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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 March 4, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21940
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Donnkenny, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 51-022889
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 Broadway, New York, NY 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 730-7770
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NOT APPLICABLE
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(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 .
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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 13,645,640 (as revised for spilt)
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(Class) (Outstanding at March 4, 1995)
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DONNKENNY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(FORM 10-QA)
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Page
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PART I - FINANCIAL INFORMATION
Consolidated financial statements:
Balance sheets as of March 4, 1995 (unaudited) and December 3, 1994 ............ I-1
Statements of operations for the three months ended
March 4, 1995 and March 5, 1994 (unaudited) .................................... II-1
Statements of cash flows for the three months ended
March 4, 1995 and March 5, 1994 (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
</TABLE>
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DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
March 4, 1995 and December 3, 1994
<TABLE>
<CAPTION>
March 4, December 3,
1995 1994
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(Restated
unaudited) (Restated)
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ASSETS
CURRENT:
Cash $ 1,590 $ 1,606
Accounts receivable - net of allowances of
$797 and $881 in 1995 and 1994, respectively 18,635 34,349
Recoverable income taxes 2,454 2,308
Inventories (Note 2) 46,563 34,458
Deferred tax assets 1,330 1,330
Prepaid expenses and other current assets 1,460 1,260
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TOTAL CURRENT ASSETS 72,032 75,311
Property, plant and equipment, net 9,576 9,552
Intangible assets 24,122 24,316
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Total Assets $105,730 $109,179
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Current portion of long-term debt $ 87 $ 85
Accounts payable 13,725 16,959
Accrued expenses and other current liabilities 3,810 3,975
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TOTAL CURRENT LIABILITIES 17,622 21,019
Long-term debt, net of current portion 28,332 28,230
Deferred income taxes 2,104 2,104
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value. Authorized 20,000 shares;
issued and outstanding 13,644 and 13,644
shares in 1995 and 1994, respectively 137 137
Additional paid-in capital 43,585 43,585
Retained earnings 13,950 14,104
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Total stockholders' equity 57,672 57,826
Total Liabilities and Stockholders' Equity $105,730 $109,179
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</TABLE>
See accompanying notes to consolidated financial statements.
I - 1
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DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
(Unaudited)
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<CAPTION>
Three Months Ended
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3/4/95 3/5/94
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(Restated) (Restated)
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Net sales $ 24,702 $ 26,886
Cost of sales 18,330 18,237
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Gross profit 6,372 8,649
Selling, general and administrative expenses 5,747 5,657
Amortization of goodwill
and other related acquisition costs 201 305
Gain on sale of license (note 4) -- 1,116
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Operating income 424 3,803
Interest expense 671 770
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(Loss) income before income taxes (247) 3,033
Income tax (benefit) provision (93) 1,222
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Net (loss) income $ (154) $ 1,811
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(Loss) income per common share $ (0.01) $ 0.14
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Weighted average number of common shares outstanding
and common stock equivalents 13,645,640 12,617,314
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
II - 1
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DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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March 4, March 5,
1995 1994
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(Restated) (Restated)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (154) $ 1,811
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization of fixed assets 272 249
Amortization of intangibles 201 305
Accretion of debt discount 6 8
Provision for losses on accounts receivable 420 240
Changes in assets and liabilities:
Decrease in accounts receivable 15,294 8,520
Increase in recoverable income taxes (146) (236)
Increase in inventories (12,105) (4,146)
(Increase) decrease in prepaid expenses and
other current assets (207) 774
Increase in other assets -- (9)
Decrease in accounts payable (3,234) (804)
Decrease in accrued expenses and other
current liabilities (165) (750)
Increase in income taxes payable -- 957
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Net cash provided by operating activities 182 6,919
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (296) (73)
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Net cash used in investing activities (296) (73)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (12,402) (644)
Long-term debt borrowings 12,500 --
Net repayments under revolving credit line -- (8,000)
Net borrowings under revolving credit line -- 2,000
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Net cash provided by (used in) financing activities 98 (6,644)
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NET (DECREASE) INCREASE IN CASH (16) 202
CASH, AT BEGINNING OF YEAR 1,606 927
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CASH, AT END OF QUARTER $ 1,590 $ 1,129
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</TABLE>
See accompanying notes to consolidated financial statements.
III - 1
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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 3, 1994 has been derived from
audited financial statements of the Company.
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 4, December 3,
1995 1994
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(Restated see Note 1)
Raw materials $11,445 $ 8,320
Work-in-process 4,628 4,314
Finished goods 30,490 21,824
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$46,563 $34,458
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NOTE 3 - PUBLIC OFFERING
On May 5, 1994, the Company completed a public offering of 5,060,000 shares of
common stock of which 1,177,640 shares were sold by the Company and 3,882,360
shares were sold by certain stockholders. The price per share in the offering
of $10.31 resulted in net proceeds of $10,885 to the Company. The net proceeds
were used to repay $10,600 of indebtedness, accrued interest and a prepayment
penalty of $495.
NOTE 4 - GAIN ON SALE OF LICENSE
The Company sold the rights to the Ship 'N Shore trademarks in December, 1993
resulting in a one time pre-tax gain of $1,116 that equates to $0.05 per share
on an after-tax basis during the first quarter of fiscal 1994.
IV-1
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NOTE 5 - 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.
NOTE 6 - 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 March 4, 1995 March 5, 1994
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(As Originally (As Originally
STATEMENT OF OPERATIONS Reported) (Restated) Reported) (Restated)
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Net Sales .................... $ 39,112 $ 24,702 $ 30,560 $ 26,886
Gross Profit ................. 11,386 6,372 9,215 8,649
Operating Income ............. 4,238 424 4,369 3,803
Net Income (Loss) ............ 2,105 (154) 2,141 1,811
Per common share:
Net Income (Loss) .... $ 0.15 ($ 0.01) $ 0.17 $ 0.14
March 4, 1995 December 3, 1994
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(As Originally (As Originally
BALANCE SHEET Reported) (Restated) Reported) (Restated)
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Current Assets ............. $ 76,863 $ 72,032 $ 77,758 $ 75,311
Total Assets ............... 110,561 105,730 111,626 109,179
Total Liabilities .......... 48,020 48,058 51,190 51,353
Stockholders' Equity ....... 62,541 57,672 60,436 57,826
IV - 2
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DONNKENNY, INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED MARCH 4, 1995 AND MARCH 5, 1994
Net sales decreased by $2.2 million from $26.9 million in the first quarter
of fiscal 1994 to $24.7 million in the first quarter of fiscal 1995. Net sales
increases in the Mickey & Co. product line and intimate apparel sales of the
Company's licensed products, which began shipping during the first quarter of
fiscal 1994 were more than offset by declines in the Donnkenny and Lewis Frimel
divisions.
Gross profit for the first quarter of fiscal 1995 was $6.4 million or 25.8%
of net sales compared to $8.6 million or 32.2% of net sales during the first
quarter of fiscal 1994. The decline was primarily due to the lower gross
margin percentages attributable to the sales of intimate apparel.
Selling, general and administrative expenses were unchanged at $5.7 million
in the first quarter of fiscal 1994 versus $5.7 million in the first quarter
of fiscal 1995. As a percentage of net sales, these expenses increased from
21.0% in the first quarter of fiscal 1994 to 23.3% in the first quarter of
fiscal 1995. The increase in SG&A expenses as a percentage of net sales was
due to fixed expenses related to the decline in net sales.
The amortization of goodwill and other related acquisition costs were $0.2
million during the first quarter of fiscal 1995 compared to $0.3 million
during the first quarter of fiscal 1994 as certain related acquisition costs
became fully amortized during February, 1995.
The Company sold the rights to the Ship 'N Shore trademarks during the
first quarter of fiscal 1994 resulting in a one-time pre-tax gain of $1.1
million that equated to $0.05 per share on an after tax basis. There was no
corresponding gain during fiscal 1995.
Interest expense declined from $0.8 million during the first quarter of
fiscal 1994 to $0.7 million during the first quarter of fiscal 1995 due to
reduced borrowings under the Company's Senior Term Loan with the Prudential
Insurance Company at America, Pruco Life Insurance and Prudential Reinsurance
Company (the "Prudential Senior Term Loan") which was paid off on February 2,
1995, offset to a certain extent by higher average borrowings on the Company's
line of credit to support higher working capital needs.
The Company provided for taxes at an effective rate of 37.7% for the first
quarter of fiscal 1995 and 40.3% for the first quarter of fiscal 1994
LIQUIDITY AND CAPITAL RESOUSES
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 utilized
the net proceeds from its second public offering, which closed on May 5, 1994,
to repay $10.6 million of debt, accrued interest and a prepayment penalty
owing pursuant to the Prudential Senior Term Loan. This payment reduced
interest expense, which was partially offset by increased average borrowings
on the Company's line of credit to support higher working capital needs. The
Company's borrowing requirements for working capital fluctuate throughout the
year.
Capital expenditures were $0.3 million for the first quarter fiscal 1995
compared to $0.l million in the first quarter fiscal 1994. The Company may
spend up to $2.0 million annually on capital investments in accordance with
the new Chemical Bank Revolving Credit agreement described below. The Company
has no material capital expenditure commitments.
During the first quarter of fiscal 1995, the Company's operating activities
generated cash principally as the result of decreases in accounts receivable
which was partially offset by increases in inventory. During the first
quarters of fiscal 1994, the Company's operating activities generated cash
principally as the result of net income and decreases in accounts receivable,
which was partially offset by increases in inventory. The Company believes
that amounts available under the new $35.0 million Chemical Bank revolving
credit agreement will be sufficient to offset any negative operating cash
flows and capital expenditures, and to provide the Company with sufficient
cash for its needs for the foreseeable future.
V-1
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On February 2, 1995, the Company entered into a new three year, $35.0
million secured revolving credit facility from Chemical Bank which replaced a
$25.0 million secured line of credit facility with Chemical Bank. On February
2, 1995, the Company drew down on the new Chemical bank revolving credit
facility to make a final principal payment of $12.4 million to retire the
prudential Senior Term Loan. The new Chemical Loan facility requires
compliance with certain financial performance tests on a quarterly basis that
the Company expects to be able to meet. As of April 3, 1995, $9.0 million was
available under the Chemical Bank line of credit facility.
V-2
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DONNKENNY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
VI - 1
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S I G N A 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.
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Registrant
Date: June 11, 1997
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Harvey Appelle
Chairman of the Board
Chief Executive Officer
Date: June 11, 1997
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Stuart. S. Levy
Vice President - Finance and
Chief Financial Officer,
(Principal Financial Officer)
VI - 2
