<PAGE>
===============================================================================
UNITED STATES
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
For the quarterly period ended October 3, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11805
----------------------------------
DONNA KARAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3882426
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
550 Seventh Avenue, New York, New York 10018
(Address of principal executive offices)
(Zip Code)
(212) 789-1500
(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 Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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 |_|
At November 12, 1999, the Registrant had 21,600,264 shares of Common Stock
outstanding.*
*Does not include 18 shares of Class A Common Stock, par value $.01 per share,
and two shares of Class B Common Stock, par value $.01 per share, outstanding as
of such date.
===============================================================================
<PAGE>
DONNA KARAN INTERNATIONAL INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1. Financial Statements
Statements of Operations -
Three Months and Nine Months Ended October 3, 1999 and September 27, 1998.............. 3
Balance Sheets -
October 3, 1999 and January 3, 1999.................................................... 4
Statements of Cash Flows -
Nine Months Ended October 3, 1999 and September 27, 1998............................... 5
Notes to Financial Statements................................................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................. 18
</TABLE>
2
<PAGE>
DONNA KARAN INTERNATIONAL INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------- -----------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
---------------- ----------------- ----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET REVENUES.................................. $ 202,511 $ 170,569 $ 485,264 $ 476,576
Cost of sales................................. 130,013 120,343 331,929 359,118
------------ ------------ ------------ ------------
GROSS PROFIT.................................. 72,498 50,226 153,335 117,458
Selling, general and administrative expenses.. 48,568 35,701 137,539 109,571
------------ ------------ ------------ ------------
OPERATING INCOME.............................. 23,930 14,525 15,796 7,887
Other income (expense):
Other, net............................... -- -- -- 23
Interest expense, net.................... (1,209) (516) (3,088) (1,768)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES.................... 22,721 14,009 12,708 6,142
Income tax expense............................ 9,770 6,444 5,464 2,825
------------ ------------ ------------ ------------
NET INCOME.................................... $ 12,951 $ 7,565 $ 7,244 $ 3,317
============ ============ ============ ============
Net income per common share:
Basic................................... $ 0.60 $ 0.35 $ 0.34 $ 0.15
============ ============ ============ ============
Diluted................................. $ 0.60 $ 0.35 $ 0.33 $ 0.15
============ ============ ============ ============
Weighted average common shares outstanding:
Basic................................... 21,599,300 21,597,800 21,599,300 21,597,800
============ ============ ============ ============
Diluted................................. 21,728,100 21,615,900 21,702,400 21,642,400
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
DONNA KARAN INTERNATIONAL INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
---------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 4,073 $ 7,448
Accounts receivable, net of allowances of $28,153 at
October 3, 1999 and $29,872 at January 3, 1999......... 96,338 70,977
Inventories............................................... 83,495 89,825
Deferred income taxes..................................... 22,335 24,688
Prepaid expenses and other current assets................. 16,170 18,860
--------- ---------
TOTAL CURRENT ASSETS................................... 222,411 211,798
Property and equipment, net.................................... 47,171 33,675
Deferred income taxes.......................................... 15,542 17,052
Deposits and other noncurrent assets........................... 14,856 16,204
--------- ---------
$ 299,980 $ 278,729
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable......................................... $ 43,686 $ 59,266
Accrued expenses and other current liabilities........... 61,776 60,864
Borrowing under revolving line of credit................. 29,325 --
--------- ---------
TOTAL CURRENT LIABILITIES............................. 134,787 120,130
--------- ---------
Subordinated notes payable.................................... 8,209 --
Deferred income............................................... 27,137 36,495
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 35,000,000 shares
authorized, 21,618,034 shares issued and 21,600,264
shares outstanding at October 3, 1999 and 21,599,264
shares outstanding at January 3, 1999................. 216 216
Common stock Class A, $0.01 par value, 18 shares
authorized, issued and outstanding.................... -- --
Common stock, Class B, $0.01 par value, 2 shares
authorized, issued and outstanding.................... -- --
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding.......... -- --
Additional paid-in capital............................... 188,459 188,479
Retained deficit......................................... (56,503) (63,747)
Accumulated other comprehensive (loss)................... (1,064) (1,206)
--------- ---------
131,108 123,742
Less: Treasury stock, at cost (17,770 and 18,770 shares) (384) (443)
Unearned compensation............................. (877) (1,195)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY........................... 129,847 122,104
--------- ---------
$ 299,980 $ 278,729
========= =========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
DONNA KARAN INTERNATIONAL INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
OCTOBER 3, SEPTEMBER 27,
1999 1998
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 7,244 $ 3,317
Adjustments to reconcile net income to net cash (used for) provided by
operating activities:
Depreciation and amortization..................................... 13,085 10,292
Provision for bad debts........................................... 1,697 1,134
Amortization of deferred income................................... (11,786) (5,553)
Deferred income taxes............................................. 3,863 (2,086)
Other - net....................................................... 357 240
Changes in operating assets and liabilities:
Increase in accounts receivable................................... (27,058) (15,877)
Decrease in inventories........................................... 10,116 35,216
Decrease (increase) in prepaid expenses and other current assets.. 2,690 (2,360)
Increase in deposits and other noncurrent assets.................. (5,323) (2,656)
Increase (decrease) in accounts payable, accrued expenses, and
other current liabilities........................................ 2,206 (29,281)
(Decrease) increase in deferred income............................ (9,358) 38,811
-------- --------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES........... (12,267) 31,197
-------- --------
INVESTING ACTIVITIES
Purchase of free-standing retail stores................................ (9,200) --
Proceeds from sale of affiliate........................................ -- 646
Purchase of property and equipment..................................... (11,233) (5,456)
-------- --------
NET CASH (USED FOR) INVESTING ACTIVITIES....................... (20,433) (4,810)
-------- --------
FINANCING ACTIVITIES
Net proceeds (repayment) of revolving credit facility.................. 29,325 (20,116)
Payments under capital lease........................................... -- (36)
Repayment of note payable to principal stockholder..................... -- (6,700)
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........... 29,325 (26,852)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (3,375) (465)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... 7,448 4,537
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 4,073 $ 4,072
======== ========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
DONNA KARAN INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
results of operations of Donna Karan International Inc. and its subsidiaries
(collectively, the "Company"). The equity method of accounting was used for
Donna Karan Japan, K.K., a Japanese stock company ("DKJ"), since the date the
company sold 70% of its interest in DKJ to a nonaffiliated party and until March
1998, when the Company and such nonaffiliated party sold all of their remaining
outstanding shares to a subsidiary of Onward Kashiyama Co. Ltd., a Japanese
public company. All significant intercompany balances and transactions have been
eliminated in consolidation.
Certain amounts in the consolidated financial statements of the prior
period have been reclassified to conform to the current period presentation for
comparative purposes.
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. On a quarterly basis, the Company's operations may vary as a result
of, among other things, production and shipping schedules, the introduction of
new products, and variations in the timing of certain holidays from year to
year. The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for a full year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's Annual Report on Form 10-K for
the year ended January 3, 1999.
NET INCOME PER COMMON SHARE
In accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," net income per common share
amounts ("basic EPS") were computed by dividing net income by the weighted
average number of common shares outstanding and contingently issuable shares
(which satisfy certain conditions) and excluded any potential dilution. Net
income per common share amounts assuming dilution ("diluted EPS") were computed
by reflecting potential dilution from the exercise of stock options. SFAS No.
128 requires the presentation of both basic EPS and diluted EPS on the face of
the statements of operations. Income per share amounts for the same prior-year
periods have been restated to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic and
diluted EPS computations for net income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- --------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
----------- ------------- --------------- -------
( DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NUMERATOR:
Net income attributable to common stock..... $ 12,951 $ 7,565 $ 7,244 $ 3,317
=========== =========== =========== ===========
DENOMINATOR:
Weighted average common shares outstanding --
Basic................................... 21,599,300 21,597,800 21,599,300 21,597,800
Effect of dilutive securities: stock options 128,800 18,100 103,100 44,600
----------- ----------- ----------- -----------
Weighted average common shares outstanding --
Diluted................................. 21,728,100 21,615,900 21,702,400 21,642,400
=========== =========== =========== ===========
Basic EPS................................... $ 0.60 $ 0.35 $ 0.34 $ 0.15
=========== =========== =========== ===========
Diluted EPS................................. $ 0.60 $ 0.35 $ 0.33 $ 0.15
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
DONNA KARAN INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
INVENTORIES
Inventory only includes those items considered saleable or usable in
future periods and is stated at the lower of cost or market, with cost being
determined on the first-in, first-out method.
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Raw material......................................... $ 2,596 $ 6,588
Work in process...................................... 3,385 4,654
Finished goods....................................... 77,514 78,583
--------------- ----------------
$ 83,495 $ 89,825
=============== ================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed primarily on the straight-line basis over the estimated
useful lives of the assets ranging from 5 to 7 years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the expected useful lives
or the lease term, which in certain instances include the anticipated renewal
period.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and fixtures.................... $ 28,145 $ 25,443
Leasehold improvements............................... 62,132 44,924
----------- ------------
90,277 70,367
Less accumulated depreciation........................ (43,106) (36,692)
----------- ------------
$ 47,171 $ 33,675
=========== ============
</TABLE>
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following:
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Accrued expenses..................................... $ 12,101 $ 16,826
Accrued compensation................................. 12,683 13,143
Accrued restructuring and other charges.............. 1,970 8,087
Unearned revenues.................................... 17,514 14,865
Accrued royalties.................................... 10,145 5,795
Accrued taxes other than income taxes................ 3,420 1,517
Accrued income taxes................................. 3,142 45
Other................................................ 801 586
------------ ----------
$ 61,776 $ 60,864
============ ==========
</TABLE>
7
<PAGE>
DONNA KARAN INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
RESTRUCTURING AND OTHER CHARGES
For the nine months ended October 3, 1999, the Company utilized
approximately $6.1 million of its remaining reserves previously established in
connection with its fiscal 1997 restructuring plan. The Company anticipates
utilizing the remaining balance of its reserves during fiscal 1999.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and
local income taxes. The effective income tax rate was 43.0% for the three and
nine months ended October 3, 1999 and 46.0% for the three and nine months ended
September 27, 1998. These rates reflect the effect of state and local taxes, tax
rates in certain foreign jurisdictions, and certain nondeductible expenses.
STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
OCTOBER 3, SEPTEMBER 27,
1999 1998
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH PAID FOR:
Interest paid ....................................... $ 2,449 $ 1,282
========== ==========
Income taxes paid.................................... $ 435 $ 6,009
========== ==========
NON-CASH ACTIVITIES:
Issuance of subordinated notes payable in
connection with the purchase of free-standing
retail stores ....................................... $ 8,209 $ -
========== ==========
</TABLE>
COMPREHENSIVE INCOME
Comprehensive income, as reported by the Company, is comprised of net
income and other comprehensive (loss) income, which contains gains or losses
from foreign currency translation adjustments. Accumulated other comprehensive
loss is reflected in the accompanying consolidated balance sheets.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses reported in those financial statements. Actual results could differ
from those based upon such estimates and assumptions.
NOTE 2 -- ACQUISITIONS
In January 1999, the Company acquired the assets of three free-standing
retail stores in the United Kingdom which were previously owned and operated by
affiliates of Club 21 PTE Ltd. ("Club 21"), a Singapore-based company,
affiliated with Ong Beng Seng, for approximately $17.4 million. The aggregate
purchase price was financed with working capital and the issuance of
subordinated notes payable (the "Notes") to an affiliate of Club 21, which
mature in January 2002.
The acquisition was accounted for as a purchase, with any excess of the
remaining purchase price over the estimated fair value of the assets acquired,
being recorded as goodwill. Subject to certain post-closing adjustments to the
purchase price, in accordance with the terms of the asset purchase agreement,
the principal amount of the Notes may be adjusted in the future.
8
<PAGE>
DONNA KARAN INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 -- COMPREHENSIVE INCOME
Comprehensive income and its components, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ----------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
---------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income............................ $ 12,951 $ 7,565 $ 7,244 $ 3,317
-------- -------- -------- --------
Other comprehensive (loss) income:
Foreign currency translations.... (146) (37) 142 (464)
-------- -------- -------- --------
Other comprehensive (loss) income (146) (37) 142 (464)
-------- -------- -------- --------
Comprehensive income.................. $ 12,805 $ 7,528 $ 7,386 $ 2,853
======== ======== ======== ========
</TABLE>
Accumulated other comprehensive (loss) is as follows:
<TABLE>
<CAPTION>
FOREIGN CURRENCY TRANSLATION
-------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- --------------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
---------------- ----------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Beginning balance.................. $ (918) $ (882) $ (1,206) $ (455)
Current-period change.............. (146) (37) 142 (464)
------- --------- ------- -----
Ending balance..................... $ (1,064) $ (919) $ (1,064) $ (919)
======= ========= ======= =====
</TABLE>
NOTE 4 -- SEGMENT INFORMATION
Information related to the Company's reportable business
segments is as follows:
<TABLE>
<CAPTION>
WHOLESALE LICENSING RETAIL TOTAL
---------- --------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED
OCTOBER 3, 1999
- ---------------------------
Net revenues from external customers........ $153,371 $ 13,662 $ 35,478 $ 202,511
Intersegment revenues....................... 27,295 - - 27,295
Segment operating profit (loss)............. 15,959 8,708 (737) 23,930
THREE MONTHS ENDED
SEPTEMBER 27, 1998
- ----------------------------
Net revenues from external customers........ $141,522 $ 4,898 $ 24,149 $ 170,569
Intersegment revenues....................... 18,150 - - 18,150
Segment operating profit (loss)............. 16,662 2,513 (4,650) 14,525
</TABLE>
9
<PAGE>
DONNA KARAN INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 -- SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
WHOLESALE LICENSING RETAIL TOTAL
---------- --------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
OCTOBER 3, 1999
- ---------------------------
Net revenues from external customers $ 369,173 $ 26,318 $ 89,773 $ 485,264
Intersegment revenues............... 58,427 - - 58,427
Segment operating profit (loss)..... 7,686 13,376 (5,266) 15,796
Segment assets...................... 223,243 5,757 70,980 299,980
NINE MONTHS ENDED
SEPTEMBER 27, 1998
- ---------------------------
Net revenues from external customers $ 400,847 $ 13,238 $ 62,491 $ 476,576
Intersegment revenues............... 37,578 - - 37,578
Segment operating profit (loss)..... 15,723 4,884 (12,720) 7,887
Segment assets...................... 233,508 1,387 33,678 268,573
</TABLE>
Information related to the Company's geographic segments is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------------- --------------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
----------------- ------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
United States....................... $ 140,864 $ 112,469 $ 335,078 $ 318,682
Japan............................... 7,413 10,513 21,274 40,242
Other............................... 54,234 47,587 128,912 117,652
---------- ---------- --------- --------
$ 202,511 $ 170,569 $ 485,264 $ 476,576
========== ========== ========= ========
</TABLE>
NOTE 5 -- SUBSEQUENT EVENTS
On November 2, 1999, the Company announced that it is implementing a
series of strategic initiatives intended to further reduce costs, increase
efficiencies and focus on key business areas. The strategic initiatives
include consolidating the Donna Karan New York and DKNY womens' divisions,
integrating the marketing and public relations functions into one unit,
closing seven non-performing outlet stores, recognizing an impairment of
under-performing assets and certain other non-recurring charges. The
restructuring charge relates to division consolidations, asset write-downs,
personnel related expenses, the closing of non-performing outlet stores and
certain other non-recurring charges. Restructuring and other charges to be
recorded in the fourth quarter of fiscal 1999 related to these strategic
initiatives are estimated to be approximately $11.0 million.
10
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Donna Karan International Inc. (together with its subsidiaries, the
"Company") is one of the world's leading international fashion design houses.
The Company designs, contracts for the manufacture of, markets, retails, and
distributes collections of men's and women's clothing, sportswear, accessories,
and shoes under the DONNA KARAN NEW YORK and DKNY brand names. The Company also
selectively has granted licenses for the manufacture and distribution of certain
other products under the DONNA KARAN NEW YORK, DKNY, DKNY JEANS and DKNY ACTIVE
brand names, including beauty and beauty-related products, jeanswear,
activewear, hosiery, intimate apparel, eyewear, and children's apparel.
In March 1998, the Company and a nonaffiliated party sold all of their
outstanding shares in Donna Karan Japan, K.K. ("DKJ") to a subsidiary of Onward
Kashiyama Co. Ltd., a Japanese public company. As a result of this transaction,
the Company will no longer recognize equity in earnings (loss) of affiliate. The
Company also granted DKJ a 16-year exclusive license to import, manufacture,
license, and/or distribute DONNA KARAN NEW YORK and DKNY products in Japan, with
certain exceptions. The Company expects that over an approximately three-year
period, from March 1998, DKJ will transition from importing and reselling
substantially all of its products to manufacturing and selling a majority of
products under this licensing agreement. As a result, with respect to its
Japanese business, the Company expects to recognize decreasing revenues from its
wholesale business and increasing revenues from its licensing activities.
RESULTS OF OPERATIONS
The Company's business is comprised of wholesale, licensing, and retail
activities. The Company utilizes a 52- or 53-week fiscal year ending on the
Sunday nearest December 31. The following discussion provides information and
analysis of the Company's results of operations for the three and nine months
ended October 3, 1999 and September 27, 1998.
The following tables set forth certain segment data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
------------------ -------------------- ------------------ ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenues from external customers:
By segments:
Wholesale................... $ 153.4 $ 141.5 $ 369.2 $ 400.8
Licensing................... 13.7 4.9 26.3 13.2
Retail...................... 35.4 24.2 89.8 62.6
------------------ -------------------- ------------------ ------------------
$ 202.5 $ 170.6 $ 485.3 $ 476.6
================== ==================== ================== ==================
By geographic area:
United States............... $ 140.9 $ 112.5 $ 335.1 $ 318.7
Japan....................... 7.4 10.5 21.3 40.2
Other....................... 54.2 47.6 128.9 117.7
------------------ -------------------- ------------------ ------------------
$ 202.5 $ 170.6 $ 485.3 $ 476.6
================== ==================== ================== ==================
Segment operating profit (loss):
Wholesale................... $ 16.0 $ 16.6 $ 7.7 $ 15.7
Licensing................... 8.7 2.5 13.4 4.9
Retail...................... (0.8) (4.6) (5.3) (12.7)
------------------ -------------------- ------------------ ------------------
$ 23.9 $ 14.5 $ 15.8 $ 7.9
================== ==================== ================= ==================
</TABLE>
11
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain condensed statement of operations
data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- ------------------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
------------------- ------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................................ $ 202.5 100.0% $ 170.6 100.0% $ 485.3 100.0% $ 476.6 100.0%
Gross profit................................ 72.5 35.8 50.2 29.4 153.3 31.6 117.5 24.7
Selling, general and administrative
expenses.................................. 48.6 24.0 35.7 20.9 137.5 28.3 109.6 23.0
Operating income............................ 23.9 11.8 14.5 8.5 15.8 3.3 7.9 1.7
Net income.................................. 13.0 6.4 7.6 4.5 7.2 1.5 3.3 0.7
</TABLE>
THIRD QUARTER FISCAL 1999 COMPARED WITH THIRD QUARTER FISCAL 1998
NET REVENUES
Net revenues for the three months ended October 3, 1999 increased $31.9
million, or 18.7%, to $202.5 million as compared to net revenues of $170.6
million in the corresponding prior-year period. Excluding the one-time
recognition of $5.0 million of deferred revenue in fiscal 1999, relating to the
Estee Lauder Inc. ("ELI") beauty license consummated in fiscal 1997, net
revenues increased $26.9 million, or 15.8%, for the three months ended October
3, 1999 as compared to the corresponding prior-year period.
Wholesale revenues for the three months ended October 3, 1999, increased
$11.8 million, or 8.4%, to $153.4 million as compared to $141.5 million in the
corresponding prior-year period. The increase was primarily attributable to an
increase in sales from the menswear business, DKNY shoes and DKNY accessories.
Licensing revenues for the three months ended October 3, 1999 increased
$8.8 million, or 178.9%, to $13.7 million as compared to $4.9 million in the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue recognized as a result of satisfying certain conditions of the
ELI beauty license, licensing revenues increased $3.8 million or 76.8%. The
increase was primarily due to royalties from LCI associated with the DKNY JEANS
and ACTIVE license, as well as growth in sales of certain other new and existing
licensed products.
Retail revenues for the three months ended October 3, 1999 increased $11.3
million, or 46.9%, to $35.5 million as compared to $24.1 million in the
corresponding prior-year period. The increase was primarily attributable to: the
recent opening and acquisition of full-price free-standing retail stores; an
increase in the number of outlet stores; and a 8.1% increase in comparable store
sales.
GEOGRAPHIC
Net revenues for the United States for the three months ended October 3,
1999 increased $28.4 million, or 25.2%, to $140.9 million as compared to the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue relating to ELI in fiscal 1999, net revenues increased $23.2
million, or 20.8%.
Net revenues for Japan for the three months ended October 3, 1999,
decreased $3.1 million, or 29.5%, as compared to the corresponding prior-year
period. The decrease was primarily attributable to the planned decrease in
wholesale revenues to Japan, as a result of the Company's licensing agreement
with DKJ. The Company anticipates, further decreases in wholesale revenues in
Japan, while at the same time receiving increased royalties, as DKJ transitions
its business exclusively from importing and reselling products to primarily
manufacturing and selling products.
Net revenues for other geographic areas for the three months ended October
3, 1999 increased $6.6 million, or 14.0%, as compared to the corresponding
prior-year period. The increase was primarily attributable to increased
wholesale revenues and the acquisition of three free-standing retail stores in
the United Kingdom.
12
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS PROFIT
Gross profit as a percentage of net revenues for the three months ended
October 3, 1999 was 35.8%, as compared to 29.4% in the corresponding prior-year
period. Exclusive of the one-time recognition of deferred revenue related to ELI
in fiscal 1999, gross profit margin was 34.2% and 29.4%, respectively. The
increase, exclusive of the deferred revenue, primarily reflected the change in
the revenue mix to higher margin full-price retail stores and licensing
businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 24.0% of net
revenues for the three months ended October 3, 1999, as compared to 20.9% in the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue related to ELI, selling, general and administrative expenses
were 24.6% and 20.9% of net revenues for the three months ended October 3, 1999
and September 27, 1998, respectively. The increase was primarily a result of the
growth of the Company's full-price free-standing retail stores and certain
initiatives in the wholesale segment.
OPERATING INCOME
Operating income for the three months ended October 3, 1999 increased $9.4
million, or 64.8%, to $23.9 million as compared to $14.5 million for the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue related to ELI, operating income increased 30.3% for the three
months ended October 3, 1999. The increase is attributable to higher operating
profits in the licensing and wholesale segments and decreased operating losses
in the retail segment.
INTEREST EXPENSE, NET
Interest expense, net was $1.2 million for the three months ended October
3, 1999, as compared to $0.5 million for the corresponding prior-year period.
The increase in interest expense was primarily due to higher average borrowings
during the period.
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and
local income taxes. The effective income tax rates for the three months ended
October 3, 1999 and September 27, 1998 were 43.0% and 46.0%, respectively. These
rates reflect the effects of state and local taxes, tax rates in certain foreign
jurisdictions, and certain nondeductible expenses.
NET INCOME
Net income for the three months ended October 3, 1999 was $13.0 million,
as compared to $7.6 million for the corresponding prior-year period. Exclusive
of the one-time recognition of deferred revenue related to ELI, net income was
$10.1 million.
NET INCOME PER COMMON SHARE
Net income per common share on a diluted basis increased $0.25, or 71.4%,
to $0.60 per share for the three months ended October 3, 1999, as compared to
$0.35 per share for the corresponding prior-year period. Exclusive of the
one-time recognition of deferred revenue related to ELI, net income per common
share on a diluted basis increased $0.11, or 31.4% to $0.46 per share.
NINE MONTHS FISCAL 1999 COMPARED TO NINE MONTHS FISCAL 1998
NET REVENUES
Net revenues for the nine months ended October 3, 1999 increased $8.7
million, or 1.8%, to $485.3 million as compared to net revenues of $476.6
million in the corresponding prior-year period. Excluding the one-time
recognition of deferred revenue in fiscal 1999, relating to the ELI beauty
license consummated in fiscal 1997 and certain sales of merchandise to LCI
relating to the DKNY JEANS license in fiscal 1998, net revenues increased $30.5
million, or 6.8%, for the nine months ended October 3, 1999, as compared to the
corresponding prior-year period.
Wholesale revenues for the nine months ended October 3, 1999 decreased
$31.7 million, or 7.9%, to $369.2 million as compared to the corresponding
prior-year period. Exclusive of certain sales of merchandise to LCI (relating to
the DKNY JEANS license) in the corresponding prior-year period, wholesale
revenues decreased $4.9 million, or 1.3%. The decrease was primarily
attributable to a decrease in sales from the women's business, elimination of
sales in the DKNY KIDS business which was licensed in 1998, partially offset by
an increase in sales from DKNY shoes and the menswear business.
13
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Licensing revenues for the nine months ended October 3, 1999 increased
$13.1 million, or 98.8%, to $26.3 million as compared to $13.2 million in the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue as a result of satisfying certain conditions of the ELI beauty
license, licensing revenues increased $8.1 million or 61.0%. The increase was
primarily due to royalties from LCI associated with the DKNY JEANS and ACTIVE
license, and growth in sales of certain other new and existing licensed
products.
Retail revenues for the nine months ended October 3, 1999 increased $27.3
million, or 43.7%, to $89.8 million as compared to $62.5 million in the
corresponding prior-year period. The increase was primarily attributable to: the
recent opening and acquisition of full-price free-standing retail stores; an
increase in the number of outlet stores; and a 6.7% increase in comparable store
sales.
GEOGRAPHIC
Net revenues for the United States for the nine months ended October 3,
1999 increased $16.4 million, or 5.1%, to $335.1 million as compared to the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue relating to ELI in fiscal 1999 and certain sales of merchandise
to LCI (relating to the DKNY JEANS license) and the DKNY KIDS business in fiscal
1998, net revenues increased $42.2 million, or 14.7%.
Net revenues for Japan for the nine months ended October 3, 1999,
decreased $19.0 million, or 47.1%, as compared to the corresponding prior-year
period. The decrease was primarily attributable to the planned decrease in
wholesale revenues to Japan, as a result of the Company's licensing agreement
with DKJ. The Company anticipates, further decreases in wholesale revenues in
Japan, while at the same time receiving increased royalties, as DKJ transitions
its business exclusively from importing and reselling products to primarily
manufacturing and selling products.
Net revenues for other geographic areas for the nine months ended October
3, 1999 increased $11.3 million, or 9.6%, as compared to the corresponding
prior-year period. The increase was attributable to increased wholesale revenues
and the acquisition of three free-standing retail stores in the United Kingdom.
GROSS PROFIT
Gross profit as a percentage of net revenues for the nine months ended
October 3, 1999 was 31.6%, as compared to 24.7%, for the corresponding
prior-year period. Exclusive of DKNY JEANS sales to LCI and the one-time
recognition of deferred revenue related to ELI, gross profit margin for the nine
months ended October 3, 1999 was 30.9%, as compared to 26.1% for the
corresponding prior-year period. The increase, exclusive of the effect of DKNY
JEANS sales to LCI and the one-time recognition of deferred revenue related to
ELI, primarily reflected the change in the revenue mix to higher margin
licensing business and full-price retail stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 28.3% of net
revenues for the nine months ended October 3, 1999, as compared to 23.0% in the
corresponding prior-year period. Exclusive of the effect of the DKNY JEANS sales
to LCI and the one-time recognition of deferred revenue related to ELI, selling,
general and administrative expenses were 28.6% of net revenues for the nine
months ended October 3,1999, as compared to 24.4% for the corresponding
prior-year period. The increase was primarily a result of the growth of the
Company's full-price free-standing retail stores and certain initiatives in the
wholesale segment.
OPERATING INCOME
Operating income for the nine months ended October 3, 1999 increased $7.9
million, or 100.3%, to $15.8 million, as compared to $7.9 million for the
corresponding prior-year period. Exclusive of the one-time recognition of
deferred revenue related to ELI, operating income increased 36.9% for the nine
months ended October 3, 1999. Increased operating profit in the licensing
segment and decreased operating losses in the retail segment were somewhat
offset by decreases in operating profit in the wholesale segment. The decline in
the wholesale segment was primarily attributable to lower revenues in the
current period, as compared to the corresponding prior-year period.
INTEREST EXPENSE, NET
Interest expense, net was $3.1 million for the nine months ended October
3, 1999, as compared to $1.8 million for the corresponding prior-year period.
The increase in interest expense was primarily due to higher average borrowings
during the period.
14
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROVISION FOR INCOME TAXES
The provision for income taxes represents federal, foreign, state and local
income taxes. The effective income tax rates for the nine months ended October
3, 1999 and September 27, 1998 were 43% and 46%, respectively. These rates
reflect the effects of state and local taxes, tax rates in certain foreign
jurisdictions, and certain nondeductible expenses.
NET INCOME
Net income for the nine months ended October 3, 1999 was $7.2 million, as
compared to $3.3 million for the corresponding prior-year period. Exclusive of
the one-time recognition of deferred revenue related to ELI, net income was $4.4
million.
NET INCOME PER COMMON SHARE
Net income per common share on a diluted basis increased $0.18, or
120.0%, to $0.33 per share for the nine months ended October 3, 1999, as
compared to $0.15 per share for the corresponding prior-year period.
Exclusive of the one-time recognition of deferred revenue related to ELI, net
income per common share on a diluted basis increased $0.05, or 33.3%, to
$0.20 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have historically been, and are
expected to continue to be, cash flow from operations and borrowings under its
revolving credit facility. The Company's principal need for funds is to finance
working capital (principally inventory and receivables), capital expenditures
(including the construction of new shop-in-shops, outlet and full-price
free-standing retail stores), and investments in the start up of new collections
and the extension of existing collections. The Company had cash and cash
equivalents of $4.1 million at October 3, 1999 and September 27, 1998.
The Company has a $150.0 million, three-year revolving credit facility (the
"Facility") through January 2001. The Facility is used for working capital
requirements and general corporate purposes. At October 3, 1999, $29.3 million
was outstanding under the Facility, as compared to $ 2.2 million outstanding at
September 27, 1998.
Net cash used for operating activities was $12.3 million for the nine months
ended October 3, 1999 as compared to net cash provided by operating activities
of $31.2 million in the corresponding prior-year period. This decrease primarily
reflects the Company's recording of greater deferred income associated with the
Company's licensing agreements in the corresponding prior-year period, a greater
increase in accounts receivable and a lesser decrease in inventory, partially
offset by an increase in deferred income taxes and an increase in accounts
payable, accrued expenses and other current liabilities. Net cash used for
investing activities was $20.4 million for the nine months ended October 3, 1999
as compared to $4.8 million in the corresponding prior-year period. The increase
is primarily due to the Company's acquisition of free-standing retail stores and
increased purchases of property and equipment. Financing activities reflected
borrowings under the Facility and the repayment of a note payable to a principal
stockholder. Net cash provided by financing activities was $29.3 million for the
nine months ended October 3, 1999, as compared to net cash used for financing
activities of $26.9 million in the corresponding prior-year period.
As a matter of policy, the Company enters into forward exchange
contracts with parties which are major international banks and financial
institutions that have at least an "A" (or equivalent) credit rating. The
Company's exposure to credit loss in the event of nonperformance by any of the
counterparties is limited to only the recognized, but not realized, gains
attributable to the contracts. Management believes risk of loss is remote and in
any event would be immaterial. Costs associated with entering into such
contracts have not been material to the Company's financial results. At October
3, 1999, the Company had contracts to exchange foreign currencies in the form of
forward exchange contracts in the amount of $105.3 million. There have been no
significant changes in market risk that would have a material effect on the
Company's calculated value-at-risk exposure, as previously disclosed in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999.
Capital expenditures, primarily for equipment, machinery, computers,
office furniture, leasehold improvements and outlet and full-price free-standing
retail stores, were approximately $11.2 million and $5.5 million for the nine
months ended October 3, 1999 and September 27, 1998, respectively. As of
November 16, 1999, the Company had outstanding commitments for additional
capital expenditures during fiscal 1999 of approximately $3.7 million. The
Company anticipates that it will incur additional capital expenditures in fiscal
1999 relating to its retail business initiatives and other matters.
15
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company anticipates that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, primarily with cash flow from
operations, supplemented by borrowings under its Facility and, from time to
time, amounts received in connection with strategic transactions, including
licensing arrangements. Events that may impact this include, but are not
limited to, future events that may have the effect of reducing available cash
balances (such as unexpected operating losses or increased capital or other
expenditures), as well as future circumstances that might reduce or eliminate
the availability of external financing.
SUBSEQUENT EVENTS
On November 2, 1999, the Company announced that it is implementing a
series of strategic initiatives intended to further reduce costs, increase
efficiencies and focus on key business areas. The strategic initiatives
include consolidating the Donna Karan New York and DKNY womens' divisions,
integrating the marketing and public relations functions into one unit,
closing seven non-performing outlet stores, recognizing an impairment of
under-performing assets and certain other non-recurring charges. The
restructuring charge relates to division consolidations, asset write-downs,
personnel related expenses, the closing of non-performing outlet stores and
certain other non-recurring charges. Restructuring and other charges to be
recorded in the fourth quarter of fiscal 1999 related to these strategic
initiatives are estimated to be approximately $11.0 million.
YEAR 2000
The efficient operation of the Company's business is dependent in part on
its computer software programs and operating systems (collectively, "Programs
and Systems"). These Programs and Systems are used in several key areas of the
Company's business, including purchasing, inventory management, pricing, sales,
shipping, and financial reporting, as well as in various administrative
functions. The Company is in the process of addressing the Year 2000 issue, and
as a result of this process, the Company has identified three phases of its Year
2000 project: i) inventory, ii) assessment, and iii) remediation and testing.
The Company has completed its inventory and assessment of substantially all
internal computer systems and application software, and plans for establishing
compliance have been developed. These plans include, among other things: which
non-compliant hardware and software will be remediated, upgraded, or replaced,
the timetable and resources (both internal and external) required to achieve
those objectives, and the estimated costs. The Company has substantially
completed remediation and testing of its internal systems and will be monitoring
and testing the internal systems through the end of 1999 and the early part of
2000.
The Company is continuing communication with its significant vendors,
customers, transportation carriers, and financial institutions about their Year
2000 state of readiness and the extent to which the failure of any of those
systems may otherwise impact the Company's operations. This communication and
evaluation process is ongoing.
The costs of addressing the Year 2000 issue have not been material and
based upon current information, the Company estimates that such costs are
expected to continue to be immaterial. Although the Company is not currently
aware of any material operational issues or costs associated with preparing its
internal systems for the Year 2000, there can be no assurance that there will
not be a delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the Year 2000 issues. Additionally,
while the Company does not currently have the ability to track internal employee
costs specifically related to the Year 2000 project, these costs are not
expected to have a material impact on the Company's results of operations or
financial condition.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's estimates. The
Company currently believes that the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if the required
modifications and conversions are not made, or are not completed on a timely
basis, or the systems from third parties (i.e. suppliers, customers, and
financial institutions) with whom the Company relies on directly, or indirectly,
to be Year 2000 compliant, are not operational, the Year 2000 could have a
material adverse effect on the Company's future results of operations.
16
<PAGE>
DONNA KARAN INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company currently believes that it is difficult to identify its most
reasonably likely worst case Year 2000 scenario. However, a reasonable worst
case scenario would be the result of failures of third parties (such as
customers, suppliers, licensees, transportation carriers, governmental agencies,
utility and other general service providers) that would continue for more than
several days in various geographic areas in which the Company's products are
produced and sold. Continuing failures in these areas which could affect the
manufacture or shipments of Company products or limit the consumers' ability to
purchase the Company's products, would most likely have a material adverse
effect on the Company's results of operations. The extent of such impact cannot
be reasonably estimated at this time; however, the Company is currently
evaluating its alternatives with respect to contingency plans, to limit, to the
extent possible, the effect of Year 2000 issues on the Company's results of
operations. Any such plans would necessarily be limited to situations over which
the Company can be reasonably expected to control. In any event, even where the
Company may develop contingency plans, there can be no assurance that such plans
will address all of the problems that may arise, or that such plans, even if
implemented will be successful. The Company's Year 2000 efforts are ongoing and
our overall plan, including the development of our contingency plans, will
continue to evolve and be modified to take into account new information when it
becomes available.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking statements that
have been made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The words and phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimates," "projects,"
"believes," "plans" or similar expressions, are intended to identify
forward-looking statements including, without limitation, the Company's
expectations regarding sales, earnings, or other future financial performance
and liquidity, and general statements about future operations and operating
results. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors that could cause actual results to
differ from expectations include, without limitation: (i) the failure of certain
key members of the Company's design teams or management, including Ms. Karan, to
continue to be active in the business of the Company; (ii) the possibility of a
termination of the Company's license with Gabrielle Studio, Inc., a bankruptcy
of Gabrielle Studio or transfer of the stock of Gabrielle Studio; (iii) the
timing and expense associated with, and effects of, the strategic initiatives
being implemented by the Company, (iv) risks associated with the receipt,
pricing, and timing of customer orders; (v) general competitive factors and the
overall financial condition of the apparel industry, the retail industry, and
the general economy; (vi) timing of and costs associated with new stores
openings and the Company's economic ability to continue to open stores; (vii) a
change in retailer or consumer acceptance of the Company's products; (viii) the
variability of the Company's results in any period due to the seasonal nature of
the business, the timing and level of the Company's sales, the timing of launch
of new products and collections and opening of new doors, fashion trends, and
the timing, terms, consummation, or success of any joint ventures, licenses, or
other dispositions of product lines; (ix) consolidation and restructuring in the
retail industry causing a decrease in the number of stores that sell the
Company's products, or an increase in the ownership concentration within the
retail industry; (x) social, political and economic risks to the Company's
foreign operations and customers, including changes in foreign investment and
trade policies and regulations of the host countries and of the United States;
(xi) risks associated with the Company's increasing royalty revenues as a
percent of the Company's total revenues and risks associated with a lack of
operational or financial control over the Company's licensees; (xii) changes in
laws, regulations, and policies, including changes in accounting standards, that
affect, or will affect, the Company in the United States and abroad; (xiii)
foreign currency fluctuations affecting the Company's results of operations and
value of its foreign assets, the relative price at which the Company and foreign
competitors sell their products in the same markets, and the Company's operating
and manufacturing costs outside of the United States; (xiv) shipment delays,
depletion of inventory, and increased production costs resulting from disruption
at any of the Company's facilities or other causes; (xv) changes in product mix
to ones which are less profitable; (xvi) the ability of the Company and third
parties, including customers or suppliers, to adequately address Year 2000
issues; (xvii) infringements of the Company's trademarks and other proprietary
rights, imitations or diversions of the Company's products, or inability to
obtain trademark protection outside the United States for one or more of the
trademarks which the Company utilizes; (xviii) political or economic instability
resulting in the disruption of trade from the countries in which the Company's
contractors, suppliers, licensees, or customers are located, the imposition of
additional regulations relating to imports, the imposition of additional duties,
taxes, and other charges on imports, significant fluctuations of the value of
the dollar against foreign currencies, or restriction on transfer of funds;
(xix) the inability of a contractor to deliver the Company's products in a
timely manner thereby causing the Company to miss the delivery date requirements
of its customers, which in turn could result in the cancellation of orders,
refusal to accept deliveries, or a reduction in the selling price; or (xx) the
violation of labor or other laws by any independent manufacturer or any
licensee. The Company undertakes no obligation to publicly update or revise any
forward-looking statements made herein or elsewhere, whether as a result of new
information, future events or otherwise.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits-
27.1- Financial Data Schedule.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed by the Company
during the three months ended October 3, 1999.
18
<PAGE>
SIGNATURES
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.
DONNA KARAN INTERNATIONAL INC.
(Registrant)
Date: November 17, 1999 By: /s/ John D. Idol
-----------------------
John D. Idol
Chief Executive Officer
Date: November 17, 1999 By: /s/ Joseph B. Parsons
-----------------------
Joseph B. Parsons
Executive Vice President,
Chief Financial and
Administrative Officer
19
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DONNA
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TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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