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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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended March 29, 1997
Commission File Number: 0-18054
BRAZOS SPORTSWEAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
91-1770931
(IRS Employer
Identification No.)
3860 VIRGINIA AVENUE
CINCINNATI, OHIO 45227
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 513-272-3600
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date.
4,319,170
(Shares of common stock outstanding as of May 12, 1997)
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<PAGE>
BRAZOS SPORTSWEAR, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 29, 1997
PAGE
-------
PART I -- FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of March 29,
1997 and December 28, 1996 (unaudited)............... 3
Consolidated Condensed Statements of Operations for the
thirteen weeks ended March 29, 1997 (unaudited) and
March 30, 1996 (unaudited)........................... 5
Consolidated Condensed Statements of Cash Flows for the
thirteen weeks ended March 29,1997 (unaudited) and
March 30, 1996 (unaudited)........................... 6
Notes to Financial Statements (unaudited)............ 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 8
PART II -- OTHER INFORMATION............................................ 9
<PAGE>
Item I. Financial Statements
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
AS OF MARCH 29, 1997 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
1997 1996
--------- --------
ASSETS
CURRENT ASSETS:
Cash ....................................... $ 357 $ 561
Accounts receivable, net of allowance
for doubtful accounts of $2,612 and
$2,760, respectively ...................... 29,390 22,118
Inventory (note 2(b))....................... 47,838 25,338
Prepaid expenses ........................... 3,069 1,786
Income tax receivable ...................... 1,817 --
Deferred tax assets ........................ 1,460 1,797
--------- --------
Total current assets .............. 83,931 51,600
--------- --------
PROPERTY, PLANT AND EQUIPMENT-net, at cost .... 6,471 6,873
--------- --------
INTANGIBLE ASSETS:
Costs in excess of fair value of
assets acquired ........................... 21,476 21,456
Less- accumulated amortization ............. (800) (624)
--------- --------
20,676 20,832
--------- --------
Other ...................................... 3,351 3,359
Less- accumulated amortization ............. (1,048) (922)
--------- --------
2,303 2,437
--------- --------
Total intangible assets ........... 22,979 23,269
--------- --------
OTHER ASSETS .................................. 435 940
--------- --------
$ 113,816 $ 82,682
========= ========
The accompanying notes are an integral part of these
consolidated condensed balance sheets.
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF MARCH 29, 1997 AND DECEMBER 28, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1997 1996
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings pursuant to revolving
credit agreement ................................ $ 36,273 $ 23,524
Current portion of other debt ..................... 3,238 3,070
Current portion of capital leases ................. 358 349
Earnout payable ................................... 2,950 2,950
Accounts payable .................................. 23,838 9,998
Accrued liabilities ............................... 5,207 7,042
--------- ---------
Total current liabilities ............... 71,864 46,933
--------- ---------
LONG-TERM OBLIGATIONS - LESS SCHEDULED MATURITIES:
Borrowings pursuant to credit agreement ........... 9,000 8,800
Notes payable ..................................... -- 41
Subordinated debt due to related parties .......... 12,092 13,590
Capital lease liability ........................... 1,078 1,175
--------- ---------
22,170 23,606
--------- ---------
DEFERRED INCOME TAXES PAYABLE ....................... 954 934
OTHER LIABILITIES ................................... 295 367
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK .. 7,836 6,715
MANDITORILY REDEEMABLE PREFERRED STOCK............... 898 898
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value,
15,000,000 shares authorized and
4,319,170 and 3,676,008 shares
issued and outstanding at March 29,
1997 and December 28, 1996,
respectively..................................... 4 5
Additional paid-in capital ........................ 10,539 2,927
Retained earnings (deficit) ....................... (744) 297
--------- ---------
Total shareholders' equity .............. 9,799 3,229
--------- ---------
$ 113,816 $ 82,682
========= =========
The accompanying notes are an integral part of these
consolidated condensed balance sheets.
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRTEEN-WEEK PERIODS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996
----------- -----------
NET SALES .................................. $ 34,907 $ 30,132
COST OF GOODS SOLD ......................... 26,520 22,761
----------- -----------
Gross profit ................... 8,387 7,371
OPERATING EXPENSES:
Selling, general and administrative
expenses ................................ 8,317 6,259
Amortization of intangible assets
and non-compete payments ................ 285 82
----------- -----------
Total operating expenses ....... 8,602 6,341
Operating income (loss) ........ (215) 1,030
----------- -----------
OTHER EXPENSE (INCOME):
Interest expense ......................... 1,145 811
Other, net ............................... 125 (233)
----------- -----------
Income (loss) before credit
for income taxes ............. (1,485) 452
CREDIT FOR INCOME TAXES .................... (609) --
----------- -----------
Net income (loss) .............. (876) 452
DIVIDENDS AND ACCRETION ON
PREFERRED STOCK ........................... 165 --
----------- -----------
Net income (loss) available for
common shareholders ..................... $ (1,041) $ 452
=========== ===========
PER SHARE DATA:
Earnings (loss) per common and
common equivalent share $ (.27) $ .11
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 2(c)).. 3,889,538 4,113,580
=========== ===========
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
BRAZOS SPORTSWEAR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN-WEEK PERIODS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ (876) $ 452
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Depreciation ................................................... 381 262
Amortization of intangible assets .............................. 285 82
Increase in accounts receivable ................................ (328) (4,156)
Increase in inventory .......................................... (9,244) (2,963)
Increase in prepaid expenses ................................... (344) (364)
Increase in income tax receivable .............................. (426) --
Decrease(increase) in other noncurrent assets .................. (946) 5
Increase in accounts payable and accrued liabilities ........... 7,663 7,216
------- -------
Net cash provided by (used in)
operating activities .................................... (3,835) 534
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Sun Sportswear, Inc., net of cash acquired ............ (4,613) --
Purchases of property, plant and equipment, net ................... 21 (211)
------- -------
Net cash used in investing activities .................... (4,592) (211)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings pursuant to revolving credit agreement, net ............ 9,045 (560)
Borrowings of long-term debt pursuant to credit agreement ......... 1,000 --
Repayments of long-term debt pursuant to credit agreement ......... (600) (400)
Repayments of subordinated debt ................................... (3,000) --
Repayment of capital lease obligations and industrial revenue bonds (157) (68)
Payments made under non-compete agreements ........................ (25) --
Payments for deferred financing costs ............................. (140) --
Payments received on notes receivable from shareholders ........... -- 18
Issuance of common stock .......................................... 100 --
Issuance of preferred stock and related stock purchase warrants ... 2,000 --
------- -------
Net cash provided by (used in) financing activities ...... 8,223 (1,010)
------- -------
NET DECREASE IN CASH ................................................ (204) (687)
CASH AT BEGINNING OF YEAR ............................................ 561 755
------- -------
CASH AT END OF YEAR .................................................. $ 357 $ 68
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................ $ 1,687 $ 672
Cash paid for income taxes ........................................ 1,404 3
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Payments of PIK dividends ......................................... 149 --
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE>
BRAZOS SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Acquisitions-
On March 14, 1997, BSI Holdings, Inc. (Holdings) consummated a merger with Sun
Sportswear, Inc. (Sun) (hereinafter referred to as the "Merger") whereby the
stockholders of Holdings acquired an 86% ownership interest in Sun. The Merger
has been accounted for as a reverse acquisition with Sun being the surviving
legal entity and Holdings being the aquiror for accounting purposes. Concurrent
with the Merger, Sun was reincorporated in the State of Delaware under the name
Brazos Sportswear, Inc. (Company). See Note 3.
(2) Significant Accounting Policies-
(a) INTERIM FINANCIAL STATEMENTS--The accompanying consolidated condensed
financial statements of the Company for the thirteen-week period ended
March 29, 1997 reflect the results of operations of Sun from the date of
acquisition, March 14, 1997. The accompanying consolidated condensed
financial statements of the Company prior to March 14, 1997, reflect
Holdings' historical results prior to the Merger.
The accompanying consolidated condensed financial statements of the
Company are unaudited. These unaudited interim financial statements and
related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
However, in the opinion of management, the accompanying consolidated
condensed financial statements include all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of
the results for the interim periods. These consolidated condensed
financial statements and notes thereto should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Current Report on Form 8-K/A dated May 12, 1997.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
(b) INVENTORIES--Inventories are comprised of:
MARCH 29, DECEMBER 28,
INVENTORY CATEGORY METHOD 1997 1996
------------------ ------ ---- ----
Blank garments LIFO $19,743 $12,126
Printed garments LIFO 1,593 1,481
------- -------
21,336 13,607
Less--LIFO reserve (182) (182)
------- -------
Total LIFO 21,154 13,425
------- -------
Manufactured garments FIFO 2,877 2,486
Blank and printed garments FIFO 23,807 9,427
------- -------
Total FIFO 26,684 11,913
------- -------
Total inventory $47,838 $25,338
======= =======
(c) EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE--Earnings (loss)
per share is based on the weighted average number of common shares
outstanding and includes the effect of the issuance of shares in
connection with the assumed exercise of stock options and warrants.
Earnings (loss) per share has also been computed in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83 (SAB
No. 83). SAB No. 83 requires that options and warrants granted in the
twelve-month period preceding a proposed public offering be included in
the calculation of common and common equivalent shares as if they were
outstanding for all periods presented. Warrants issued in 1996 and 1997
to purchase 1,287,174 shares of common stock at prices ranging from
$.0013 per share to $6.59 per share were subject to this requirement.
Fully-diluted earnings (loss) per share has not been presented because
such per share amounts were anti-dilutive to primary earnings (loss) per
share.
All share and per share information included in the accompanying
consolidated condensed financial statements has been restated for all
periods presented to reflect the 37.912252-for-1 stock split and 1-for-5
reverse stock split pursuant to the Merger.
(d) NEW ACCOUNTING PRONOUNCEMENTS--During February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). SFAS No. 128
replaces the current presentation of primary and fully-diluted earnings
per share with a presentation of basic and diluted earnings per share.
Pursuant to the provisions of SFAS No. 128, basic earnings per share
excludes any dilution. The current presentation of primary earnings per
share includes the dilutive effect of common stock equivalents such as
options and warrants. The Company intends to adopt the provisions of
SFAS No. 128 during the fourth quarter of 1997.
Assuming profitable results of operations, management expects that the
adoption of the provisions of SFAS No. 128 will have the effect of
reporting an amount of basic earnings per share which is greater than
the current presentation of primary earnings per share because the
dilutive effect of common stock equivalents, such as options and
warrants, will be excluded from the calculation of basic earnings per
share.
Pro forma earnings (loss) per share assuming the provisions of SFAS No.
128 had been applied follow.
THIRTEEN-WEEK PERIODS ENDED
---------------------------
MARCH 29, MARCH 30,
1997 1996
-------- --------
Basic earnings (loss) per share ......... $ (.27) $ .14
Diluted earnings (loss) per share ....... (.27) .11
(3) Acquisition of Sun-
Pro forma results of the Company and Sun combined, assuming that the
acquisition had been made as of the beginning of fiscal 1996, or
December 31, 1995, follow. Such information reflects adjustments to
reflect elimination of Sun's historical depreciation expense for the
write-off of net equipment and leasehold improvements resulting from
the application of purchase accounting, elimination of compensation and
benefits related to officers whose employment was termenated prior to
or concurrent with the Merger, elimination of pre-merger acquisition
expenses incurred by Sun, additional interest expense related to
increased net indebtedness, and dividends on additional preferred stock
issued.
THIRTEEN-WEEK PERIODS ENDED
---------------------------
MARCH 29, March 30,
1997 1996
--------- ---------
(000's except per
share amounts)
Net sales ..................................... $ 44,097 $ 63,725
Net income (loss) ............................. (1,754) 1,223
Net income (loss) available to common
shareholders ................................. (2,000) 1,145
Earnings (loss) per common and common
equivalent share ............................. $ (.46) $ .24
A preliminary summary of the Merger, pending completion of certain
appraisals and analysis of the net assets acquired, utilizing March 14, 1997
balances, is as follows:
(000's Omitted)
Fair value of assets acquired, including:
Accounts receivable .................................... $ 6,912
Inventories ............................................ 13,256
Other current assets ................................... 2,059
-------
Total fair value of assets acquired ....................... 22,227
-------
Less:
Purchase Price-
Cash ................................................ $ 4,680
Subordinated note to Seafirst ....................... 1,500
Equity interest in the Company subsequent to the
Merger (587,927 remaining Sun shares at
$11.00 per share) .................................. 6,467
-------
12,647
Transaction costs ................................... 1,451
Financing costs ..................................... 137
-------
Total purchase price ...................................... 14,235
-------
Liabilities assumed ....................................... $ 7,992
=======
The purchase price was financed through a combination of borrowings ($6.3
million short-term, $1.0 million long-term), the issuance of Holdings
convertible, mandatorily redeemable preferred stock ($2.0 million - Series
B-3), and the issuance of a subordinated debenture to Seafirst ($1.5
million). In connection with this transaction, the above proceeds were used
to retire $3.0 million of the subordinated debentures payable to the seller
of Plymouth Mills, Inc. In connection with this transaction, the Company
increased its credit facility to approximately $85 million. The credit
facility includes a $73.2 million revolving line of credit.
The Series B-3 mandatorily redeemable preferred stock contained detachable
warrants to purchase 272,968 shares of Holding's common stock at a purchase
price of $6.59 per share. The warrants were valued at $1,044,000 which
represents the portion of the $2,000,000 proceeds allocated to the warrants
based on the relative individual fair values of the preferred stock and
warrants on the date of grant. These warrants have been recorded as
additional paid-in capital.
(4) Significant Customers-
The Company had net sales of $7.1 million to two customers for the
thirteen-week period ended March 29, 1997 and $9.6 million to two customers
for the thirteen-week period ended March 30, 1996. These amounts represented
20% and 32% of total net sales during the thirteen-week periods ended March
29, 1997 and March 30, 1996, respectively. The accompanying consolidated
condensed balance sheets include accounts receivable of $8.8 million and
$5.4 million at March 29, 1997 and December 28, 1996, respectively, due from
such customers.
(5) Commitments and Contingencies-
During May 1997, the Company agreed to acquire all of the outstanding common
stock of Solarco, Inc., the parent corporation of Morning Sun, Inc., a
Seattle-based designer and manufacturer of embroidered and screen-printed
fleece wear, tee-shirts and other women's tops, for approximately $30
million plus the assumption of indebtedness and other contractual
obligations of approximately $14 million. During fiscal 1996, Morning Sun,
Inc. had net sales of approximately $55 million. The acquisition, which is
subject to the satisfaction of various conditions, including regulatory
approvals and financing, is expected to close by the third quarter of 1997.
The Company has committed to pay a termination fee of $650,000 to Solarco,
Inc. if this transaction does not close as a result of the failure of the
Company to obtain financing within a specified timeframe during the third
quarter of 1997.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE HEREIN.
ACQUISITIONS
On March 14, 1997, the Company acquired Sun Sportswear, Inc. which expanded
the Company's presence in the character license as well as proprietary and
private label markets. See Notes 1 and 3 to the Notes to Financial Statements
for further information. In addition, in May, 1997, the Company entered into an
agreement to purchase a decorated sportswear business which specializes in
women's proprietary and private label markets. See Note 5 to the Notes to
Financial Statements for further information.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the Company's statements of operations expressed as a percentage of net
sales.
THIRTEEN WEEK PERIOD
ENDED
------------------------
March 29, March 30,
1997 1996
------ ------
Net sales ........................................ 100.0% 100.0%
Cost of goods sold ............................... 76.0% 75.6%
------ ------
Gross profit ..................................... 24.0% 24.4%
Operating expense ................................ 24.6% 21.0%
------ ------
Operating income (loss) .......................... (.6%) 3.4%
Other expense (income)
Interest expense ......................... 3.3% 2.7%
Other, net ............................... .4% (.8%)
------ ------
Income (loss) before credit
for income taxes ............................... (4.3%) 1.5%
Credit for income taxes .......................... (1.8%) 0.0%
------ ------
Net income (loss) ................................ (2.5%) 1.5%
====== ======
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED WITH THE THIRTEEN WEEKS
ENDED MARCH 30, 1996
The Company's net sales increased approximately $4.8 million, or 15.8%,
from $30.1 million in 1996 to $34.9 million in 1997. This increase was primarily
attributable to the acquisition of Plymouth Mills, Inc. ("Plymouth") on August
2, 1996 and the Sun Sportswear, Inc. ("Sun") merger on March 14, 1997. The
Plymouth and Sun acquisitions contributed approximately $9.0 million of sales
during the period. Excluding these acquisitions, net sales declined
approximately $4.2 million, or 14%.
The sales decline was primarily attributable to lower licensed cartoon
character sales resulting from delays in restructuring the Company's sales force
during the period prior to the completion of the Sun merger. The extended period
prior to the closing of the Sun merger prohibited the Company from effectively
integrating the sales and marketing programs among the Company, Plymouth and
Sun, which caused confusion among certain customers and licensors and hindered
the Company's ability to effectively develop and market a coordinated line of
licensed character products for its spring offering. Subsequent to the
completion of the Sun merger, the Company effectively transitioned all of Sun's
customer accounts and realigned its sales and marketing personnel in a manner in
which it believes will maximize future sales opportunities.
Other factors impacting sales during the period included: (i) a strategic
decision by management with respect to a significant customer to stop selling
licensed character products while modifying its marketing strategy to emphasize
products which management of the Company believes have significantly higher
long-term revenue potential, and (ii) delayed sales in January and February due
to federal customs quota issues. The Company believes all of these items are
temporary in nature and will not have a continuing impact on its sales and
profitability in future periods.
The Company's gross profit increased approximately $1.0 million, or 13.8%,
from $7.4 million in 1996 to $8.4 million in 1997, principally as a result of
the increase in sales volume attributable to the Plymouth acquisition and Sun
merger. Overall gross profit margin decreased to 24% in 1997 from 24.4% in 1996,
primarily as a result of lower contributed gross profit margin from Sun and a
$4.2 million decline in higher gross profit margin licensed cartoon character
sales.
Operating expenses increased approximately $2.3 million, or 35.7%, from
$6.3 million in 1996 to $8.6 million in 1997. The increase principally resulted
from the addition of two production facilities as a result of the acquisitions
of Plymouth acquisition and Sun merger. As a percentage of net sales, operating
expenses increased from 21.0% in 1996 to 24.6% in 1997. This increase was due to
higher operating expenses as a percentage of sales at Sun and a $4.2 million
decline in licensed cartoon character sales.
Interest expense increased approximately $0.3 million, or 41.2%, from $0.8
million in 1996 to $1.1 million in 1997, primarily as a result of increased
borrowings under the Company's credit facility to fund its increased working
capital requirements and borrowings incurred in connection with the Plymouth
acquisition and the Sun merger.
Income tax benefit was approximately $0.7 million, compared to no benefit
in 1996. In 1996, income tax expense was completely offset by the reversal of a
valuation allowance on its net deferred tax assets, most of which related to net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its acquisitions and sales growth through a
combination of borrowings under its bank lines of credit, bank term loans and
normal trade credit, private placements of equity and debt securities and
operating cash flows. The Company's cash requirements consist of its general
working capital needs, capital expenditures, and obligations under its leases
and promissory notes.
The Company, through its principal operating subsidiary, Brazos, Inc.,
maintains a $73.2 million line of credit, subject to collateral limitations, and
an $11.6 million term loan facility. As of March 29, 1997, Brazos had an
aggregate borrowing base under the line of credit of $42.5 million, based on
existing collateral. Advances under this line are based on a percentage of
Brazos' inventory and receivables. Of its borrowing base, $5.8 million remained
unused at March 29, 1997. Interest on the line of credit is payable at prime
plus .5% or the Eurodollar base rate plus 2.75%. Brazos' term loan facility
requires principal payments of $0.2 million per month and had an outstanding
balance of $11.6 million on March 29, 1997. Interest on the term loan facility
is payable at prime plus 1.5% or the Eurodollar base rate plus 3.5%.
The Company used $3.8 million of cash from operating activities in 1997.
Contributing to the use of cash were; (i) operating losses of $0.9 million, (ii)
working capital investments of $2.7 million; and (iii) transaction costs for the
purchase of Sun of $1.0 million.
The Company invested $4.6 million of cash in 1997 to acquire Sun and
incurred no capital expenditures net of disposals in 1997.
Financing activities provided $8.2 million of cash in 1997 through net
borrowings of $6.3 million under existing credit facilities and through the
issuance of $2.0 million in preferred stock with detachable common stock
purchase warrants and $0.1 million in common stock. Capital lease and industrial
revenue bond payments aggregating $0.2 million reduced the cash flow from
financing activities.
The Company's principal credit facility and its outstanding subordinated
debentures require the Company to maintain certain levels of working capital and
stockholders' equity and contain other restrictive covenants. Such instruments
limit the ability of the Company to incur additional indebtedness, pay dividends
and to make acquisitions and certain investments. At March 29, 1997, the Company
was in compliance with these covenants.
Management believes that funds available under its principal credit
facility, together with cash generated from operations, will be sufficient to
meet the Company's anticipated cash requirements for 1997.
SEASONALITY
The Company's sales levels are generally higher in the second and third
quarters of each year. During these periods, spring, summer, back-to-school and
pre-holiday season products are produced and sold. The Company expects that the
seasonable nature of apparel sales will continue in future periods.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
such expectations will be achieved. Other factors could cause actual results to
differ materially from those in the forward looking statements herein.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 14, 1997, the Company held a special meeting of stockholders,
the purpose of which was to approve a merger with BSI Holdings, Inc. (the
"Merger") and the Reincorporation of the Company in Delaware (the
"Reincorporation"). The results of the vote on the Merger were as follows: (a)
For -- 4,903,898, (b) Against -- 46,800 and (c) Abstaining -- 6,541; and the
results of the vote on the Reincorporation were as follows: (a) For --
4,543,088, (b) Against --407,210 and (c) Abstaining -- 6,941.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 -- Financial Data Schedule
(b) Reports on Form 8-K. The Company filed a report on Form 8-K dated
March 14, 1997 with respect to the Sun Merger and the Reincorporation.
<PAGE>
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: May 19, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> MAR-29-1997
<CASH> 357
<SECURITIES> 0
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8,734
0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (876)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
