SHAREHOLDER SUING DONNA KARAN OVER DESIGNER HOLDINGS PAYMENTS

Byline: Vicki M. Young

NEW YORK — A shareholder has sued Donna Karan International and four executives over the handling of a payment received from Designer Holdings Inc. for a now-terminated licensing deal for DKNY jeans.
The suit charges the defendants with improper accounting treatment of the payment, which lifted earnings and artificially inflated Donna Karan’s stock price.
DKI’s results for the third quarter ended last Sept. 29 included a $6 million payment for design and start-up costs under the Designer Holdings agreement, the suit points out, and the payment increased pro forma net income by 16.3 percent to $13 million. Without that payment, the suit says, net income would have been down 14.2 percent to $9.6 million. The suit contends that under generally accepted accounting principles, that $6 million should have been amortized over the 30-year life of the license agreement.
Hyman Steinmetz, who bought 1,000 shares of DKI stock on Nov. 15, 1996, at 15 1/2, filed the suit in Brooklyn federal court seeking unspecified damages. He also is seeking class action status for the suit on behalf of shareholders who purchased DKI stock from Sept. 30, 1996, through March 5, 1997. The stock closed Monday at 10 3/8, down 3/8.
When the licensing deal collapsed this year, the $6 million payment was returned to Designer Holdings Inc. and, as the suit points out, the company subsequently amended its figures for the third quarter to reflect the refund to Designer Holdings.
Responding to the suit, the company issued a statement Monday that, based on information to date, “management does not believe that the outcome of the action will have a material adverse effect on the results of operations and financial condition of the company.”
The four executives named as defendants are Donna Karan, chairman and chief executive officer; her husband Stephan Weiss, vice chairman and board member; Stephen L. Ruzow, president, chief operating officer and board member, and Joseph B. Parsons, vice president and chief financial officer.

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