SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
(AMENDMENT NO. 1)
(Mark One)
_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 1-6454
KLEINERT'S, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 13-0921860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West Germantown Pike, Suite 100
Plymouth Meeting, Pennsylvania 19462
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(610) 828-7261
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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), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest
practicable date:
Class Outstanding at August 26, 1996
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Common Stock 3,684,391
Par Value $1.00 per share
<PAGE>
I. Part I, Item 1 of the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 1, 1996 is hereby amended by amending and
restating in its entirety note 3 to the Notes to Consolidated Financial
Statements as follows:
(3) Refinancing of Term Loan
On February 28, 1996 the Company refinanced its existing term loan and
provided for an additional term debt facility of $4,650,000 to finance the
Pixie Acquisition. The term loan is in the form of an amended and restated
term loan note with the same bank as the original term loan. Total borrowing at
June 1, 1996 was $8,049,000. The interest rate is indexed by LIBOR rates plus a
spread of 1.12%.
Simultaneously, the Company entered into an interest rate swap to convert
its floating-rate to a fixed-rate of 5.88% which effectivley fixes the rate at
7.0%. This reduces the Company's risk of incurring higher interest costs due to
rising interest rates. At June 1, 1996, the interest rate swap agreement had a
notional amount of $8,049,000 which decreases by $300,000 quarterly through the
September 2002 termination date. The fair value of this agreement at June 1,
1996 was $166,007
II. Part I, Item 2 of the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 1, 1996 is hereby amended and restated in its
entirety as follows:
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Six Months ended June 1, 1996 Compared to Six Months ended June 3, 1995
Kleinert's apparel business is highly seasonal. Consequently, the sales
and operating results for the six months ended June 1, 1996 are not necessarily
indicative of the results that may be expected for the entire fiscal year ending
November 30, 1996.
Six Months Ended
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(000's omitted)
Increase
June 1, 1996 June 3, 1995 (Decrease)
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Net Sales $23,011 $17,845 $ 5,166
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Gross Profits $ 5,205 $ 4,529 $ 676
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Selling, general and
administrative expenses $ 2,798 $ 2,396 $ 402
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Net sales increased by $5,166,000, or 29%, to $23,011,000 from
$17,845,000 for the six months ended June 1, 1996 compared to the six months
ended June 3, 1995. Sales of products associated with the business arising from
Kleinert's acquisition of the assets of Pixie Playmates, Inc. ("Pixie") and
Certified Sewing Services, Inc. ("Certified") and the shares of Certified
Apparel Services of Honduras, S.A. ("CASH") on December 16, 1995 (see
"Information Concerning Kleinert's") accounted for an approximately 19%
increase, and the remaining 10% increase related to Kleinert's continuing
business. The increase in Kleinert's sales from continuing business related
primarily to knitsets. Test programs and good sales results at very large retail
chains during 1995 were successful and have resulted in considerable growth for
Kleinert's with these customers. Gross profit increased by $676,000, or 15%,
primarily as a result of increased sales volume.
Selling, general and administrative expenses increased $402,000, or 17%,
primarily reflecting expenses associated with the Pixie business.
It is Kleinert's intention to integrate many systems and functions that
are currently being performed independently at Pixie. It is expected that
savings generated by this integration will offset any increases in selling,
general and administrative expenses that might otherwise occur and thus, will
serve to reduce Pixie related expense in the future.
<PAGE>
Interest expense in the first six months of 1996 was $760,000 compared to
$685,000 in the first six months of 1995, reflecting increased borrowing levels
associated with financing the Pixie acquisition.
Net income increased 14% to $1,049,000 for the first six months of 1996
compared to $922,000 for the first six months of 1995. Approximately 7% of the
increase was attributable to the basic Kleinert's business, while the Pixie
acquisition accounted for the balance.
Impact of Inflation and Changing Prices on Sales and Income from Operations
Although Kleinert's costs for raw materials, labor and equipment are
influenced by inflation, management believes that inflation has not had a
material impact on Kleinert's operations prior to fiscal year 1994. In fiscal
year 1994, Kleinert's experienced an increase in raw material prices which
continued into fiscal year 1995. The impact of margins of increased raw material
prices was offset primarily by increased sales volume that permitted the
absorption of relatively stable fixed costs. Consequently, margins remained
stable without a corresponding increase in selling prices. Raw material prices
are not expected to change significantly in 1996. Kleinert's does not expect to
be able to increase its selling prices to any great extent during fiscal year
1996; therefore, Kleinert's continues to examine all of its costs in an effort
to maintain its profit margins.
Liquidity and Capital Resources
At June 1, 1996, Kleinert's had working capital of $22,981,000 compared
to $16,377,000 at June 3, 1995. Net cash used in operating activities increased
$1,513,000 from $(5,784,000) in the first six months of fiscal year 1995 to
($7,297,000) in the first six months of fiscal year 1996. This reflected
increases in inventory when comparing the first six months of fiscal year 1996
to the comparable 1995 period, principally reflecting approximately $2,000,000
of inventory acquired in the Pixie acquisition, offset by reductions in
inventory levels related to improved sales of carryover goods during the first
six months of 1996 when compared to the same period of 1995.
Cash used in investing activities increased $4,271,000 to $(5,174,000) in
the first six months of 1996 from $(903,000) in the same period of 1995. The
increase was primarily the result of the acquisition of the assets of Pixie and
Certified and of the capital stock of CASH for an aggregate cash purchase price
of $4,650,000.
Net cash provided by financing activities increased by $5,428,000 to
$12,188,000 in the six months ended June 1, 1996 from $6,760,000 for the
comparable period in 1995. The increase was primarily the result of
approximately $1,938,000 of proceeds from the sale of common stock upon the
exercise of stock options, proceeds from refinancing of existing term debt, and
the addition of a $4,650,000 term debt facility to finance the purchase of the
Pixie and Certified assets and the shares of CASH. The term loan is in the form
of an amended and restated term loan note with the same bank as the original
term loan. The total borrowing at June 1, 1996 was $8,049,000 which is payable
in quarterly installments of $300,000 through September, 2002 with a final
installment of $249,000 due December 2002. The interest rate is based on LIBOR
but has been effectively fixed at 7.00% by an interest rate swap agreement with
the same bank.
<PAGE>
It is expected that the Pixie acquisition will enhance Kleinert's
earnings and, ultimately, its cash flows; however, due to the seasonality of the
Company's business, additional working capital requirements are anticipated in
periods when production levels exceed sales.
Kleinert's uses it short-term borrowings to build inventory levels for
shipment in the fall season.
Kleinert's believes that cash flow generated by operations, together with
amounts available under its existing credit arrangements, should be sufficient
to fund its working capital needs in fiscal year 1996 and for the future.
Kleinert's has unsecured lines of credit aggregating $42,000,000 of which
$18,850,000 was outstanding at June 1, 1996 bearing interest at rates ranging
from 6.2% to 7.0%. The following table sets forth certain information concerning
this indebtedness:
<TABLE>
<CAPTION>
Principal
Name of Lender Amount Outstanding
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<S> <C>
CoreStates Bank, N.A. $6,850,000
Brown Brothers, Harriman
and Co. 2,000,000
PNC Bank 5,000,000
Republic National Bank
of New York 5,000,000
</TABLE>
Kleinert's expects to fund its capital needs primarily from cash flow
generated by operations over the next twelve months. Since Kleinert's uses its
short-term lines of credit to fund working capital needs, any additional
financing related to capital needs is generally provided either by lease
financing or other long-term sources. Currently, Kleinert's has no material
capital commitments.
Income Taxes
The provision for income taxes is based upon the effective tax rates
expected to be recognized for the full fiscal year 1996. The rate for the first
six months of 1996 was 36.3%, which was equal to the rate for the first six
months of fiscal year 1995 of 36.3%.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued FASB
Statement No. 121 Accounting for the Impairment of Long-Lived Assets to Be
disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed. Kleinert's expects the
impact of adoption in 1997 will be insignificant.
In October 1995, the Financial Accounting Standards Board issued FASB
Statement No. 123, Accounting for Stock-Based Compensation. The new standard
prescribes a new accounting and reporting standard which reflect the standards'
"fair value method" to estimate expense associated with stock based
compensations plans. Companies may elect to continue to use existing accounting
rules or adopt the "fair value method" for expense recognition. Companies that
elect to continue to use existing accounting rules will be required to provide
pro-forma disclosures of what net income and earnings per share would have been
had the new "fair value method" been used. Kleinert's will elect to continue to
use existing accounting rules. Both statements are effective for fiscal years
beginning after December 15, 1995 and, accordingly, will not be required until
fiscal year 1997.
<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.
KLEINERT'S, INC.
Date: August 26, 1996 By: /s/ Gerald E. Monigle
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Gerald E. Monigle
Vice President--Finance
(Principal Accounting Officer)
