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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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
October 31, 1994 (only one class): 21,094,145
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KELLWOOD COMPANY
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INDEX
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Page No.
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
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<TABLE>
PART I. FINANCIAL INFORMATION
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
----------------------
<CAPTION>
October 31,
------------------ April 30,
1994 1993 1994
ASSETS -------- -------- --------
- ------
<S> <C> <C> <C>
Current assets:
Cash and time deposits $ 14,494 $ 14,738 $ 17,666
Receivables, net 248,977 194,608 180,724
Inventories 216,579 179,950 196,017
Prepaid taxes and expenses 21,498 17,850 18,650
-------- -------- --------
Total Current Assets 501,548 407,146 413,057
Property, plant and equipment, net 73,100 67,489 67,975
Intangible assets, net 136,586 108,506 107,692
Other assets 57,147 49,028 53,133
-------- -------- --------
$ 768,381 $ 632,169 $ 641,857
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 9,462 $ 7,061 $ 8,916
Notes payable 100,331 55,953 9,010
Accounts payable 83,876 57,326 63,238
Accrued expenses 62,526 61,938 69,487
-------- -------- --------
Total current liabilities 256,195 182,278 150,651
Long-term debt 148,710 124,238 153,014
Deferred income taxes and other 38,806 28,767 31,236
Shareowners' equity:
Common stock 92,964 88,892 90,657
Retained earnings 270,799 246,217 255,290
Cumulative translation adjustment (8,958) (8,929) (8,926)
-------- -------- --------
354,805 326,180 337,021
Less treasury stock, at cost (30,135) (29,294) (30,065)
-------- -------- --------
Total shareowners' equity 324,670 296,886 306,956
-------- -------- --------
$ 768,381 $ 632,169 $ 641,857
======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
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(Amounts in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------- --------------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $376,024 $342,058 $676,961 $640,538
Costs and expenses:
Cost of products sold 300,609 269,873 535,227 506,024
Selling, general and
administrative expenses 49,358 45,893 91,332 87,421
Amortization of intangible
assets 3,649 3,462 6,859 6,532
Gain on disposal of assets - - (104) (3,047)
Interest expense 4,465 4,253 8,382 8,215
Interest income and other, net (974) (209) (1,763) (771)
------- ------- ------- -------
Earnings before income taxes 18,917 18,786 37,028 36,164
Income taxes 7,800 8,080 15,200 15,550
------- ------- ------- -------
Net earnings $ 11,117 $ 10,706 $ 21,828 $ 20,614
======= ======= ======= =======
Weighted average shares
outstanding:
Primary 21,081 20,819 21,051 20,786
======= ======= ======= =======
Fully diluted 21,515 21,348 21,491 21,317
======= ======= ======= =======
Earnings per share:
Primary $ .53 $ .51 $ 1.04 $ .99
======= ======= ======= =======
Fully diluted $ .52 $ .50 $ 1.02 $ .97
======= ======= ======= =======
Dividends paid per share $ .15 $ .13 $ .30 $ .27
======= ======= ======= =======
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>
Six Months Ended
October 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 21,828 $ 20,614
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 13,156 12,780
Increase in prepaid pension cost (3,698) (3,482)
Gain on disposal of assets, net of write-offs (104) (3,047)
Deferred taxes and other (480) 1,595
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30,702 28,460
Changes in noncash working capital components,
net of effect of acquisitions:
Receivables (36,829) (7,499)
Inventories 851 23,381
Prepaid expenses (1,863) (2,098)
Accounts payable 12,684 (8,149)
Accrued expenses (11,615) (2,452)
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Net cash (used for) provided by
operating activities (6,070) 31,643
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Investing activities:
Additions to property, plant and equipment (5,208) (5,535)
Proceeds from disposal of assets 104 3,047
Investment in subsidiaries (46,081) (23,000)
Other investing activities 223 592
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Net cash (used for) investing activities (50,962) (24,896)
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Financing activities:
Proceeds from (reduction of) notes payable, net 61,700 (48,446)
Proceeds from issuance of long-term debt - 25,000
Reduction of long-term debt (3,758) (4,200)
Dividends paid (6,319) (5,542)
Stock transactions under incentive plans 2,237 2,001
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Net cash provided by (used for)
financing activities 53,860 (31,187)
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Net (decrease) in cash and time deposits (3,172) (24,440)
Cash and time deposits - beginning of period 17,666 39,178
------- -------
Cash and time deposits - end of period $ 14,494 $ 14,738
======= =======
See notes to condensed consolidated financial statements.
</TABLE>
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
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 1994 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.
2. Total inventory consisted of:
<TABLE>
<CAPTION>
October 31,
------------------- April 30,
1994 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Finished goods $ 85,683 $ 73,793 $ 81,998
Work in process 58,694 45,457 46,896
Raw materials 72,202 60,700 67,123
-------- -------- --------
$ 216,579 $ 179,950 $ 196,017
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</TABLE>
If inventories were valued at current replacement costs, they
would have totalled $226,500, $190,194 and $205,188 at
October 31, 1994, October 31, 1993, and April 30, 1994,
respectively.
3. All of the capital stock of Goodman Knitting Co., Inc., a
designer and marketer of branded apparel, and Halmode Apparel,
Inc., a multi-divisional women's apparel maker, was purchased
for cash on July 1, 1993, and September 30, 1994,
respectively. 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, 1993, unaudited pro forma
consolidated net sales would have been $405,498 and $380,235
for the three months ended October 31, 1994 and 1993, and
$738,473 and $707,392 for the six months ended October 31,
1994 and 1993, respectively. Consolidated net earnings and
earnings per share would not have been significantly
different.
4. Intangible assets consisted of:
<TABLE>
<CAPTION>
October 31,
------------------- April 30,
1994 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Goodwill $ 96,799 $ 67,971 $ 73,373
Other identifiable intangibles 106,545 94,153 94,218
-------- -------- --------
203,344 162,124 167,591
Less accumulated amortization 66,758 53,618 59,899
-------- -------- --------
$ 136,586 $ 108,506 $ 107,692
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Amounts in thousands except per share data)
(Continued)
5. The gain on disposal of assets resulted from the sale of
certain excess export quota rights.
6. Revolving credit agreements dated June 24, 1994, and totalling
$120,000 expire June 23, 1995 ($50,000), and June 24, 1997
($70,000). Each borrowing under the agreements bears interest
at one of several specified rates dependent upon several
factors including the Company's leverage ratio, senior debt
rating and the applicable eurodollar margin. Facility fees
can range from .1% to .25% of the committed amount
outstanding. At October 31, 1994, $90,000 was available for
future borrowings. Covenants are more flexible than those
currently existing for Kellwood's notes due insurance
companies.
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS
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Sales and net earnings reached record levels for both the quarter
and the six month period ended October 31, 1994.
Sales by Domestic branded operations increased 13% for the quarter
and 9% for the six month period. The sales increase resulted from
recent acquisitions, as well as internal growth from existing
business units. Sales from the branded portfolio accounted for 68%
of total volume, moving Kellwood closer to its targeted goal of
branded being 75% of all Company sales. The Domestic branded
operations, with their overall higher margins, contributed
significantly to total company earnings.
Sales by Domestic private label operations increased 8% for the
quarter and 6% for the six month period. Apparel sales, which are
approximately 90% of the Domestic private label portfolio, were up
a strong 17% due primarily to growth in the private label jeans
program with several key retailers. Operating profits in the
Domestic Private label portfolio improved as a result of increased
plant utilization and operating efficiency. The Home Fashions
business represents the remaining portion of the Domestic Private
Label portfolio. On November 21, 1994 Kellwood announced its
decision to sell the assets of the Home Fashions division. While
every attempt was made to rebuild the division, it never fully
recovered from the sales volume it lost from the closing of the
Sears catalog approximately 18 months ago. Year to date the Home
Fashions division represents less than 3% of Kellwood's total sales
volume. The sale is expected to close in December and will result
in a net of tax loss of approximately $1 million. Proceeds from
the sale will be used in the acquisition of apparel companies to
further complement Kellwood's strategic strength and focus.
Sales by Far East operations, principally of high quality private
label shirts sold to U.S. department stores and premier mail order
houses, decreased 6% for the quarter and 12% for the six month
period. Weak demand for woven dress shirts, production scheduling
difficulties brought on by temporarily tightened quota in Sri
Lanka, and intense margin pressure have all contributed to lower
Far East margins. Since orders are placed six to nine months in
advance, Kellwood anticipates its Far East operations will recover
as we move into the new calendar year as sales production mix
problems brought on by the quota situations in Sri Lanka will have
run their course.
Last year's six month results were favorably impacted by a $3.0
million gain on the disposal of certain excess Hong Kong export
quota rights. This year the value of Hong Kong quota was severely
depressed. As a result, Kellwood only sold a small amount of
excess quota realizing a negligible gain of $0.1 million.
The increase in other income is primarily the result of gains in
royalty income associated with some of the Kellwood's newer brands.
The decrease in the effective tax rate is due to changes in the
earnings mix.
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
FINANCIAL CONDITION
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The current ratio was 2.0 to 1 at October 31, 1994 as compared to
2.7 to 1 at April 30, 1994 and 2.2 to 1 at October 31, 1993. The
decrease in the current ratio was primarily due to increased notes
payable associated with recent acquisitions. Accounts receivable
and inventory levels have also increased as a result of recent
acquisitions and increased sales.
The increase in the cash used for investing activities primarily
resulted from the acquisition of Halmode Apparel, Inc. on September
30, 1994. This acquisition also contributed to the increase in
intangible assets.
Total debt represents 44% of capitalization at October 31, 1994, as
compared to 36% at April 30, 1994 and 39% at October 31, 1993. The
increase resulted from recent acquisitions and increased working
capital needed to fund internal growth. In June, 1994 Kellwood
negotiated a $120 million fully committed revolving credit
agreement. At October 31, 1994 $90 million was available for
future borrowings.
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.
OUTLOOK
- -------
In continuing Kellwood's program to acquire companies that will
expand and complement Kellwood's existing product offerings, the
Company acquired on November 2, 1994 all of the capital stock of
David Dart, Inc. The company designs bridge sportswear and is
expected to contribute approximately $30 million of sales on an
annualized basis.
On a total company basis, Kellwood expects sales to be strong for
the last half of the year and anticipates finishing the fiscal year
with another record for sales and net earnings. Earnings will be
impacted in the third quarter, however, due to the loss resulting
from the sale of Home Fashions and the dilution attendant with the
purchase accounting requirements of the two most recent
acquisitions.
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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:
S.E.C. Exhibit
Reference No. Description
----------------- ---------------------------------------
27 Financial Data Schedule, filed herewith.
b) REPORTS ON FORM 8-K:
Report on Form 8-K dated September 30, 1994, describing the
acquisition of Halmode Apparel, Inc. (Item 2. Acquisition or
Disposition of Assets).
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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
December 2, 1994 /s/ Thomas H. Pollihan
--------------------------------
Thomas H. Pollihan
Vice President, Secretary and
General Counsel
December 2, 1994 /s/ James C. Jacobsen
--------------------------------
James C. Jacobsen
Vice Chairman
(Chief Financial Officer)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kellwood
Company and Subsidiaries Condensed Consolidated Balance Sheet at October 31,
1994, and from the Condensed Consolidated Statement of Earnings and Condensed
Consolidated Statement of Cash Flows for the six months ended October 31, 1994,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1994
<PERIOD-START> MAY-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 14,494
<SECURITIES> 0
<RECEIVABLES> 253,987
<ALLOWANCES> 5,010
<INVENTORY> 216,579
<CURRENT-ASSETS> 501,548
<PP&E> 191,204
<DEPRECIATION> 118,104
<TOTAL-ASSETS> 768,381
<CURRENT-LIABILITIES> 256,195
<BONDS> 148,710
<COMMON> 92,964
0
0
<OTHER-SE> 231,706
<TOTAL-LIABILITY-AND-EQUITY> 768,381
<SALES> 676,961
<TOTAL-REVENUES> 676,961
<CGS> 535,227
<TOTAL-COSTS> 535,227
<OTHER-EXPENSES> 96,324
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 8,382
<INCOME-PRETAX> 37,028
<INCOME-TAX> 15,200
<INCOME-CONTINUING> 21,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,828
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.02
</TABLE>
