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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 January 31, 1994
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 1-7340
KELLWOOD COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2472410
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
600 KELLWOOD PARKWAY, P.O. BOX 14374, ST. LOUIS, MO 63178
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 576-3100
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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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Number of shares of common stock, par value $.01, outstanding at
January 31, 1994 (only one class): 13,943,181
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KELLWOOD COMPANY
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INDEX
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<TABLE>
<CAPTION>
Page No.
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<C> <S> <C>
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Earnings 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
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(Amounts in thousands)
<CAPTION>
January 31
-------------------------- April 30,
1994 1993 1993
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
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Current assets:
Cash and time deposits $ 19,946 $ 39,181 $ 39,178
Receivables, net 144,814 137,159 178,621
Inventories 196,957 210,660 192,432
Prepaid taxes and expenses 17,000 19,998 15,597
-------- -------- --------
Total Current Assets 378,717 406,998 425,828
Property, plant and equipment, net 67,550 66,514 68,259
Intangible assets, net 105,915 88,946 96,036
Other assets 51,466 45,601 46,332
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$ 603,648 $ 608,059 $ 636,455
========= ========= =========
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 8,955 $ 7,666 $ 7,576
Notes payable 227 81,880 93,309
Accounts payable 48,890 62,859 63,527
Accrued expenses 64,419 59,278 63,898
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Total current liabilities 122,491 211,683 228,310
Long-term debt 154,503 103,578 102,923
Deferred income taxes and other 28,798 20,644 25,362
Shareowners' equity:
Common stock 90,028 85,668 85,851
Retained earnings 246,940 223,548 231,145
Cumulative translation adjustment (8,997) (8,826) (8,882)
--------- --------- ---------
327,971 300,390 308,114
Less treasury stock, at cost (30,115) (28,236) (28,254)
--------- --------- ---------
Total shareowners' equity 297,856 272,154 279,860
--------- --------- ---------
$ 603,648 $ 608,059 $ 636,455
========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
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(Amounts in thousands except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------------ -----------------------------
1994 1993 1994 1993
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 251,600 $ 235,893 $ 892,138 $ 768,654
Costs and expenses:
Cost of products sold 200,650 192,734 706,674 622,589
Selling, general and
administrative expenses 38,855 33,405 126,276 101,425
Amortization of intangible
assets 3,051 2,445 9,583 6,668
Gain on disposal of assets - - (3,047) (3,391)
Interest expense 3,626 3,344 11,841 9,818
Interest income and other, net (741) (507) (1,512) (1,795)
-------- -------- -------- --------
Earnings before income taxes 6,159 4,472 42,323 33,340
Income taxes 2,650 2,003 18,200 15,003
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Net earnings $ 3,509 $ 2,469 $ 24,123 $ 18,337
======== ======== ========= ========
Weighted average shares
outstanding:
Primary 13,932 13,781 13,881 13,759
======== ======== ========= ========
Fully diluted 14,245 14,074 14,202 14,055
======== ======== ========= ========
Earnings per share:
Primary $ .25 $ .18 $ 1.74 $ 1.33
======== ======== ========= ========
Fully diluted $ .25 $ .18 $ 1.70 $ 1.31
======== ======== ========= ========
Dividends paid per share $ .20 $ .20 $ .60 $ .60
======== ======== ========= ========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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(Amounts in thousands)
<CAPTION>
Nine Months Ended
January 31,
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1994 1993
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<S> <C> <C>
Operating activities:
Net earnings $ 24,123 $ 18,337
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 18,832 15,145
Increase in prepaid pension cost (5,223) (5,175)
Gain on disposal of assets, net of write-offs (3,047) (3,391)
Deferred taxes and other 996 309
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35,681 25,225
Changes in noncash working capital components,
net of effect of acquisition:
Receivables 42,057 2,323
Inventories 6,479 (20,268)
Prepaid expenses (1,247) (4,584)
Accounts payable (16,853) (14,484)
Accrued expenses (14) 722
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Net cash provided by (used for)
operating activities 66,103 (11,066)
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Investing activities:
Additions to property, plant and equipment (8,570) (10,886)
Proceeds from disposal of assets 3,047 4,692
Investment in subsidiaries (23,350) (36,333)
Other investing activities 763 430
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Net cash (used for) investing activities (28,110) (42,097)
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Financing activities:
(Reduction of) proceeds from notes payable, net (104,172) 66,690
Proceeds from issuance of long-term debt 60,000 -
Reduction of long-term debt (7,041) (8,906)
Dividends paid (8,328) (8,259)
Stock transactions under incentive plans 2,316 2,030
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Net cash (used for) provided by
financing activities (57,225) 51,555
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Net (decrease) in cash and time deposits (19,232) (1,608)
Cash and time deposits - beginning of period 39,178 40,789
-------- --------
Cash and time deposits - end of period $ 19,946 $ 39,181
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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KELLWOOD COMPANY AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Amounts in thousands except per share data)
1. It is the opinion of management that all adjustments necessary for a
fair statement of results for the interim periods have been reflected in
the statements presented. Such adjustments were normal and recurring in
nature.
Accounting policies have been continued without change and are described
in the Summary of Significant Accounting Policies contained in the
Company's 1993 Annual Report to Shareowners. For additional information
regarding the Company's financial condition, refer to the footnotes
accompanying the annual financial statements. Details in those notes
have not changed significantly except as a result of normal transactions
in the interim.
<TABLE>
2. Total inventory consisted of:
<CAPTION>
January 31, January 31, April 30,
1994 1993 1993
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<S> <C> <C> <C>
Finished goods $ 88,917 $ 103,266 $ 82,160
Work in process 45,873 45,201 48,966
Raw materials 62,167 62,193 61,306
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$ 196,957 $ 210,660 $ 192,432
</TABLE>
If inventories were valued at current replacement costs, they
would have totalled $207,326, $221,675 and $201,426 at January 31,
1994, January 31, 1993, and April 30, 1993, respectively.
3. All of the capital stock of Goodman Knitting Co., Inc., A. J.
Brandon, Inc., and California Ivy, Inc. was purchased for cash on
July 1, 1993, December 30, 1992, and July 10, 1992, respectively.
All three companies design and market branded apparel. These
acquisitions were accounted for using the purchase method and,
accordingly, the results of operations are included in the
consolidated statement of earnings from the dates of acquisition.
Assets acquired and liabilities assumed were recorded at their
estimated fair value, and the excess costs over net tangible
assets are being amortized over the estimated useful lives of the
related intangible assets. Had the purchases taken place May 1,
1992, unaudited pro forma consolidated net sales would have been
$251,600 and $246,217 for the three months ended January 31, 1994
and 1993, and $899,890 and $871,488 for the nine months ended
January 31, 1994 and 1993, respectively. Consolidated net
earnings and earnings per share would not have been significantly
different.
4. The gain on disposal of assets resulted from the sale of certain
excess export quota rights.
5. A revolving credit agreement with five banks, dated July 1, 1991,
provides a $60,000 line of credit through July 1, 1994 with
interest at the interbank rate plus 5/8% to 3/4% and a fee of
3/10% on any unused portion. At January 31, 1994, the entire
$60,000 facility was available for future borrowings. Covenants
are substantially the same as for Kellwood's notes due insurance
companies.
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KELLWOOD COMPANY AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Amounts in thousands except per share data)
(Continued)
6. In July, 1993, Kellwood negotiated a $60 million private placement
of long-term borrowing. On September 1, 1993, $25,000 of long-
term notes were funded with one insurance company as follows:
Series B, 6.90%, $5,000 note due September 1, 2001; Series E,
6.90%, $20,000 note due September 1, 2005. On December 1, 1993,
the remaining $35,000 of long-term notes were funded with three
insurance companies as follows: Series A, 5.34%, $5,000 note due
December 1, 1996; Series C, 7.08% note totalling $10,000, due
December 1, 2002; Series D, 7.30% note totalling $20,000, due
December 1, 2003.
7. As required under Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", the Company
recorded a charge to the provision for income taxes in the quarter
ended October 31, 1993 to reflect the retroactive impact of the
U.S. federal tax law enacted on August 10, 1993. The tax rate
change had an insignificant effect on the Company's financial
position and results of operations.
8. On February 24, 1994, the Board of Directors approved a three-for-
two split of the Company's common stock. Shareowners of record on
March 7, 1994, will be issued the additional shares on March 18,
1994. The Directors also declared a regular quarterly dividend,
raising it from $.20 to $.225 per common share. The dividend is
payable March 18, 1994 to shareowners of record on March 7, 1994.
Payment of this quarterly dividend will be on the basis of the
shares outstanding prior to the stock split. No effect has been
given in the accompanying financial statements to the stock split
nor the stock dividend.
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KELLWOOD COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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OPERATING RESULTS
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Sales levels for both the quarter and nine months ended January 31, 1994
set a new record for third quarter and nine month periods. Despite a
mixed retail environment, product offerings from Kellwood's business
units continue to perform well. As a result, operating results for both
the quarter and the nine month period were also very strong,
particularly in the Domestic branded portfolio.
Sales by Domestic branded operations increased 21% for the quarter and
39% for the nine month period. The increase in branded sales is
approximately 60% attributable to recent acquisitions with the remaining
40% from internal growth of existing business units. Sales from the
branded portfolio accounted for 64% of Kellwood's total volume for the
current nine month period compared to 54% for the same period last year.
The growth in the Domestic branded operations with their overall higher
margins contributed significantly to the improvement in total Company
earnings.
Sales by Domestic private label operations decreased 20% for the quarter
and 14% for the nine month period due principally to Sears' decision to
close its catalog operation. Operating profits in the Domestic private
label portfolio were adversely impacted by the decline in sales and
because of continuing margin pressure in the private label market.
Sales by Far East operations, principally of high quality private label
shirts sold to U.S. department stores and premier mail order houses,
increased 11% for the quarter but were down 3% for the nine month
period. The fluctuation in sales was caused by changes in capacity as
production was shifted among plants. This shifting of production
resulted in improved operating margins for the nine month period as
compared to the same period last year.
Kellwood generally sells its products prior to the principal retail
selling seasons including spring, summer, fall and holiday. Sales and
earnings for the third quarter, ending January 31, have historically
been lower than other quarters of the fiscal year since the last half of
the third quarter falls between the peak periods for the holiday and
spring selling seasons.
Results for the nine months reflect fiscal 1994 and fiscal 1993 gains in
the disposal of certain excess export quota rights of $3,047 and $3,391,
respectively. Additional quota disposals which would result in gains,
are continually evaluated based upon operating needs and market
conditions. Quota market prices for the categories held by Kellwood
have dropped substantially since the first quarter of fiscal 1994.
The increase in amortization expense results from increased intangible
assets associated with recent acquisitions. The increase in interest
expense correlates with the increase in average outstanding debt. The
decrease in the effective tax rate is due to changes in the earnings
mix.
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KELLWOOD COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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(Continued)
FINANCIAL CONDITION
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The current ratio was 3.1 to 1 at January 31, 1994 as compared to 1.9 to
1 at April 30, 1993. Accounts receivable and inventory levels,
especially after netting for the effects of recent acquisitions, are at
very satisfactory levels. The improved net accounts receivable and
inventory levels contributed significantly to the increase in cash
provided by operating activities.
The decrease in the cash used for investing activities primarily
resulted from the completion of only one acquisition (Goodman Knitting
Co.) during the nine months ended January 31, 1994 versus two
acquisitions (A. J. Brandon, Inc. and California Ivy, Inc.) during the
same period last year. Viable acquisition candidates to expand and
complement Kellwood's existing portfolio of companies are continually
being considered.
Total debt represents 35% of capitalization at January 31, 1994 as
compared to 42% at April 30, 1993 and January 31, 1993. During the nine
months ended January 31, 1994 Kellwood converted $60 million of its
short-term borrowings to long-term debt. The remaining short-term
borrowings were repaid with cash generated from operations.
Cash provided by operations and borrowings under various lines of credit
are the primary sources of liquidity. The combined operating, cash and
equity position of the Company should continue to provide the capital
flexibility necessary to fund future opportunities as well as to meet
existing obligations.
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PART II. OTHER INFORMATION
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KELLWOOD COMPANY
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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a) EXHIBITS: NONE
b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended
January 31, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be duly signed on its behalf
by the undersigned thereunto duly authorized.
KELLWOOD COMPANY
March 4, 1994 /s/ Thomas H. Pollihan
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Thomas H. Pollihan
Vice President, Secretary and
General Counsel
March 4, 1994 /s/ James C. Jacobsen
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James C. Jacobsen
Executive Vice President Administration
(Chief Financial Officer)
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