<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 2, 1996
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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 1-6454
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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 March 31, 1996
- ----------------------------------- -------------------------------
Common Stock 3,331,431
Par Value $1.00 per share
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2
KLEINERT'S, INC.
INDEX
PAGE
----
Part I. Financial information
Item 1. Financial statements
Consolidated statements of operations 3
for the three months ended March 2, 1996
and March 4, 1995
Consolidated balance sheets at 4
March 2, 1996, December 2, 1995
and March 4, 1995
Consolidated statements of cash flows 6
for the three months ended March 2, 1996
and March 4, 1995
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of 10
the financial condition and results of
operations
Part II. Other information
Item 6. Exhibits and Reports on Form 8-K 12
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted, except per share amounts)
Three Months Ended
------------------------
March 2, March 4,
1996 1995
--------- ---------
Net sales $11,720 $7,713
Cost of goods sold 9,208 5,675
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Gross profit 2,512 2,038
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Selling, general and administrative expenses 1,426 1,169
Interest expense 336 269
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1,762 1,438
------- ------
Income before income taxes 750 600
Provision for income taxes 271 218
------- ------
Net income $ 479 $ 382
======= ======
Earnings per share:
Net income $ .13 $ .10
======= ======
Weighted average shares outstanding 3,727 3,756
======= ======
See accompanying notes
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4
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
(000's Omitted)
ASSETS
<TABLE>
<CAPTION>
March 2, December 2, March 4,
1996 1995 1995
-------- ---------- --------
<S> <C> <C> <C>
Current assets:
Cash $ 47 $ 327 $ 22
Accounts receivable (net) 14,561 21,899 8,283
Inventories:
Raw materials 7,705 4,222 6,185
Work-in-progress 4,617 4,321 3,860
Finished goods 11,948 5,987 11,772
------- ------- -------
Total inventories 24,270 14,530 21,817
Other current assets 1,617 2,380 1,709
------- ------- -------
Total current assets 40,495 39,136 31,831
------- ------- -------
Property, plant and equipment, at cost 13,262 11,544 10,667
Less: Accumulated depreciation and
amortization 6,269 6,051 5,585
------- ------- -------
Net property, plant and
equipment 6,993 5,493 5,082
Other assets 4,612 3,593 3,314
------- ------- -------
$52,100 $48,222 $40,227
======= ======= =======
</TABLE>
See accompanying notes
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5
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
(000's Omitted)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 2, December 2, March 4,
1996 1995 1995
---------- ----------- -----------
<S> <C> <C> <C>
Current liabilities:
Notes payable and current
portion of long-term debt $ 11,695 $ 14,195 $ 7,395
Accounts payable 7,211 5,024 7,507
Accrued expenses 813 1,331 390
Income taxes payable 59 29 304
-------- -------- --------
Total current liabilities 19,778 20,579 15,596
-------- -------- --------
Deferred income taxes 134 134 123
Long-term debt 7,629 3,429 4,374
-------- -------- --------
Total liabilities 27,541 24,142 20,093
-------- -------- --------
Shareholders' equity:
Preferred stock - par value $1.00
per share, 2,000,000 shares
authorized, none issued
Common stock - par value $1.00 per
share, 10,000,000 shares
authorized, 3,798,398 issued and 3,798 3,798 3,798
outstanding
Capital in excess of par value 10,626 10,626 10,626
Retained earnings 13,351 12,872 8,926
-------- -------- --------
27,775 27,296 23,350
-------- -------- --------
Less:
Treasury stock, at cost, 466,967 (3,216) (3,216) (3,216)
-------- -------- --------
Total shareholders' equity 24,559 24,080 20,134
-------- -------- --------
$ 52,100 $ 48,222 $ 40,227
======== ======== ========
</TABLE>
See accompanying notes
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6
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted)
Three Months Ended
------------------------
March 2, March 4,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income 479 $ 382
Adjustment to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 223 163
Provision for losses on accounts receivable (20) (20)
Change in assets and liabilities:
Decrease in accounts receivable 7,359 9,781
Increase in inventory (7,646) (9,120)
(Increase) decrease in other current assets 763 (96)
Increase in accounts payable
and accrued expenses 1,669 2,729
Increase in income taxes payable 30 203
Increase in other assets (10) -
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Total adjustments 2,368 3,640
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Net cash provided by
operating activities 2,847 4,022
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Cash flows from investing activities:
Purchase of assets -- Pixie Acquisition (4,150) -
Capital expenditures (207) (98)
Note receivable related party (Note 2) - (500)
Proceeds from note receivable 30 16
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Net cash used in investing
activities $(4,327) $ (582)
======= ======
See accompanying notes
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7
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted)
Three Months Ended
---------------------
March 2, March 4,
1996 1995
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Cash flows from financing activities:
Net repayments under revolving
line-of-credit agreements $(3,200) $(3,300)
Principal payments on debt (250) (250)
Proceeds from long-term debt 4,650 --
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Net cash provided by (used in)
financing activities 1,200 (3,550)
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Net decrease in cash (280) (110)
Cash at beginning of period 327 132
------- -------
Cash at end of period $ 47 $ 22
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 294 $ 238
Income taxes $ 240 $ 16
See accompanying notes
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8
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 2, 1996 and March 4, 1995
(1) Basis of presentation:
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the results for the
interim periods. 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 rules and
regulations. The Company believes that the disclosures presented are adequate
for a fair presentation of the financial statements. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 2, 1995.
(2) Acquisition
On December 19, 1995, Kleinert's, Inc., through its newly formed,
wholly-owned subsidiary, Kleinert's, Inc. of Florida, ("together, the Company"),
consummated a transaction (the "Pixie Acquisition") pursuant to which the
Company acquired substantially all of the assets of Pixie Playmates, Inc.
("Pixie") and Certified Sewing Services, Inc. ("Certified") two Florida
corporations, and all of the capital stock of Certified Apparel Services of
Honduras, Inc., S.A., a Honduran corporation ("CASH"). Pixie, Certified and
CASH, all of which were affiliated entities, are engaged in the manufacture and
sale of children's apparel. Concurrent with the Pixie Acquisition, the Company
entered into a three year lease agreement with the principal shareholder of
Pixie for the premises in which Pixie was conducting business. The Company
intends to continue manufacturing operations as was conducted by Pixie,
Certified and CASH prior to the Pixie Acquisition.
In consideration for the assets of Pixie and Certified and the shares
of CASH, the Company paid an aggregate purchase price of $4,650,000 in cash, of
which $500,000 has been retained by the Company pending confirmation of
inventory quantities and completion of an audit of CASH. The purchase price was
financed by the Company through an amendment to its existing bank financing
agreement to provide for an additional term debt facility.
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9
The acquisition has been accounted for using the purchase method and
accordingly, the results of operations are included in the Company's results
from the date of acquisition.
The proforma unaudited results of operations for the three months ended
March 2, 1996 and March 4, 1995, assuming consummation of the purchase and
amendment of the term debt as of December 4, 1994 are as follows:
Three Months Ended
--------------------------
March 2, March 4,
1996 1995
-------- --------
(Unaudited) (Unaudited)
Net sales $11,791 $10,596
Net income 479 297
Net income per common share: .13 .08
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
purchase of the Pixie assets. 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 March 2, 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.
4. Related Party Transactions
On December 5, 1994 the Company loaned Scott Mills, Inc. ("Scott
Mills") $500,000. Scott Mills, formerly an indirect wholly-owned subsidiary of
the Company, is the successor in interest to the Company's textile division, the
assets of which were transferred to Scott Mills on November 27, 1993. The loan
bears interest, payable annually, at 8 1/2% per annum and the principal is due
in full on December 4, 1997. Scott Mills, which has operated independently of
the Company since November 27, 1993, continues to be a principal supplier of
fabric to the Company.
The Company provides certain third party services on behalf of Scott
Mills, including data processing and account payable check processing functions
and business management services. As a consequence, the balance due the Company
fluctuates based on the timing of Scott Mills repayments to the Company for
disbursements made on behalf of Scott Mills. On December 1, 1995 the Company
executed a working capital agreement with Scott Mills that confirms Scott Mills'
obligations to the Company and provides to the Company a first lien and security
interest in substantially all of Scott Mills' assets to secure Scott Mills'
obligation to repay to the Company the loan balance due of $2,143,000 as of
March 2, 1996.
In March 1995, the Company subleased knitting machines to Scott Mills
for a forty-five month term to be used to produce certain fabrics on behalf of
the Company. The terms of the sublease were reached at an arms length basis.
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10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's apparel business is highly seasonal. Consequently the
sales and operating results for the three months ended March 2, 1996 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending November 30, 1996.
Three Months Ended
-------------------------------------
(000's)
March 2, March 4, Increase
1996 1995 (Decrease)
------- ------- --------
Net sales $11,720 $ 7,713 $ 4,007
======= ======= =======
Gross profit $ 2,512 $ 2,038 $ 474
======= ======= =======
Selling, general and
administrative expenses $ 1,426 $ 1,169 $ 257
======= ======= =======
Net sales increased by $4,007,000 or 52% to $11,720,000 from $7,713,000
for the three months ended March 2, 1996 compared to the three months ended
March 4, 1995. Sales of products associated with the Pixie business accounted
for an approximately 26% increase and the remaining 26% increase related to
Kleinert's continuing business. Gross profit increased by $474,000 or 23%
primarily as a result of increased sales volume.
Selling, general and administrative expenses increased 22% or
$257,000 primarily reflecting expenses associated with the Pixie business.
Interest expense in the first quarter of 1996 was $336,000 compared to
$269,000 in the first quarter of 1995 reflecting increased borrowing levels
associated with the Pixie acquisition.
Net income increased 25% to $479,000 for the first quarter of 1996 when
compared to $382,000 for the first quarter of 1995. Approximately 16% of the
increase was attributable to the basic Kleinert's business, while the Pixie
acquisition accounted for the balance.
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11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased $1,175,000 from
$4,022,000 in the first quarter of 1995 to $2,847,000 in the first quarter of
1996. This reflected lower decreases in accounts receivable when comparing the
1996 first quarter to the 1995 quarter. The funds provided were used primarily
to pay down balances on the Company's revolving line-of-credit agreements.
In consideration for the assets of Pixie and Certified and the shares
of CASH, the Company paid an aggregate purchase price of $4,650,000 in cash, of
which $500,000 has been retained by the Company pending confirmation of
inventory quantities and completion of an audit of CASH.
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 purchase of the Pixie assets. 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 March 2, 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.
It is expected that the acquisition will enhance the Company'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.
The Company uses its short-term borrowings to build inventory levels
for shipment in the fall season.
The Company 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.
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12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated December 19,
1995 disclosing the purchase of the assets of Pixie Playmates,
Inc., and Certified Sewing Services, Inc. and all of the capital
stock of Certified Apparel Services of Honduras, Inc., S.A.
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13
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: April 10, 1996 By: /s/ Gerald E. Monigle
- --------------------- ----------------------
Gerald E. Monigle
Vice President-Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAR-02-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 14,561<F1>
<ALLOWANCES> 0
<INVENTORY> 24,270
<CURRENT-ASSETS> 40,495
<PP&E> 13,262
<DEPRECIATION> 6,269
<TOTAL-ASSETS> 52,100
<CURRENT-LIABILITIES> 19,778
<BONDS> 0
<COMMON> 3,798
0
0
<OTHER-SE> 20,761<F2>
<TOTAL-LIABILITY-AND-EQUITY> 52,100
<SALES> 11,720
<TOTAL-REVENUES> 11,720
<CGS> 9,208
<TOTAL-COSTS> 9,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F3>
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> 750
<INCOME-TAX> 271
<INCOME-CONTINUING> 479<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
<FN>
<F1>1. Accounts receivable (net)
<F2>2. Capital in excess of par value
Retained earnings
Treasury stock, at cost
<F3>3. Not disclosed separately in interim reports
<F4>4. Net income
</FN>
</TABLE>
