-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LHS3jKzGwQQhmGgOnbye2mVFS6uzsUZISgiORKm6sxwsrrBlQaYYh7UA/yGI3Xut OWRBsVHnYuigozYH8fGZZw== 0000950136-97-000719.txt : 19970613 0000950136-97-000719.hdr.sgml : 19970613 ACCESSION NUMBER: 0000950136-97-000719 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960601 FILED AS OF DATE: 19970612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNKENNY INC CENTRAL INDEX KEY: 0000029693 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 510228891 STATE OF INCORPORATION: DE FISCAL YEAR END: 1204 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21940 FILM NUMBER: 97623048 BUSINESS ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 5402286181 MAIL ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 10-Q/A 1 AMENDED FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QA [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 1, 1996 ------------ OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-21940 ------- Donnkenny, Inc. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51-022889 ------------------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1411 Broadway, New York, NY 10018 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 730-7770 -------------- NOT APPLICABLE ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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), Yes _X_ No ___ and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock $0.01 par value 13,996,640 ------------------------------ ----------------------------- (Class) (Outstanding at June 1, 1996) DONNKENNY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (FORM 10-QA) PART I - FINANCIAL INFORMATION Page Consolidated financial statements: Balance sheets as of June 1, 1996 (unaudited) and December 2, 1995..I-1 Statements of operations for the three months ended June 1, 1996 and June 3, 1995 (unaudited).........................II-1 Statements of cash flows for the six months ended June 1, 1996 and June 3, 1995 (unaudited)........................III-1 Notes to consolidated financial statements.........................IV-1 Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................V-1 PART II - OTHER INFORMATION................................................VI-1 Signatures.........................................................VI-2 Exhibit Index.....................................................VII-1 Exhibit 10.33 Exhibit 10.34 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In Thousands) June 1, 1996 and December 2, 1995
June 1, December 2, 1996 1995 -------- -------- (Restated unaudited) (Restated) ASSETS ------ CURRENT: Cash $ 1,298 $ 2,688 Accounts receivable - net of allowances of $1,815 and $1,946 in 1996 and 1995, respectively 30,193 49,834 Recoverable income taxes 8,446 6,921 Inventories (Note 2) 50,311 47,660 Deferred Tax Assets 2,414 2,414 Prepaid expenses and other current assets 1,924 1,464 -------- -------- TOTAL CURRENT ASSETS 94,586 110,981 Property, plant and equipment, net 12,216 12,670 Intangible assets 33,299 34,013 -------- -------- Total Assets $140,101 $157,664 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT: Current portion of long-term debt $ 6,095 $ 7,092 Accounts payable 12,559 13,178 Accrued expenses and other current liabilities 8,673 10,354 -------- -------- TOTAL CURRENT LIABILITIES 27,327 30,624 Long-term debt, net of current portion 45,463 55,519 Deferred income taxes 6,287 6,287 STOCKHOLDERS' EQUITY: Common stock, $.01 par value. Authorized 20,000 shares; issued and outstanding 13,997 and 13,968 shares in 1996 and 1995, respectively 139 139 Additional paid-in capital 45,997 45,744 Retained earnings 14,888 19,351 -------- -------- Total stockholders' equity 61,024 65,234 Total Liabilities and Stockholders' Equity $140,101 $157,664 ======== ========
See accompanying notes to consolidated financial statements I - 1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Operations (In Thousands, Except Share and Per Share Data) (Unaudited)
Three Months Ended Six Months Ended ---------------------------- ---------------------------- 6/1/96 6/3/95 6/1/96 6/3/95 ---------------------------- ---------------------------- (Restated) (Restated) (Restated) (Restated) Net sales $ 52,407 $ 20,893 $ 94,944 $ 45,595 Cost of sales 41,019 14,173 71,836 32,503 ------------ ------------ ------------ ------------ Gross profit 11,388 6,720 23,108 13,092 Selling, general and administrative expenses 14,619 6,944 27,611 12,691 Amortization of excess cost over fair value of net assets acquired and other related acquisition costs 368 175 729 376 ------------ ------------ ------------ ------------ Operating (loss) income (3,599) (399) (5,232) 25 Interest expense 1,108 568 2,221 1,239 ------------ ------------ ------------ ------------ Loss before income taxes (4,707) (967) (7,453) (1,214) Income tax benefit (1,907) (376) (2,990) (469) ------------ ------------ ------------ ------------ Net loss $ (2,800) $ (591) $ (4,463) $ (745) ============ ============ ============ ============ Net loss per common share $ (0.20) $ (0.04) $ (0.32) $ (0.05) ============ ============ ============ ============ Weighted average number of common shares outstanding and common stock equivalents 13,985,831 13,645,640 13,979,012 13,645,640 ============ ============ ============ ============
See accompanying notes to consolidated financial statements II - 1 DONNKENNY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In Thousands) (Unaudited)
SIX MONTHS ENDED ---------------------- June 1, June 3, 1996 1995 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: (Restated) (Restated) Net loss $ (4,463) $ (745) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization of fixed assets 848 547 Amortization of intangibles 729 376 Accretion of debt discount -- 6 Provision for losses on accounts receivable 131 306 Changes in assets and liabilities: Decrease in accounts receivable 19,510 21,532 Increases in recoverable income taxes (1,525) (1,880) Increase in inventories (2,651) (14,137) Increase in prepaid expenses and other current assets (475) (116) Decrease in accounts payable (619) (7,413) (Decrease) increase in accrued expenses and other current liabilities (1,681) 899 -------- -------- Net cash provided by (used in) operating activities 9,804 (625) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (394) (412) -------- -------- Net cash used in investing activities (394) (412) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (3,553) (15,416) Long-term borrowings 16,000 Net repayments under revolving credit line (7,500) -- Exercise of stock options 253 -- -------- -------- Net cash (used in) provided by financing activities (10,800) 584 -------- -------- NET DECREASE IN CASH (1,390) (453) CASH, AT BEGINNING OF YEAR 2,688 1,606 -------- -------- CASH, AT END OF QUARTER $ 1,298 $ 1,153 ======== ========
See accompanying notes to consolidated financial statements III - 1 DONNKENNY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (In Thousands Except Per Share Data) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the Rules of the Securities and Exchange Commission ("SEC") and in the opinion of management, include all adjustments, (consisting of normal recurring accruals) necessary for the fair presentation of financial position, results of operations and cash flows. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules. The Company believes the disclosures made are adequate to make such financial statements not misleading. The results for the interim periods presented are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company's December 31, 1996 Form 10-K which includes restated financial information for the 1994 and 1995 fiscal years. Balance sheet data as of December 2, 1995 has been derived from audited financial statements of the Company. NOTE 2 - INVENTORIES Inventories consist of the following: June 1, December 2, 1996 1995 ------- ------- (Restated see Note1) Raw materials $ 11,131 $ 11,071 Work-in-process 5,600 4,783 Finished goods 33,580 31,806 --------- -------- $ 50,311 $ 47,660 ========= ======== NOTE 3 - ACQUISITIONS In June 1995, the Company completed its acquisition of Beldoch Industries Corporation ("Beldoch"). In July 1995, the Company completed the purchase of certain assets of the Sportswear Division of Oak Hill Sportswear Corporation ("Oak Hill"). NOTE 4 - STOCK SPLIT On November 17, 1995 , the Board of Directors authorized a two-for-one stock split which was paid to all holders of record on December 4, 1995. All references in the accompanying consolidated financial statements to number of shares, per share amounts, and prices of the Company's common stock for periods prior to December 4, 1995 have been restated to reflect the stock split. IV - 1 NOTE 5 - RESTATEMENT OF FINANCIAL INFORMATION The Company has restated its financial statements for the years ended December 2, 1995 and December 3, 1994, as well as the quarters within such years and the two quarters of fiscal 1996 because of errors discovered for those periods subsequent to the issuance of such financial statements. The financial statements for the aforementioned periods required restatement to correct the reporting for the recognition of net sales, cost of sales and certain expenses. The third quarter of fiscal 1996 was restated for the rescission of the Fashion Avenue acquisition and to reflect additional reserves for sales returns and allowances. The impact of the restatement on the Company's statement of operations and balance sheets is summarized as follows:
3 MONTHS ENDED June 1, 1996 June 3, 1995 - -------------- ------------------------- ----------------------- (As Originally (As Originally STATEMENT OF OPERATIONS Reported) (Restated) Reported) (Restated) - ----------------------- --------- --------- --------- --------- Net Sales...................................... $ 54,996 $ 52,407 $ 40,145 $ 20,893 Gross Profit................................... 15,473 11,388 11,672 6,720 Operating Income (Loss)........................ 5,979 (3,599) 4,253 (399) Net Income (Loss).............................. 2,879 (2,800) 2,175 (591) Per common share: Net Income (Loss)...................... $ 0.20 ($ 0.20) $ 0.16 ($ 0.04)
6 MONTHS ENDED June 1, 1996 June 3, 1995 - -------------- ------------------------- ----------------------- (As Originally (As Originally STATEMENT OF OPERATIONS Reported) (Restated) Reported (Restated) - ----------------------- --------- ---------- -------- --------- Net Sales...................................... $ 107,190 $ 94,944 $ 79,257 $ 45,595 Gross Profit................................... 30,350 23,108 23,058 13,092 Operating Income (Loss)........................ 11,554 (5,232) 8,492 25 Net Income (Loss(.............................. 5,534 (4,463) 4,281 (745) Per common share: Net Income (Loss)...................... $ 0.39 ($ 0.32) $ 0.31 ($ 0.05)
June 1, 1996 December 2, 1995 ------------------------ ------------------------ (As Originally (As Originally BALANCE SHEET Reported) (Restated) Reported) (Restated) - ------------- --------- --------- --------- --------- Current Assets................................. $ 99,695 $ 94,586 $ 111,603 $ 110,981 Total Assets................................... 148,571 140,101 161,647 157,664 Total Liabilities.............................. 74,424 79,077 93,287 92,430 Stockholders' Equity........................... 74,147 61,024 68,360 65,234
IV-2 DONNKENNY, INC AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPARISON OF SIX MONTHS ENDED JUNE 1, 1996 AND JUNE 3, 1995 Net sales increased by $49.3 million or 108.2% from $45.6 million in the first half of fiscal 1995 to $94.9 million in the first half of fiscal 1996. Net sales increased in the Company's sportswear category led by sales from Oak Hill Sportswear and Beldoch Industries acquired during the third quarter of fiscal 1995 whose net sales contribution of $52.2 million in fiscal 1996 which more than offset sales declines in the other divisions. Gross profit for the first half of fiscal 1996 was $23.1 million or 24.3% of net sales compared to $13.1 million or 28.7% of net sales during the first half of fiscal 1995. The percentage decline was primarily attributable to the lower gross margin percentages from the sales of Beldoch and Oak Hill products and the sell off of discontinued licensed apparel at low margins. Selling, general and administrative expenses increased from $12.7 million in the first half of fiscal 1995 to $27.6 million in the first half of fiscal 1996. As a percentage of net sales, these expenses increased from 27.8% in the first half of fiscal 1995 to 29.1% in the first half of fiscal 1996. The increase in SG&A expenses in dollars and as a percentage of net sales was due primarily to the higher selling, general and administrative expenses related to Beldoch and Oak Hill which were acquired in June and July 1995, respectively. The amortization of goodwill and other related acquisition costs were $0.7 million during the first half of fiscal 1996 compared to $0.4 million during the first half of fiscal 1995, due to the businesses acquired in June and July of fiscal 1995 being included for the entire six month period in fiscal 1996. Interest expense increased from $1.2 million during the first half of fiscal 1995 to $2.2 million during the first half of fiscal 1996. The increase was the net result of higher average borrowings under the Company's credit facility required to finance the acquisitions of Beldoch Industries in June 1995 and Oak Hill Sportswear in July 1995 and to finance additional working capital needs. The Company provided for taxes at an effective rate of 40.1% for the first half of fiscal 1996 and 38.6% for the first half of fiscal 1995. COMPARISON OF QUARTERS ENDED JUNE 1, 1996 AND JUNE 3, 1995 Net sales increased by $31.5 million or 150.8% from $20.9 million in the second quarter of fiscal 1995 to $52.4 million in the second quarter of fiscal 1996. Fiscal 1996 includes net sales from Beldoch and Oak Hill which were acquired in the third quarter of fiscal 1995. Sales from Beldoch and Oak Hill accounted for $34.1 million of the net sales increase, which more than offset declines in the other divisions. Gross profit for the second quarter of fiscal 1996 was $11.4 million, or 21.7% of net sales compared to $6.7 million or 32.2% of net sales during the second quarter of fiscal 1995. The percentage decline was primarily attributable to the lower gross margin percentages from the sales of Beldoch and Oak Hill products and the sell off of discontinued licensed apparel at low margins. Selling, general and administrative expenses increased from $6.9 million in the second quarter of fiscal 1995 to $14.6 million in the second quarter of fiscal 1996. The increase in dollar terms was due to additional expenses associated with Beldoch and Oak Hill which were acquired in June and July 1995, respectively. As a percentage of net sales, these expenses declined from 33.2% in the second quarter of fiscal 1995 to 27.9% in the second quarter of fiscal 1996. The decline in SG&A expenses as a percentage of net sales was due primarily to the fact that design and sales expenses increased at a lower rate than the percentage of increase in net sales. The amortization of goodwill and other related acquisition costs was $0.4 million during the second quarter of fiscal 1996 compared to $0.2 million during the second quarter or fiscal 1995, due to the businesses acquired in June and July of fiscal 1995 being included for the second quarter in fiscal 1996. V - 1 Interest expense increased from $0.6 million during the second quarter of fiscal 1995 to $1.1 million during the second quarter of fiscal 1996. The increase was the net result of higher average borrowings under the Company's credit facility required to finance the acquisitions of Beldoch Industries in June 1995 and Oak Hill Sportswear in July 1995 and to finance additional working capital needs. The Company provided for taxes at an effective rate of 40.5% for the second quarter of fiscal 1996 and 38.9% for the second quarter of fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from the funding of working capital needs, primarily inventory and accounts receivable, and the interest and principal payments related to certain indebtedness. The Company's borrowing requirements for working capital fluctuates throughout the year. Capital expenditures were $0.4 million for the first half of fiscal 1996 compared to $0.4 million in the first half fiscal 1995. The Company may spend up to $3.0 million annually on capital investments in accordance with the Chemical Bank Revolving Credit Agreement described below. The Company has no material capital expenditure commitments. Donnkenny Apparel, Inc. and Beldoch Industries Corporation (Both wholly-owned subsidiaries of the Company) as borrowers, the Company and the Company's other two subsidiaries as guarantors and Chemical Bank, Bank of New York and Chase Manhattan Bank as lenders are parties to a credit facility entered into in June 1995 for an initial maximum aggregate principal amount of $85.0 million which was increased to $100.0 million in May 1996 to provide the Company with the ability to open additional letters of credit (such credit facility as amended to date, the "Chemical Bank Credit Facility"). The Chemical Bank Credit Facility is comprised of a $75 million revolving credit facility and a $25 million term loan facility. The Chemical Bank Credit Facility requires compliance with certain financial performance tests on a quarterly basis that the Company expects to be able to meet. As of June 24, 1996, $17.3 million was available under the revolving credit facility provided under the Chemical Bank Credit Facility. During the first half of fiscal 1996, the Company's operating activities generated cash principally as the result of decreases in accounts receivable offset by a net loss, increases in inventories and decreases in accrued expenses. During the first half of fiscal 1995, the Company's operating activities used cash principally as a result of increases in inventories and decreases in accounts payable, offset by decreases in accounts receivables. The Company believes that amounts avai1able under the revolving credit facility provided under the Chemical Bank Credit Facility will be sufficient to offset any negative operating cash flows and capital expenditures and will provide the Company with sufficient cash for its needs for the foreseeable future. V - 2 PART II. OTHER INFORMATION Items 1 - 3. Not applicable - ------------ Item 4. Submission of matters to vote of security holders. - ------- The Company's annual meeting of stockholders was held on April 19, 1996. The following directors were elected: Name For Withholding Authority - ---- --- --------------------- Harvey Appelle 11,322,253 0 James Crystal 11,322,253 0 Sidney Eagle 11,320,853 1,400,000 Harvey Horowitz 11,320,853 1,400,000 Richard Rubin 11,320,851 1,402,000 The appointment of KPMG Peat Marwick as independent auditors for the fiscal year ended November 30, 1996 was ratified with 11,387,751 shares voting in favor, 4,350 shares against and 7,529 shares abstaining. The adoption of the Donnkenny, Inc. Restricted Stock Plan was approved with 5,066,854 shares voting in favor, 2,861,984 shares against, 57,583 abstaining and 5,987,419 broker non-votes. Item 5. Not applicable - ------- Item 6. Exhibits and reports on form 8-K. - ------- (a) The following documents are filed as part of this report: --------------------------------------------------------- 1. First Amendment Agreement dated as of April 12, 1996 to the Credit Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch Industries Corporation, the Guarantors Named therein, the Lenders Named therein and Chemical Bank as agent. 2. Second Amendment Agreement dated as of May 13, 1996 to the Credit Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch Industries Corporation , the Guarantors Named therein, the Lenders Named therein and Chemical Bank as agent. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed by Company during the quarter ended June 1, 1996. VI-1 S I G NA T U R E S 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. Donnkenny, Inc. -------------------- Registrant Date: June 11, 1997 ------------------- ------------------------- Harvey Appelle Chairman of the Board, President and Chief Executive Officer Date: June 11, 1997 ------------------- ------------------------- Stuart S. Levy Vice President - Finance and Chief Financial Officer, (Principal Financial Officer) VI-2 EXHIBIT INDEX Exhibit Description of Sequentially No. Exhibit Numbered Page - ----- ------------- ------------- 10.33 First Amendment Agreement dated as of April 12, 1996 to the Credit Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch Industries Corporation, the Guarantors Named therein, the Lenders Named therein and Chemical Bank as Agent. (1) Exhibit No. 10.34 Second Amendment Agreement dated as of May 13, 1996 to the Credit Agreement dated as of June 5, 1995 among Donnkenny Apparel, Inc., Beldoch Industries Corporation, the Guarantors Named therein, the Lenders Named therein and Chemical Bank as Agent. (1) (1) Incorporated herein by reference to the Company's Report on Form 10-Q for the quarterly period ended June 1, 1996 as filed with the Commission on July 10, 1996 VII-1 -----END PRIVACY-ENHANCED MESSAGE-----