------- ---------
<S> <C> <C> <C>
(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
========== ========= ===========
</TABLE>
