<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-18054
----------------------------------------------------
SUN SPORTSWEAR, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1132690
---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation of Identification No.)
organization)
6520 South 190th Street, Kent, Washington 98032
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(206) 251-3565
- ------------------------------
(Registrant's telephone number
including area code)
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 and 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
------- -------
As of May 1, 1995 the Registrant had 5,747,750 shares of common stock
outstanding.
Page 1 of 15
<PAGE> 2
SUN SPORTSWEAR, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements:
Balance Sheets 3 - 4
at March 31, 1995 (Unaudited)
and December 31, 1994
Statements of Income 5
for the three months ended March 31,
1995 and 1994 (Unaudited)
Statements of Cash Flows 6
for the three months ended March 31,
1995 and 1994 (Unaudited)
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis 9 - 13
of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
</TABLE>
Page 2 of 15
<PAGE> 3
SUN SPORTSWEAR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 153,004 $ 1,217,171
Accounts receivable, net of
allowance for doubtful
accounts of $46,524 and
$46,524, respectively 22,514,531 24,424,834
Inventories, net (Note 2) 29,009,459 30,155,618
Prepaid expenses and other
current assets 451,741 596,919
Deferred income taxes 760,710 760,710
Federal income tax receivable 240,941 -0-
----------- -----------
Total current assets 53,130,386 57,155,252
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net:
(Note 3) 5,346,351 5,216,920
OTHER ASSETS: 11,943 11,943
----------- -----------
Total assets $58,488,680 $62,384,115
=========== ===========
</TABLE>
(continued)
See accompanying notes to financial statements
Page 3 of 15
<PAGE> 4
SUN SPORTSWEAR, INC.
BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Notes payable $17,202,000 $15,987,000
Accounts payable 8,793,056 13,038,144
Accrued royalties payable 1,493,174 1,720,536
Accrued wages and taxes payable 868,186 947,710
Accrued interest payable 62,969 53,813
Current portion of
long-term debt 380,725 376,636
----------- -----------
Total current liabilities 28,800,110 32,123,839
----------- -----------
NONCURRENT LIABILITIES:
Long-term debt, net of current portion 265,583 338,005
Deferred income taxes 172,046 172,046
----------- -----------
Total noncurrent liabilities 437,629 510,051
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value,
20,000,000 shares authorized;
5,747,750 shares at 3/31/95
and 5,747,125 shares at 12/31/94
issued and outstanding 21,615,804 21,613,691
Retained earnings 7,635,137 8,136,534
----------- -----------
Total shareholders' equity 29,250,941 29,750,225
----------- -----------
COMMITMENTS AND
CONTINGENCIES:
Total liabilities and shareholders' equity $58,488,680 $62,384,115
=========== ===========
</TABLE>
See accompanying notes to financial statements
Page 4 of 15
<PAGE> 5
SUN SPORTSWEAR, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Proprietary sales $ 6,032,857 $ 9,630,000
Licensed sales 20,556,442 18,301,982
Sales deductions (868,737) (707,781)
----------- -----------
Net sales (Note 4) 25,720,562 27,224,201
Cost of goods sold 22,522,498 22,394,136
----------- -----------
Gross margin 3,198,064 4,830,065
----------- -----------
Operating expenses:
Selling 987,625 1,073,536
Design and pattern 644,143 615,167
General and
administrative 1,981,996 1,599,802
Provision for doubtful
accounts and factoring fees 13,664 15,534
----------- -----------
3,627,428 3,304,039
----------- -----------
Operating income (loss) (429,364) 1,526,026
----------- -----------
Other (income) expense:
Interest expense 344,318 100,459
Other, net (14,284) (41,201)
----------- -----------
330,034 59,258
----------- -----------
Income (loss) before
provision for income taxes (759,398) 1,466,768
Provision (benefit)
for income taxes (258,000) 498,000
----------- -----------
Net income (loss) $ (501,398) $ 968,768
=========== ===========
Earnings (loss) per share: $(0.09) $ 0.17
====== ======
Weighted average shares outstanding 5,747,544 5,688,892
</TABLE>
See accompanying notes to financial statements
Page 5 of 15
<PAGE> 6
SUN SPORTSWEAR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (501,398) $ 968,768
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 355,538 275,650
(Gain) on disposal of equipment (5,411) (15,731)
Decrease(increase) in accounts receivable 1,910,303 (7,998,401)
(Increase) in inventories 1,146,159 1,671,061
Decrease (increase) in deferred income
taxes and accrued federal income tax (407,000) 498,000
(Increase) decrease in other assets 145,178 (86,790)
(Decrease) increase in accounts payable (4,456,192) 2,535,499
(Decrease) increase in accrued liabilities (131,671) 509,538
----------- -----------
Net cash (used in) operating activities (1,944,494) (1,642,406)
----------- -----------
Cash flows from investing activities:
Capital expenditures (513,000) (1,178,797)
Proceeds from sale of equipment 33,442 69,456
----------- -----------
Net cash used in investing activities (479,558) (1,109,341)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in outstanding
checks in excess of funds on deposit 211,105 (1,261,128)
Net borrowings under line of credit 1,215,000 5,926,000
Proceeds from issuance of long-term debt -0- 29,196
Principal payments under long-term debt (68,333) (2,291,592)
Proceeds from issuance of common
stock for employee stock options 2,113 228,190
----------- -----------
Net cash provided by financing activities 1, 359,885 2,630,666
----------- -----------
Net (decrease) in cash (1,064,167) (121,081)
Cash at beginning of period 1,217,171 649,088
----------- -----------
Cash at end of period $ 153,004 $ 528,007
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 335,162 $ 103,368
Income taxes $ 149,000 $ -0-
</TABLE>
See accompanying notes to financial statements
Page 6 of 15
<PAGE> 7
SUN SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements at March 31, 1995 and for the three
months ended March 31, 1995 and 1994 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 condensed financial statements include
all adjustments, consisting only of normal recurring accruals, necessary for a
fair statement of the results for the interim periods. The results of
operations and cash flows for the three months ended March 31, 1995 and 1994
are not necessarily indicative of the results of operations and cash flows that
may be expected for the entire year, which are subject to year- end adjustments
in conjunction with the annual audit by the Company's independent public
accountant. The accompanying condensed financial statements and related notes
should be read in conjunction with the financial statements and footnotes
thereto included in Sun Sportswear, Inc.'s (the "Company") 1994 Form 10-K and
Annual Report to Shareholders. See also "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quarterly Net Sales
- - Seasonality" on page 12 of this report.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts (including
reclassification of distribution costs from "operating expenses" to "cost of
goods sold") to conform to the presentation of the March 31, 1995 financial
statements.
NOTE 2 - INVENTORIES:
Inventories are comprised as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Garments in process $ 459,846 $ 2,205,577
Unprinted finished garments 25,842,888 24,218,586
Printed finished garments 5,185,774 5,965,455
Supplies 406,376 521,000
Lower of Cost or Market Allowance (2,885,425) (2,755,000)
----------- -----------
$29,009,459 $30,155,618
=========== ===========
</TABLE>
Page 7 of 15
<PAGE> 8
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are summarized by major classifications as
follows:
<TABLE>
<CAPTION>
Estimated March 31, December 31,
useful lives 1995 1994
------------ --------- ------------
<S> <C> <C> <C>
Production equipment 5-7 $ 3,535,728 $ 3,500,342
Leasehold improvements 5-10 1,211,150 1,157,422
Computer hardware and software 3-5 2,664,129 1,507,205
Furniture and fixtures 5 1,135,765 1,111,640
Distribution equipment 5-10 1,384,698 1,395,543
Warehouse equipment 5-7 367,690 338,507
Vehicles 5 27,317 27,317
----------- -----------
10,326,477 9,037,976
Construction in progress -0- 922,373
LESS - Accumulated depreciation (4,980,127) (4,743,429)
----------- -----------
$ 5,346,350 $ 5,216,920
=========== ===========
</TABLE>
NOTE 4 - MAJOR CUSTOMERS:
The Company operates almost exclusively in one industry, which is the wholesale
distribution of imprinted, dyed and decorated casual apparel. The Company has
three major customers, all of whom are mass merchants. The percentage of gross
sales for each customer and the total percentage of gross sales for the three
customers are as follows:
<TABLE>
<CAPTION>
Total percentage
Percentage of gross of gross sales for
sales for each customer the three customers
----------------------- -------------------
<S> <C> <C>
For the three months ended March 31,
1995 42%, 29% and 16% 88%
1994 32%, 32%, and 23% 87%
For the year ended December 31, 1994 40%, 29%, and 19% 88%
</TABLE>
Page 8 of 15
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship of certain income statement items to net sales and the
dollar increase or decrease as a percentage of such items from period to
period:
<TABLE>
<CAPTION>
Dollar increase
(decrease)
as a percentage
---------------
1994
Three months ended March 31, to
----------------------------
1995 1994 1995
---- ---- ----
<S> <C> <C> <C>
Gross sales
Proprietary sales 23.5 % 35.4 % (37.4)%
Licensed sales 79.9 67.2 12.3
Sales deductions (3.4) (2.6) 22.7
----- -----
Net sales 100.0 100.0 (5.5)
Cost of goods sold 87.6 82.3 0.6
Gross margin 12.4 17.7 (33.8)
Operating expenses 14.1 12.1 9.8
Interest expense 1.3 0.4 242.7
Other (income) expense (0.1) (0.2) (65.3)
Provision (benefit) for income taxes (1.0) 1.8 (151.8)
----- -----
Net income (loss) (1.9) % 3.6 % (151.8)
===== =====
</TABLE>
FIRST QUARTER OF 1995 AND FIRST QUARTER OF 1994
NET SALES. Net sales for the three months ended March 31, 1995 decreased 5.5%
to $25.7 million from $27.2 million in the same period of 1994. The Company
believes the primary reason for this decrease was the decline in sales of men's
and boys' products resulting from the Major League Baseball strike and a
difficult retail environment. Sales of men's and boys' products decreased 35%
to $10.9 million in the first quarter of 1995 from $16.8 million in the same
period of 1994. The Company expects second and third quarter 1995 sales for
this division to be below those of 1994.
Gross sales of women's and girls' apparel increased 41% to $15.5
million in 1995 from $11.0 million in 1994. The Company believes this increase
is due to the strong design and merchandising abilities of this division,
coupled with a strong license portfolio, which resulted in strong sell-through
at retail. The Company anticipates that sales of women's and girls' products
will grow at a modest rate through the remainder of 1995.
Gross sales of licensed products increased by 12.3% to $20.6 million
in the first quarter of 1995 from $18.3 million in the first quarter of 1994.
The increase in licensed sales was primarily attributable to the growth in
sales of The Lion King((C) Disney), 101 Dalmatians((C) Disney) and Garfield((C)
Paws, Inc.)
Page 9 of 15
<PAGE> 10
licensed products. Sun acquired a license for The Lion King((C) Disney)
products in the second quarter of 1994 and those products accounted for $3.8
million of gross sales in the first quarter of 1995. Looney Tunes(C) and joint
Looney Tunes(C) licensed product sales decreased to $12.7 million in the first
quarter of 1995 versus $15.1 million in 1994. The Company, on an ongoing
basis, is actively seeking additional licenses and brands to add to its
existing stable of licensed properties. Recent license acquisitions include
Disney's 1995 summer movie Pocahontas((C) Disney), Winnie the Pooh
characters((C) Disney), and Warner Brothers 1995 summer movie Batman Forever
((TM) and (C) DC Comics). There can be no assurances, however, that any
license acquisitions will receive positive market acceptance by Sun's
customers.
Gross sales of proprietary products decreased by 37% to $6.0 million
in the first quarter of 1995 from $9.6 million in the first quarter of 1994.
The Company believes this decrease was primarily the result of increased
competition from garments bearing licensed characters and trademarks.
Gross sales in units for the three months ended March 31, 1995
increased 8.6% to 5.8 million units from 5.3 million units in the same period
of 1994. This unit sales increase was due to an increase in unit sales of
children's products. The increase in unit sales of children's products was
partially offset by a decrease in unit sales of adult products. Sales of
children's products typically carry lower unit sales prices than sales of adult
products.
Gross sales to Sun's largest three customers decreased 4.8% in the
first quarter of 1995 versus the comparable period in 1994. Gross sales to
Sun's other customers decreased 5.2% in 1995 versus 1994. These decreases are
primarily the result of the factors discussed above.
Sales deductions, consisting of sales returns, discounts and
allowances, increased to $869,000 in 1995 from $708,000 in the first quarter of
1994. This increase was primarily due to increases in the amount of allowances
granted customers for new store allowances and markdowns, and for product
returns resulting from distribution errors.
GROSS MARGIN. Gross margin as a percentage of net sales decreased to 12.4% in
the first quarter of 1995 from 17.7% in 1994 (see "Note 2 to Financial
Statements" above). This decrease was primarily the result of higher levels of
close-out sales in the 1995 quarter versus the 1994 quarter (see "Liquidity and
Capital Resources" below); higher levels of sales deductions in the 1995
quarter versus the 1994 quarter; costs associated with applying
license-specific labels to garments bearing The Walt Disney Company's licensed
designs in the 1995 quarter; increased customer requirements for distribution
services such as hangering and packaging in the 1995 quarter; and an increase
in sales of children's products - which typically carry lower margins than
adult products - in the 1995 quarter versus the 1994 quarter.
OPERATING EXPENSES. Operating expenses increased to $3.6 million (or 14.1% of
net sales) in 1995 from $3.3 million (or 12.1% of net sales) in the first
quarter of 1994 (see "Note 2 to Financial Statements" above). This increase
was primarily attributable to an increase in general and administrative
expense.
General and administrative expenses increased to $2.0 million, or 7.8% of net
sales, in 1995 from $1.6 million, or 5.9% of net sales, in 1994. This increase
was primarily the result of added costs associated with the Company's new
management information system (see "Addition of Integrated Management
Information System" below), the additional costs to support the higher 1995
women's and girls' sales volume (without a corresponding decrease in costs
given the decrease in men's and boys' sales), and $130,000 in consulting costs
associated with the Company's ongoing re-engineering efforts to reduce its
sourcing, printing and distribution costs (see "Re-engineering Efforts" below).
Page 10 of 15
<PAGE> 11
Partially offsetting the increase in general and administrative expense was a
decrease in selling expenses to $988,000 in 1995 from $1.1 million in 1994
primarily due to lower advertising costs in 1995 associated with the Company's
GUTS(R) products.
INTEREST EXPENSE. Quarterly interest expense increased 243% to $344,000 in
the first quarter of 1995 from $100,000 in 1994 primarily as a result of higher
borrowing levels and higher interest rates in the 1995 quarter.
NET INCOME (LOSS). Net results decreased to a net loss of $501,000 in the
first quarter of 1995 from net income of $969,000 in the same period of 1994,
as a result of the factors described above.
RE-ENGINEERING EFFORTS. The Company believes it can reduce its sourcing,
printing and distribution costs, by re-engineering its operating processes. To
assist in these re-engineering efforts, the Company has hired re-engineering,
sourcing and business development experts. The Company incurred $130,000 in
consulting expense in the first quarter of 1995, and believes it will incur
approximately $400,000 in such expenses during the remainder of 1995 for these
consultants. Mr. Robert Pene, a current director of the Company, is a
principal in one of the consulting firms the Company has hired. The Company
expects to realize improvements from these re-engineering efforts beginning
later in 1995.
ADDITION OF INTEGRATED MANAGEMENT INFORMATION SYSTEM. In order to decrease
manufacturing costs and decrease inventory levels, the Company acquired and
began installing an integrated management information system in 1994 (at a cost
of approximately $1,400,000). Presently, the new system is over 50% operative.
The Company expects its operating costs will rise as a result of this new
system until the end of 1995, at which time it expects to begin realizing cost
savings from utilization of the new system.
NON-RENEWAL OF JOINT LOONEY TUNES(C)/NATIONAL FOOTBALL LEAGUE(R) LICENSE. The
National Football League(R) has indicated to the Company it will not renew
Sun's joint license for Looney Tunes ((C) Warner Bros.) characters combined
with National Football League(R) team trademarks (this license expired March
31, 1995). The National Football League indicated to the Company that the NFL
will not be renewing in order to strategically consolidate the number of
licensees holding rights to its properties. The Company believes its other
Looney Tunes(C) and joint Looney Tunes(C) licenses will not be affected by this
action. Sales of Looney Tunes(C)/National Football League(R) products were
$4.5 million in 1994.
Page 11 of 15
<PAGE> 12
QUARTERLY NET SALES - SEASONALITY
The Company's net sales fluctuate from quarter to quarter. Quarterly
net sales for 1995 and 1994 are set forth below.
<TABLE>
<CAPTION>
Net Sales
(Dollar amounts in thousands)
1995 1994
------------------------- -------------------------
Percent of Percent of
Amount Annual Sales Amount Annual Sales
------ ------------ ------ ------------
<S> <C> <C> <C> <C>
First Quarter $25,721 * $ 27,224 24.0%
Second Quarter 27,375 24.2
Third Quarter 26,634 23.6
Fourth Quarter 31,980 28.2
------- -------- -----
Total $25,721 $113,213 100.0%
======= ======== =====
</TABLE>
* Unknown
The Company's highest sales and heaviest production demands
historically occur in the first, second and fourth quarters of each year.
During the first, second and fourth quarters , spring and summer products -
which include T-shirts, tank tops, shorts and similar garments - and
back-to-school products are primarily produced and sold. During the third and
part of the fourth quarter, winter season products - which include sweatshirts
and long sleeve T-shirts - and holiday products are primarily produced and
sold.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances working capital needs primarily from "internally
generated funds" (which the Company defines as net income plus depreciation)
and short term borrowing under a line of credit. The credit line provides for
a borrowing limit of $27.0 million, including commercial letters of credit and
a maximum of $2.7 million for standby letters of credit, and expires March
1996. The borrowing rate for the revolving portion of the line is the prime
rate or lower. Under the agreement, the amount borrowed at any time, together
with letters of credit issued by the Bank on behalf of the Company, may not
exceed 80% of eligible accounts receivable and 35% of inventory (up to $8.4
million, except that nothing may be borrowed against inventory for any 90
consecutive days each calendar year). The agreement contains covenants common
to such agreements, including a restriction on dividend payments without the
lender's consent, and provides for obligations under the agreement to be
secured by all of the Company's assets, including accounts receivable and
inventory. At March 31, 1995, approximately $6.2 million was available for
borrowing under the renewed credit agreement. The Company is in compliance
with its debt covenants.
Inventory levels decreased by $1.1 million or 3.8% from December 31,
1994 to March 31, 1995. This increase was primarily the result of lower levels
of garment purchases in the first quarter of 1995 than in the fourth quarter of
1994. The Company has a concerted effort underway to reduce its inventory $2
to $6 million (below December 31, 1994 inventory levels) by September 30, 1995,
including restrictions on purchasing additional blank garments and customer
incentives. As a result of inventory reduction efforts,
Page 12 of 15
<PAGE> 13
the Company believes its gross margin will be lowered in the second quarter of
1995 by .5% to 1.0% of net sales.
Accounts receivable decreased by $1.9 million or 7.8% from December
31, 1994 to March 31, 1995, due to lower sales in the first quarter of 1995
than in the fourth quarter of 1994.
Effective January 1993, the Company entered into an agreement with
Heller Financial intended to transfer the collection risk to Heller for Sun's
accounts receivable for essentially all of its customers other than the three
largest customers (which three customers accounted for 88% of Sun's total sales
in the first quarter of 1995). Under the agreement, Heller assumes the
collection risk in exchange for a fee equal to .55% of the gross face amount of
covered receivables. Heller is party to an intercreditor agreement with Sun's
Banks, and both Heller and Sun's Banks hold security interests in the Company's
receivables.
Notes payable (borrowings under the Company's bank line of credit)
increased $1.2 million or 7.6% and accounts payable decreased $4.2 million or
33% from December 31, 1994 to March 31, 1995. The net decrease in notes
payable and accounts payable was primarily the result of lower levels of
garment purchases in the first quarter of 1995 than in the fourth quarter of
1995.
During the first quarter of 1995, the Company purchased approximately
$513,000 of machinery and equipment for production, warehouse, distribution and
office use. The Company anticipates that total expenditures for machinery and
equipment will be less than $850,000 during the remainder of 1995.
Sun's primary ongoing cash needs are for working capital, long-term
debt repayments and capital expenditures. The Company anticipates that its
borrowing needs and letter of credit needs during 1995, as a result of higher
levels of accounts receivable and inventory, may at times approach or exceed
its borrowing base limits (i.e. 80% of eligible accounts receivable and 35% of
inventory, up to $8.4 million). The Company is currently negotiating with its
Bank to increase its borrowing base - inventory limits, and expects to have
this amended arrangement in effect by the end of the second quarter of 1995.
The Company believes that internally generated funds and borrowings under the
modified credit facility should support the Company's cash needs through 1995.
INFLATION
From time to time, Sun's suppliers of blank garments and materials
increase their prices. Further, Sun increases its employees' compensation
relative to increases in the cost of living. Sun's mass merchant customers
have historically sold Sun's more basic products at predetermined sales price
points, many of which have not risen during the last few years. Because Sun's
customers generally operate on a fixed markup, their strategy of not increasing
their sales price points has made it difficult for the Company to pass on any
cost increases relative to its more basic products.
Page 13 of 15
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material change.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
Page 14 of 15
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUN SPORTSWEAR, INC.
DATE: May 10, 1995 BY: /s/ Larry C. Mounger
------------ ---------------------------
Larry C. Mounger
Chairman of the Board,
Chief Executive Officer
and President
DATE: May 10, 1995 BY: /s/ Kevin C. James
------------ ---------------------------
Kevin C. James
Senior Vice President
and Chief Financial Officer
Page 15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 153,004
<SECURITIES> 0
<RECEIVABLES> 22,561,055
<ALLOWANCES> 46,524
<INVENTORY> 29,009,459
<CURRENT-ASSETS> 53,130,396
<PP&E> 10,326,477
<DEPRECIATION> 4,980,127
<TOTAL-ASSETS> 58,488,680
<CURRENT-LIABILITIES> 28,800,110
<BONDS> 437,629
<COMMON> 21,615,804
0
0
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<CGS> 22,522,498
<TOTAL-COSTS> 26,149,926
<OTHER-EXPENSES> (14,284)
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<INTEREST-EXPENSE> 344,318
<INCOME-PRETAX> (759,398)
<INCOME-TAX> (258,000)
<INCOME-CONTINUING> (501,398)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (501,398)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
