-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ff/GXv7Pvuf/pbTCyjMkanENMv9XNbURHVoYJMTD0ks+hrxH/tvB0qh2sDQN6IZ/ BRYvJL+ukbuvtStKvhx0CA== 0000891020-95-000165.txt : 19950516 0000891020-95-000165.hdr.sgml : 19950516 ACCESSION NUMBER: 0000891020-95-000165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN SPORTSWEAR INC CENTRAL INDEX KEY: 0000856711 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 911132690 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18054 FILM NUMBER: 95539301 BUSINESS ADDRESS: STREET 1: 6520 SOUTH 190TH ST CITY: KENT STATE: WA ZIP: 98032 BUSINESS PHONE: 2062513565 10-Q 1 SUN SPORTSWEAR 10-Q 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 2 SUN SPORTSWEAR, INC. INDEX
Page ---- 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
Page 2 of 15 3 SUN SPORTSWEAR, INC. BALANCE SHEETS
MARCH 31, DECEMBER 31, 1995 1994 --------- ----------- (UNAUDITED) 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 =========== ===========
(continued) See accompanying notes to financial statements Page 3 of 15 4 SUN SPORTSWEAR, INC. BALANCE SHEETS (CONTINUED)
MARCH 31, DECEMBER 31, 1995 1994 ----------- ----------- (UNAUDITED) 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 =========== ===========
See accompanying notes to financial statements Page 4 of 15 5 SUN SPORTSWEAR, INC. STATEMENTS OF INCOME (UNAUDITED)
For the three months ended March 31, ------------------------------------ 1995 1994 ------------ ------------ 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
See accompanying notes to financial statements Page 5 of 15 6 SUN SPORTSWEAR, INC. STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, ------------------------------------ 1995 1994 ------------ ------------ 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-
See accompanying notes to financial statements Page 6 of 15 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:
March 31, December 31, 1995 1994 --------- ------------ 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 =========== ===========
Page 7 of 15 8 NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Equipment and leasehold improvements are summarized by major classifications as follows:
Estimated March 31, December 31, useful lives 1995 1994 ------------ --------- ------------ 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 =========== ===========
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:
Total percentage Percentage of gross of gross sales for sales for each customer the three customers ----------------------- ------------------- 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%
Page 8 of 15 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:
Dollar increase (decrease) as a percentage --------------- 1994 Three months ended March 31, to ---------------------------- 1995 1994 1995 ---- ---- ---- 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) ===== =====
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 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 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 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.
Net Sales (Dollar amounts in thousands) 1995 1994 ------------------------- ------------------------- Percent of Percent of Amount Annual Sales Amount Annual Sales ------ ------------ ------ ------------ 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% ======= ======== =====
* 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 153,004 0 22,561,055 46,524 29,009,459 53,130,396 10,326,477 4,980,127 58,488,680 28,800,110 437,629 21,615,804 0 0 7,635,137 58,488,680 25,720,562 25,720,562 22,522,498 26,149,926 (14,284) 0 344,318 (759,398) (258,000) (501,398) 0 0 0 (501,398) (.09) (.09)
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