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 September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-21940
Donnkenny, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0228891
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 Broadway, New York, NY 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 790-3900
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes _X_ No ___ and (2) has been
the subject to such filing requirements for the past 90 days. Yes X No ___.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock $0.01 par value 4,367,417
- ---------------------------- --------------------------------
(Class) (Outstanding at November 7, 2002)
DONNKENNY, INC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(FORM 10-Q)
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated financial statements:
Independent Accountants' Report..............................................................1
Balance sheets as of September 30, 2002 (unaudited) and December 31, 2001....................2
Statements of operations for the three and nine months ended
September 30, 2002 and 2001 (unaudited)......................................................3
Statements of cash flows for the nine months ended
September 30, 2002 and 2001 (unaudited)......................................................4
Notes to Consolidated Financial Statements (unaudited) .................................5 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..10 - 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................15
Item 4. Controls and Procedures.....................................................................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings and Other Information.....................................................16
Item 6. Exhibits and Reports on Form 8-K............................................................16
Signatures..................................................................................17
Certifications.........................................................................18 - 21
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of Donnkenny, Inc.:
We have reviewed the accompanying consolidated balance sheet of Donnkenny,
Inc. and subsidiaries as of September 30, 2002, and the related consolidated
statements of operations for the three-month and nine-month periods ended
September 30, 2002 and 2001, and cash flows for the nine-month periods ended
September 30, 2002 and 2001. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Donnkenny, Inc. and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated March 25,
2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2001 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
New York, New York
November 7, 2002
1
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, December 31,
2002 2001
------------------ -----------------
(Unaudited)
CURRENT ASSETS
Cash.................................................. $ 33 $ 39
Accounts receivable - net of allowances of
$127 and $116, in 2002 and 2001 respectively......... 22,446 25,225
Recoverable income taxes.............................. 380 381
Inventories........................................... 20,996 17,773
Deferred tax assets................................... 1,662 1,662
Prepaid expenses and other current assets............. 793 1,220
Assets held for sale.................................. 579 788
--------- -------
Total current assets.................................. 46,889 47,088
PROPERTY, PLANT AND EQUIPMENT, NET......................... 4,799 5,379
OTHER ASSETS............................................... 297 368
INTANGIBLE ASSETS.......................................... 821 4,198
GOODWILL................................................... - 25,367
--------- --------
TOTAL...................................................... $ 52,806 $ 82,400
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................... $ 433 $ 933
Accounts payable.................................... 11,830 7,760
Accrued expenses and other current liabilities...... 2,259 3,504
--------- --------
Total current liabilities........................ 14,522 12,197
--------- --------
LONG-TERM DEBT............................................. 30,083 34,844
DEFERRED TAX LIABILITIES................................... 1,662 1,662
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 500
shares, issued none..................................
Common stock, $.01 par value. Authorized 10,000
shares, issued and outstanding 4,367 shares
in 2002 and 2001...................................... 44 44
Additional paid-in capital............................. 50,449 50,449
Deficit................................................ (43,954) (16,796)
--------- --------
Total Stockholders' Equity.............................. 6,539 33,697
--------- --------
TOTAL...................................................... $ 52,806 $ 82,400
========= ========
See accompanying notes to consolidated financial statements.
2
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
2002 2001 2002 2001
------------ ------------ ------------ -------------
NET SALES.......................................... $ 30,688 $ 44,242 $ 77,484 $ 112,089
COST OF SALES........................................ 22,755 33,947 57,946 86,369
---------- ---------- ---------- ----------
Gross profit.................................... 7,933 10,295 19,538 25,720
OPERATING EXPENSES:
Selling, general and administrative expenses....... 5,810 7,542 16,222 20,781
Amortization of goodwill and other related
acquisition costs.................................... - 372 - 1,117
---------- ---------- ---------- ----------
Operating income............................. 2,123 2,381 3,316 3,822
INTEREST EXPENSE..................................... 504 1,233 1,595 3,659
---------- ---------- ---------- ----------
Income before income taxes and cumulative effect
of change in accounting principle................... 1,619 1,148 1,721 163
INCOME TAXES......................................... 45 45 135 135
---------- ---------- ---------- ----------
Income before cumulative effect of change
in accounting principle............................. 1,574 1,103 1,586 28
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NO TAX BENEFIT RECOGNIZED).......................... - - 28,744 -
---------- ---------- ---------- ----------
NET INCOME (LOSS).............................. $ 1,574 $ 1,103 $ (27,158) $ 28
========== ========== ========== ==========
Basic earnings per common share:
Income before accounting change...................... $ 0.36 $ 0.25 $ 0.36 $ 0.01
Cumulative effect of accounting change............... - - (6.58) -
---------- ---------- ---------- ----------
Net income (loss).................................... $ 0.36 $ 0.25 $ (6.22) $ 0.01
========== ========== ========== ==========
Diluted earnings per common share:
Income before accounting change...................... $ 0.36 $ 0.25 $ 0.36 $ 0.01
Cumulative effect of accounting change............... - - (6.58) -
---------- ---------- ---------- ----------
Net income (loss).................................... $ 0.36 $ 0.25 $ (6.22) $ 0.01
========== ========== ========== ==========
Shares used in the calculation of earnings per share:
Basic................................................ 4,367,417 4,367,417 4,367,417 4,367,417
========== ========== ========== ==========
Diluted.............................................. 4,391,036 4,394,606 4,367,417 4,384,067
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
3
DONNKENNY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
----------------------------------
Sept. 30, Sept. 30,
2002 2001
--------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (27,158) $ 28
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization of fixed assets............................... 1,119 807
Disposal of fixed assets.................................................... - 2
Amortization of intangibles and other assets................................ - 1,117
Cumulative effect of change in accounting principle ........................ 28,744 -
Provision for losses on accounts receivable................................. 11 44
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.................................. 2,768 (1,601)
Decrease in recoverable income taxes........................................ 1 12
Increase in inventories..................................................... (3,223) (8,297)
Decrease (increase) in prepaid expenses and other current assets............ 427 (733)
Decrease in other non-current assets........................................ 71 21
Increase in accounts payable................................................ 4,070 1,519
Increase (decrease) in accrued expenses and other current liabilities....... (1,245) 558
----------- ----------
Net cash provided by (used in) operating activities....................... 5,585 (6,523)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment................................... (473) (1,137)
Proceeds from sale of property, plant and equipment......................... 143 -
----------- ----------
Net cash used in investing activities..................................... (330) (1,137)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................................................. (825) (1,164)
Borrowings under revolving credit line...................................... 76,788 120,052
Repayments under revolving credit line...................................... (81,224) (111,249)
----------- ----------
Net cash provided by (used in) financing activities....................... (5,261) 7,639
----------- ----------
NET DECREASE IN CASH............................................................ (6) (21)
CASH, AT BEGINNING OF PERIOD.................................................... 39 65
----------- ----------
CASH, AT END OF PERIOD.......................................................... $ 33 $ 44
=========== ==========
SUPPLEMENTAL DISCLOSURES
Income taxes paid............................................................... $ 68 $ 77
=========== ==========
Interest paid................................................................... $ 1,602 $ 3,674
=========== ==========
See accompanying notes to consolidated financial statements.
4
DONNKENNY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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 accounting principles generally accepted in the United States of
America 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 Report on Form 10-K
for the year ended December 31, 2001. Balance sheet data as of December 31, 2001
have been derived from audited financial statements of the Company.
NOTE 2 - INVENTORIES
Inventories consist of the following:
September 30, December 31,
2002 2001
------------- ------------
(In thousands)
Raw materials . . . . . . . . . . . . . . . . . $ 570 $ 840
Work-in-process . . . . . . . . . . . . . . . . . 514 331
Finished goods . . . . . . . . . . . . . . . . . 19,912 16,602
----------- ---------
$ 20,996 $ 17,773
=========== =========
Inventories at September 30, 2001 were $28.0 million consisting primarily
of finished goods.
NOTE 3 - DEBT
On June 29, 1999, the Company and its operating subsidiaries signed a
three-year credit agreement (the "Credit Agreement") with CIT Group/Commercial
Services. The Credit Agreement provides the Company with a $75 million facility
comprised of a $72 million revolver with sublimits up to $52 million for direct
borrowings, $35 million for letters of credit, certain overadvances and a $3
million term loan, which was paid in full as of June 30, 2002.
The Credit Agreement provides for advances of (i) up to 90% of eligible
accounts receivable plus (ii) up to 60% of eligible inventory plus (iii) up to
60% of the undrawn amount of all outstanding letters of credit plus (iv)
allowable overadvances. The Credit Agreement as amended expires on June 30,
2004.
5
Collateral for the Credit Agreement includes a first priority lien on all
accounts receivable, machinery, equipment, trademarks, intangibles and
inventory, a first mortgage on all real property and a pledge of the Company's
stock interest in its operating subsidiaries: Donnkenny Apparel, Inc. and
Beldoch Industries Corporation.
The Credit Agreement contains numerous financial and operational covenants,
including limitations on additional indebtedness, liens, dividends, stock
repurchases and capital expenditures. In addition, the Company is required to
maintain specified levels of tangible net worth and comply with minimum earnings
before depreciation, amortization, interest and taxes (EBITDA) and a minimum
interest coverage ratio, based upon the annual business plan approved by the
lender.
During Fiscal 1999 and Fiscal 2000, the Company entered into various
amendments and agreements to waive the Company's noncompliance with financial
covenants on certain dates and to reset overadvanced amounts and covenants.
These amendments and agreements also increased the interest rate on borrowings.
On July 6, 2000, the Company entered into an Amendment to finance the
acquisition of the Ann Travis business by the issuance of an additional $1.3
million term loan. The new term loan bears interest at the prime rate plus 2.0%
(6.75% at September 30, 2002) and is repayable over thirty-six months commencing
January 1, 2001. A fee of $100,000 was paid for the Amendment.
On March 28, 2001, the Company entered into an Amendment and Waiver
Agreement to extend the Final Maturity Date of the original agreement to June
30, 2004, to waive existing events of default under the Credit Agreement as of
December 31, 2000 with respect to the Company's non-compliance with covenants
related to minimum interest coverage, EBITDA and Tangible Net Worth, and to
amend certain other provisions of the Credit Agreement including covenants and
the level of allowable overadvances to support the Company's 2001 business plan.
Pursuant to this amendment, the interest rate on borrowings was increased to
2.0% above the prime rate effective January 1, 2001. A fee of $200,000 was paid
in connection with this Amendment and Waiver.
Effective January 1, 2002, the Company established covenants and the level
of allowable overadvances with the lender to support its 2002 business plan.
This Amendment and Waiver Agreement also amended the interest rate on the
revolving credit borrowings to the prime rate plus one and three-quarters
percent and provided for an additional interest rate reduction effective July 1,
2002 if certain objectives were achieved. No fee was paid in connection with
this Amendment and Waiver. The Company has achieved the objectives and received
an additional rate reduction effective July 1, 2002. The interest rate on the
revolving credit borrowings is now prime plus one and one-half percent (6.25% at
September 30, 2002).
On June 30, 2002, the Company made the final payment on the $3 million term
loan in accordance with the terms of the Credit Agreement. Direct borrowings
under the revolving credit facility were $30.0 million, and the remaining
acquisition term loan amounted to $0.5 million as of September 30, 2002.
Additionally, the Company had letters of credit outstanding of $10.1 million,
with an unused facility of $34.8 million. As of September 30, 2001, direct
borrowings, term loans and letters of credit outstanding under the credit
facility were $48.1 million, $1.7 million and $13.5 million, respectively.
The Company also has a factoring agreement with CIT. The factoring
agreement provides for a factoring commission equal to .35% of gross sales, plus
certain customary charges. The agreement is in effect through December 31, 2003.
6
NOTE 4 - GOODWILL AND INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
No. 17, "Intangible Assets". It changes the accounting for goodwill from an
amortization method to an impairment-only approach. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001 for all goodwill and other
intangible assets recognized in an entity's statement of financial position at
that date, regardless of when those assets were initially recognized.
Prior to January 1, 2002, the Company had net intangible assets of $29.6
million on its Consolidated Balance Sheet. The intangible assets included
goodwill of $25.4 million, which represented the excess purchase price over fair
value of net assets acquired. The assets acquired related to the acquisitions of
(1) the Company in 1989 following a change in control, (2) the sportswear
division of Oak Hill Sportswear Corporation ("Oak Hill"), (3) Beldoch Industries
Corporation ("Beldoch") in 1995, and (4) Ann Travis in 2000. Goodwill was
amortized on a straight-line basis over expected periods to be benefited,
ranging from 10 to 40 years. Also included in the net intangible assets were
$4.2 million of costs related to the Pierre Cardin license acquired by the
Company in connection with the Beldoch acquisition, which were amortized on a
straight-line basis over 20 years.
As a result of adopting SFAS No. 142 on January 1, 2002, the Company ceased
the amortization of goodwill and determined that the value of its intangible
assets had been impaired. The impairment charge of $28.7 million was calculated
based upon a valuation of the Company's market capitalization on January 1,
2002, adjusted for an estimated premium that a willing buyer would assign to the
market capitalization in the event of a sale of the Company. The premium was
based on an average of such premiums paid in similar transactions in the
industry. The impairment charge consists of $25.4 million related to goodwill
and $3.3 million related to intangible assets.
The impairment charge is reflected in the Company's Consolidated Statement
of Operations as a line item disclosing the cumulative effect of a change in
accounting principle before the net income for the period. The Company did not
record an income tax benefit related to this charge.
The remaining value of intangible assets of $0.8 million is attributable to
those intangible assets acquired related to the Pierre Cardin license from the
Beldoch acquisition, and is classified as an intangible asset with an indefinite
life on the Company's September 30, 2002 Consolidated Balance Sheet.
Actual results of operations for the three-month and nine-month periods
ended September 30, 2002 and pro forma results of operations for the comparable
periods ended September 30, 2001 had the Company applied the non-amortization
provisions of SFAS No. 142 in that period follows (in thousands, except per
share amounts):
7
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Income before accounting change $ 1,574 $ 1,103 $ 1,586 $ 28
Add: Amortization of goodwill and intangibles -- 372 -- 1,117
-------- -------- -------- --------
Adjusted income before accounting change 1,574 1,475 1,586 1,145
Cumulative effect of accounting change -- -- 28,774 --
-------- -------- -------- --------
Adjusted net income (loss) $ 1,574 $ 1,475 $(27,158) $ 1,145
======== ======== ======== ========
Basic and diluted net income (loss) per share:
Income before accounting change $ 0.36 $ 0.25 $ 0.36 $ 0.01
Add: Amortization of goodwill and intangibles -- 0.09 -- 0.25
-------- -------- -------- --------
Adjusted income before accounting change 0.36 0.34 0.36 0.26
Cumulative effect of accounting change -- -- (6.58) --
-------- -------- -------- --------
Adjusted net income (loss) $ 0.36 $ 0.34 $ (6.22) $ 0.26
======== ======== ======== ========
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement requires that
the fair value of a liability for an asset retirement obligation would be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. This Statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
Early adoption is encouraged. Adoption of SFAS No. 143 on January 1, 2002 did
not have an impact on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets. This Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. Adoption of SFAS No. 144 on January
1, 2002 did not have an impact on the Company's consolidated financial
statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections
("SFAS No. 145"). SFAS No. 145 rescinds the provisions of SFAS No. 4 that
require companies to classify certain gains and losses from debt extinguishments
as extraordinary items, eliminates the provisions of SFAS No. 44 regarding the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment is
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The adoption of SFAS No. 145 will not have a material impact, if
any, in the reported financial position or results of operation of the Company.
8
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This Statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact, if any, of SFAS No. 146 on its consolidated financial
statements.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On April 27, 1998, Wanda King, a former employee of the Company, commenced
an action against the Company in the United States District Court for the
Western District of Virginia. In her complaint, the Plaintiff sought damages in
excess of $8.0 million claiming that she was constructively discharged by the
Company. The Company interposed an Answer to the amended Complaint denying the
material allegations asserted in the Complaint and brought a motion for summary
judgment to dismiss the case. On October 22, 2001, the Magistrate Judge, after
considering the Motion for Summary Judgment, recommended to the United States
District Court that the case against the Company be dismissed in its entirety.
The Plaintiff objected to the recommendation of the Magistrate Judge. By Order
dated February 25, 2002, the United States District Judge granted the Company's
motion for summary judgment and the case was dismissed. The Plaintiff has
appealed this dismissal to the United States Court of Appeals for the Fourth
Circuit.
The Company is also a party to legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse effect on
financial condition, results of operations, liquidity or business of the
Company.
9
DONNKENNY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 2002 and 2001
Net sales decreased by $34.6 million, or 30.9% from $112.1 million in the
first nine months of 2001 to $77.5 million in the first nine months of 2002. The
decline was primarily due to the Company's discontinuation of the Decade dress
business, the de-emphasis and consolidation of Pierre Cardin Options into Pierre
Cardin Knits, the Company's decision to exit the career private label business
and the continuing slow retail environment, which caused a drop in the Company's
core businesses.
Gross profit for the first nine months of 2002 was $19.5 million, or 25.2%
of net sales, compared to $25.7 million, or 22.9% of net sales, during the first
nine months of 2001. The increase in gross profit as a percentage of net sales
was primarily attributable to decreases in the levels and sales of non-current
inventory and the continued effort to improve sourcing.
Selling, general and administrative expenses decreased $4.6 million from
$20.8 million in the first nine months of 2001 to $16.2 million in the first
nine months of 2002. The decrease in selling, general and administrative
expenses was primarily due to reductions in headcount and reductions in
distribution, sales, design and product-related expenses.
As a result of the Company's adoption of SFAS No. 142 there was no
amortization of goodwill and other related acquisitions costs for the first nine
months of 2002 as compared to $1.1 million in 2001 (see Recent Accounting
Pronouncements).
Net interest expense decreased from $3.7 million during the first nine
months of 2001 to $1.6 million during the first nine months of 2002. The
decrease was attributable to lower revolving credit borrowings under the loan
agreement in addition to lower interest rates.
In the first quarter of 2002, the Company recorded an impairment charge
related to goodwill and intangible assets of $28.7 million as a change in
accounting principle upon the adoption of SFAS No. 142 (See Notes 4 and 5 to the
consolidated financial statements).
Comparison of Quarters Ended September 30, 2002 and 2001
Net sales decreased by $13.5 million, or 30.6 % from $44.2 million in the
third quarter of 2001 to $30.7 million in the third quarter 2002. The decline
was primarily due to the de-emphasis and consolidation of Pierre Cardin Options
into Pierre Cardin Knits, the discontinuance of a significant cashmere sweater
program, competitive price reductions and the continuing slow retail
environment, which caused a drop in the Company's core businesses.
Gross profit for the third quarter of 2002 was $7.9 million, or 25.9% of
net sales, compared to $10.3 million, or 23.3 % of net sales, during the third
quarter of 2001. The increase in gross profit in dollars and as a percent of
sales was primarily due to decreases in the levels and sales of non-current
inventory and the continued effort to improve sourcing.
10
Selling, general and administrative expenses decreased $1.7 million from
$7.5 million in the third quarter of 2001 to $5.8 million in the third quarter
of 2002. The decrease in selling, general and administrative expenses was
primarily due to reductions in headcount and reductions in distribution, sales
and product-related expenses.
Net interest expense decreased from $1.2 million during the third quarter
of 2001 to $0.5 million during the third quarter of 2002. The decrease was
attributable to lower revolving credit borrowings under the loan agreement in
addition to lower interest rates.
Liquidity and Capital Resources
The Company's liquidity requirements arise from the funding of working
capital needs, primarily inventory and accounts receivable, and interest and
principal payments related to certain indebtedness and capital expenditures. The
Company's borrowing requirements for working capital fluctuate throughout the
year.
On June 29, 1999, the Company and its operating subsidiaries signed a
three-year credit agreement (the "Credit Agreement") with CIT Group/Commercial
Services. The Credit Agreement provides the Company with a $75 million facility
comprised of a $72 million revolver with sublimits up to $52 million for direct
borrowings, $35 million for letters of credit, certain overadvances and a $3
million term loan, which was paid in full as of June 30, 2002.
The Credit Agreement provides for advances of (i) up to 90% of eligible
accounts receivable plus (ii) up to 60% of eligible inventory plus (iii) up to
60% of the undrawn amount of all outstanding letters of credit plus (iv)
allowable overadvances. The Credit Agreement as amended expires on June 30,
2004.
Collateral for the Credit Agreement includes a first priority lien on all
accounts receivable, machinery, equipment, trademarks, intangibles and
inventory, a first mortgage on all real property and a pledge of the Company's
stock interest in its operating subsidiaries: Donnkenny Apparel, Inc. and
Beldoch Industries Corporation.
The Credit Agreement contains numerous financial and operational covenants,
including limitations on additional indebtedness, liens, dividends, stock
repurchases and capital expenditures. In addition, the Company is required to
maintain specified levels of tangible net worth and comply with minimum earnings
before depreciation, amortization, interest and taxes (EBITDA) and a minimum
interest coverage ratio, based upon the annual business plan approved by the
lender.
During Fiscal 1999 and Fiscal 2000, the Company entered into various
amendments and agreements to waive the Company's non-compliance with financial
covenants on certain dates and to reset overadvanced amounts and covenants.
These amendments and agreements also increased the interest rate on borrowings.
On July 6, 2000, the Company entered into an Amendment to finance the
acquisition of the Ann Travis business by the issuance of an additional $1.3
million term loan. The new term loan bears interest at the prime rate plus 2.0%
(6.75% at September 30, 2002) and is repayable over thirty-six months commencing
January 1, 2001. A fee of $100,000 was paid for the Amendment.
11
On March 28, 2001, the Company entered into an Amendment and Waiver
Agreement to extend the Final Maturity Date of the original agreement to June
30, 2004, to waive existing events of default under the Credit Agreement as of
December 31, 2000 with respect to the Company's non-compliance with covenants
related to minimum interest coverage, EBITDA and Tangible Net Worth, and to
amend certain other provisions of the Credit Agreement including covenants and
the level of allowable overadvances to support the Company's 2001 business plan.
Pursuant to this amendment, the interest rate on borrowings was increased to
2.0% above the prime rate effective January 1, 2001. A fee of $200,000 was paid
in connection with this Amendment and Waiver.
Effective January 1, 2002, the Company established covenants and the level
of allowable overadvances with the lender to support its 2002 business plan.
This Amendment and Waiver Agreement also amended the interest rate on the
revolving credit borrowings to the prime rate plus one and three-quarters
percent and provided for an additional interest rate reduction effective July 1,
2002 if certain objectives were achieved. No fee was paid in connection with
this Amendment and Waiver. The Company has achieved the objectives and received
an additional rate reduction effective July 1, 2002. The interest rate on the
revolving credit borrowings is now prime plus one and one-half percent (6.25% at
September 30, 2002).
On June 30, 2002, the Company made the final payment on the $3 million term
loan in accordance with the terms of the Credit Agreement. Direct borrowings
under the revolving credit facility were $30.0 million and the remaining
acquisition term loan amounted to $0.5 million as of September 30, 2002.
Additionally, the Company had letters of credit outstanding of $10.2 million,
with an unused facility of $34.8 million. As of September 30, 2001, direct
borrowings, term loans and letters of credit outstanding under the credit
facility were $48.1 million, $1.7 million and $13.5 million, respectively.
The Company also has a factoring agreement with CIT. The factoring
agreement provides for a factoring commission equal to .35% of gross sales, plus
certain customary charges. The agreement is in effect through December 31, 2003.
During the first nine months of 2002, cash provided by operating activities
was $5.6 million, principally as the result of decreases in accounts receivable
and prepaid expenses and increases in accounts payable partially offset by
increases in inventories and decreases in accrued expenses. On a comparable
basis, inventories at September 30, 2002 were $7.0 million less than September
30, 2001. During the first nine months of 2001, the Company's operating
activities used cash of $6.5 million, principally as a result of increases in
inventory and accounts receivable partially offset by increases in accounts
payable.
Cash used in investing activities during the first nine months of 2002
included $0.5 million for the purchase of fixed assets, principally computer
equipment and related software, partially offset by $0.1 million from the sale
of fixed assets. Cash used in investing activities during the first nine months
of 2001 included $1.1 million, primarily relating to the upgrades in the
Company's computer system.
Cash used in financing activities during the first nine months of 2002 was
$5.3 million, which represents net repayments under the revolver of $4.4 million
and repayments of $0.8 million of the term loan. Cash provided by financing
activities during the first nine months of 2001 was $7.6 million, which
represents net borrowings under the revolver of $8.8 million and repayments of
$1.2 million of the term loan and a secured term loan.
12
The Company believes that cash flows from operations and amounts available
under the revolving credit agreement will be sufficient for its needs for the
foreseeable future.
Seasonality of Business and Fashion Risk
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Summer, Transition, Fall and
Holiday Seasons. Typically, the Company's products are designed as much as one
year in advance and manufactured approximately one season in advance of the
related retail selling season. Accordingly, the success of the Company's
products is often dependent on the ability to successfully anticipate the needs
of retail customers and the tastes of the ultimate consumer up to a year prior
to the relevant selling season.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
No. 17, "Intangible Assets". It changes the accounting for goodwill from an
amortization method to an impairment-only approach. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized in an entity's statement of financial position at
that date, regardless of when those assets were initially recognized. The
Company ceased the amortization of goodwill, which was recorded in past business
combinations on December 31, 2001 as required by SFAS No. 142 and recorded an
impairment charge of $28.7 million related to goodwill and intangible assets as
a change in accounting principle upon the adoption of this statement (See Note 4
to the consolidated financial statements).
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Early adoption is encouraged. Adoption of SFAS No. 143 on January 1, 2002 did
not have an impact on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and provides updated
guidance concerning the recognition and measurement of an impairment loss for
certain types of long-lived assets. This Statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. Adoption of SFAS No. 144 on January
1, 2002 did not have an impact on the Company's consolidated financial
statements.
13
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145"). SFAS No. 145 rescinds the provisions of SFAS No. 4 that
require companies to classify certain gains and losses from debt extinguishments
as extraordinary items, eliminates the provisions of SFAS No. 44 regarding the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS No. 145 related to classification of debt extinguishment are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The adoption of SFAS No. 145 is not-expected to have a material
impact, if any, in the reported financial position or results of operation of
the Company.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. This Statement also
established that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company is currently
evaluating the impact, if any, of SFAS No. 146 on its consolidated financial
statements.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are more fully described in
Note 1 to the annual consolidated financial statements. Certain of the Company's
accounting policies require the application of significant judgment by
management in selecting the appropriate assumptions for calculating financial
estimates. By their nature, these judgments are subject to an inherent degree of
uncertainty. These judgments are based on historical experience, observation of
trends in the industry, information provided by customers and information
available from other outside sources, as appropriate. Significant accounting
policies include:
Revenue Recognition - The Company recognizes sales upon shipment of
products. Provisions for estimated uncollectible accounts, discounts and returns
and allowances are provided when sales are recorded based upon historical
experience and current trends. While such amounts have been within expectations
and the provisions established, the Company cannot guarantee that it will
continue to experience the same rates as in the past.
Inventories - Inventory is stated at the lower of cost or market, cost
being determined on the first-in, first-out method. Reserves for slow moving and
aged merchandise are provided based on historical experience and current product
demand. The Company evaluates the adequacy of the reserves quarterly. While
markdowns have been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same level of
markdowns as in the past.
Valuation of Long-Lived Assets - The Company periodically reviews the
carrying value of its long-lived assets for continued appropriateness. This
review is based upon projections of anticipated future undiscounted cash flows.
While the Company believes that its estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect evaluations.
14
Income Taxes - The Company has cumulative net operating loss (NOL)
carry-forwards of $19.7 million for federal income taxes and $30.8 million for
state income taxes, which have generated estimated tax benefits of $8.1 million
as of December 31, 2001. In accordance with generally accepted accounting
principles, the Company has not recognized in income any of this tax benefit due
to the size of the NOL carry-forward and the Company's history of unprofitable
operations. However, should the Company conclude that future profitability is
assured, the estimated net realizable value of the deferred tax asset would be
partially or fully credited to net income. Subsequent revisions to the estimated
net realizable value of the deferred tax asset could cause the Company's
provision for income taxes to vary from period to period. The provision for
income taxes primarily consists of state and local income taxes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk - The Company is subject to market risk from exposure to
changes in interest rates based primarily on its financing activities. The
market risk inherent in the financial instruments represents the potential loss
in earnings or cash flows arising from adverse changes in interest rates. These
debt obligations with interest rates tied to the prime rate are described in
"Liquidity and Capital Resources", as well as Note 3 of the Notes to the
Consolidated Financial Statements. The Company manages these exposures through
regular operating and financing activities. The Company has not entered into any
derivative financial instruments for hedging or other purposes. The following
quantitative disclosures are based on the prevailing prime rate. These
quantitative disclosures do not represent the maximum possible loss or any
expected loss that may occur, since actual results may differ from these
estimates.
At September 30, 2002 and 2001, the carrying amounts of the Company's
revolving credit borrowings and term loans approximated fair value. Effective
July 1, 2002, the Company's revolving credit borrowings under its Credit
Agreement bear interest at the prime rate plus one and one-half percent (6.25 %
at September 30, 2002). The Company's acquisition term loan bears interest at
the prime rate plus two percent (6.75% at September 30, 2002). As of September
30, 2002, a hypothetical immediate 10% adverse change in prime interest rates (
from 4.75 % to 5.23 %) relating to the Company's revolving credit borrowings and
term loan would have a $0.1 million unfavorable impact on the Company's earnings
and cash flows over a one-year period.
Item 4. Controls and Procedures
Based on the evaluation of the Company's disclosure controls and procedures
as of a date within 90 days of the filing date of this quarterly report, each of
Daniel H. Levy, the Chief Executive Officer of the Company, and Maureen d.
Schimmenti, the Chief Financial Officer of the Company, has concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, is
properly recorded and reported.
There were no significant changes in the Company's internal controls or in
other factors that could materially affect these controls subsequent to the date
of their evaluation, including any corrective actions with regard to
deficiencies and weaknesses.
15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 27, 1998, Wanda King, a former employee of the Company, commenced
an action against the Company in the United States District Court for the
Western District of Virginia. In her complaint, the Plaintiff sought damages in
excess of $8.0 million claiming that she was constructively discharged by the
Company. The Company interposed an Answer to the amended Complaint denying the
material allegations asserted in the Complaint and brought a motion for summary
judgment to dismiss the case. On October 22, 2001, the Magistrate Judge, after
considering the Motion for Summary Judgment, recommended to the United States
District Court that the case against the Company be dismissed in its entirety.
The Plaintiff objected to the recommendation of the Magistrate Judge. By Order
dated February 25, 2002, the United States District Judge granted the Company's
motion for summary judgment and the case was dismissed. The Plaintiff has
appealed this dismissal to the United States Court of Appeals for the Fourth
Circuit.
The Company is also a party to legal proceedings arising in the ordinary
course of its business. Management believes that the ultimate resolution of
these proceedings will not, in the aggregate, have a material adverse effect on
financial condition, results of operations, liquidity or business of the
Company.
ITEM 2. Not Applicable
ITEM 3. Not Applicable
ITEM 4. Not Applicable
ITEM 5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
None
16
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.
Donnkenny, Inc.
Registrant
Date: ___________, 2002 /s/ Daniel H. Levy
------------------------------
Daniel H. Levy
Chairman of the Board,
Chief Executive Officer
Date: ___________, 2002 /s/ Maureen d. Schimmenti
-----------------------------
Maureen d. Schimmenti
Vice President
and Chief Financial Officer,
(Principal Financial Officer)
17
CERTIFICATION
I, Daniel H. Levy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Donnkenny, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers/employees and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers/employees and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the
audit committee of the Company's board of directors (or persons performing
the equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the Company's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers/employees and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: ___________, 2002 /s/ Daniel H. Levy
------------------------------------
Daniel H. Levy
Chairman of the Board,
Chief Executive Officer
18
CERTIFICATION
I, Maureen d. Schimmenti, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Donnkenny, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
4. The Company's other certifying officers/employees and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers/employees and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the
audit committee of Company's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers/employees and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: ___________, 2002 /s/ Maureen d. Schimmenti
--------------------------------
Maureen d. Schimmenti
Vice President
and Chief Financial Officer,
(Principal Financial Officer)
19
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Donnkenny Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel
H. Levy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report Fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Daniel H. Levy
Daniel H. Levy
Chief Executive Officer
November ____, 2002
20
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Donnkenny Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Maureen
d. Schimmenti, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report Fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Maureen d. Schimmenti
Maureen d. Schimmenti
Chief Financial Officer
November _____, 2002
21