<PAGE> 1
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 October 31, 1997
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
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2472410
- --------------------------------------- --------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
600 KELLWOOD PARKWAY, P.O. BOX 14374, ST. LOUIS, MO 63178
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 576-3100
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
--- ---
Number of shares of common stock, par value $.01, outstanding at October 31,
1997 (only one class): 21,467,648
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1
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<TABLE>
KELLWOOD COMPANY
----------------
INDEX
-----
<CAPTION>
Page No.
--------
<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 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION 11
</TABLE>
2
<PAGE> 3
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
October 31,
------------------------------- April 30,
1997 1996 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and time deposits $ 25,248 $ 40,982 $ 22,513
Receivables, net 300,041 258,247 271,629
Inventories 304,958 247,857 298,938
Prepaid taxes and expenses 29,897 19,996 28,444
-------- -------- --------
Total Current Assets 660,144 567,082 621,524
Property, plant and equipment, net 61,409 63,667 62,800
Intangible assets, net 108,800 116,873 113,873
Other assets 81,986 72,010 76,390
-------- -------- --------
912,339 $819,632 874,587
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 15,371 $ 20,439 15,409
Notes payable 78,319 143,063 159,129
Accounts payable 83,069 96,914 122,049
Accrued expenses 65,553 62,595 77,823
-------- -------- --------
Total current liabilities 242,312 323,011 374,410
Long-term debt 251,807 118,996 109,831
Deferred income taxes and other 46,680 39,863 42,532
Shareowners' equity:
Common stock 108,730 95,113 99,077
Retained earnings 309,899 282,943 293,986
Cumulative translation adjustment (7,291) (8,819) (8,280)
-------- -------- --------
411,338 369,237 384,783
Less treasury stock, at cost 39,798 (31,475) 36,969
-------- -------- --------
Total shareowners' equity 371,540 337,762 347,814
-------- -------- --------
912,339 819,632 874,587
======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
--------------------------------------------------------
(Amounts in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $502,852 $429,435 $903,456 $756,870
Costs and expenses:
Cost of products sold 402,882 341,751 724,484 603,655
Selling, general and
administrative expenses 60,754 54,306 117,177 101,095
Amortization of intangible
assets 4,007 3,810 7,759 7,628
Interest expense 7,104 5,388 13,991 10,566
Interest income and other, net (507) (758) (983) (1,030)
-------- -------- -------- --------
Earnings before income taxes 28,612 24,938 41,028 34,956
Income taxes 12,100 10,500 17,300 14,700
-------- -------- -------- --------
Net earnings $ 16,512 $ 14,438 $ 23,728 $ 20,256
======== ======== ======== ========
Weighted average shares
outstanding:
Primary 21,433 21,239 21,339 21,238
======== ======== ======== ========
Fully diluted 22,091 21,557 21,923 21,556
======== ======== ======== ========
Earnings per share:
Primary $ .77 $ .68 $ 1.11 $ .95
======== ======== ======== ========
Fully diluted $ .75 $ .67 $ 1.08 $ .94
======== ======== ======== ========
Dividends paid per share $ .16 $ .15 $ .32 $ .30
======== ======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Six Months Ended
October 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 23,728 $ 20,256
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 14,709 14,013
Increase in prepaid pension cost (4,250) (4,000)
Deferred taxes and other 2,691 383
-------- --------
36,878 30,652
Changes in noncash working capital components:
Receivables (28,412) (20,290)
Inventories (6,020) 19,048
Prepaid expenses (1,453) (348)
Accounts payable (38,980) (1,297)
Accrued expenses (12,270) (1,142)
-------- --------
Net cash provided by (used for) operating
activities (50,257) 26,623
-------- --------
Investing activities:
Additions to property, plant and equipment (5,651) (6,090)
Proceeds from disposal of assets -- --
Investment in subsidiaries (2,610) (7,185)
Other investing activities 126 166
-------- --------
Net cash (used for) investing activities (8,135) (13,109)
-------- --------
Financing activities:
Proceeds from debentures 148,327 --
Proceeds from (reduction of) notes payable, net (80,810) 14,298
Reduction of long-term debt (6,389) (4,206)
Dividends paid (6,825) (6,373)
Purchase of treasury stock (2,955) (1,961)
Stock transactions under incentive plans 9,779 667
-------- --------
Net cash provided by
financing activities 61,127 2,425
-------- --------
Net increase in cash and time deposits 2,735 15,939
Cash and time deposits - beginning of period 22,513 25,043
-------- --------
Cash and time deposits - end of period $ 25,248 $ 40,982
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Amounts in thousands)
1. It is the opinion of management that all adjustments necessary for a
fair presentation 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 1997 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,
1997 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Finished goods $161,222 $103,626 $127,630
Work in process 76,536 85,678 98,607
Raw materials 67,200 58,553 72,701
-------- -------- --------
$304,958 $247,857 $298,938
======== ======== ========
</TABLE>
If inventories were valued at current replacement costs, they would
have totaled $314,722, $258,998 and $307,702 at October 31, 1997,
October 31, 1996, and April 30, 1997, respectively.
3. Intangible assets consisted of:
<TABLE>
<CAPTION>
October 31,
------------------------ April 30,
1997 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Goodwill $112,100 $104,877 $109,491
Other identifiable
intangibles 81,087 84,245 81,446
-------- -------- --------
193,187 189,122 190,937
Less accumulated
amortization 84,387 72,249 77,064
-------- -------- --------
$108,800 $116,873 $113,873
======== ======== ========
</TABLE>
6
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
(Continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Amounts in thousands)
4. The Company issued $150,000 of 20 year Debentures in a public debt
offering on October 27, 1997. The Debentures, due October 15, 2017,
have a coupon rate of 7.625%. Proceeds from the sale of Debentures
were used to repay short-term bank borrowings.
5. A credit facility agreement dated May 31, 1996, in the amount of
$300,000 expires October 30, 1999. Under the agreement, up to $200,000
can be utilized for short-term loans and up to $200,000 can be utilized
for letters of credit. Each borrowing under the agreement 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. At October 31, 1997, outstanding short-
term loans and letters of credit under the agreement were $20,000 and
$129,000, respectively. Covenants are more flexible than those
currently existing for Kellwood's notes due insurance companies.
7
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OPERATING RESULTS
- -----------------
Kellwood Company achieved record sales and earnings for the second quarter
ended October 31, 1997. Summarized financial data for the quarter and the
six month period ended October 31, 1997 and 1996 are as follows ($ in
millions; percentages are calculated based on actual data, but columns may
not add due to rounding):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------------------------- --------------------------------
1997 1996 % Change 1997 1996 % Change
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 503 $ 429 17.1% $ 903 $ 757 19.4%
Cost of products sold 403 342 19.9% 724 604 20.0%
S, G & A 61 54 11.9% 117 101 15.9%
------ ------ ----- ------ ------ -----
Operating earnings 39 33 17.5% 62 52 18.6%
Amort. of intangibles 4 4 5.2% 8 8 1.7%
Interest, net & other 7 5 42.5% 13 10 36.4%
------ ------ ----- ------ ------ -----
Earnings before tax 29 25 14.7% 41 35 17.4%
Income Taxes 12 11 15.2% 17 15 17.7%
------ ------ ----- ------ ------ -----
Net Earnings $ 17 $ 14 14.4% $ 24 $ 20 17.1%
====== ====== ===== ====== ====== =====
As a percentage of Sales:
- -------------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 80.1% 79.6% 80.2% 79.8%
S, G & A 12.1% 12.6% 13.0% 13.4%
------ ------ ------ ------
Operating earnings 7.8% 7.8% 6.8% 6.9%
Amort. of intangibles 0.8% 0.9% 0.9% 1.0%
Interest, net & other 1.3% 1.1% 1.4% 1.3%
------ ------ ------ ------
Earnings before tax 5.7% 5.8% 4.5% 4.6%
Income Taxes 2.4% 2.4% 1.9% 1.9%
------ ------ ------ ------
Net Earnings 3.3% 3.4% 2.6% 2.7%
====== ====== ====== ======
</TABLE>
Sales for the quarter increased in every channel of distribution, and the
increase was broad-based across each of our three business portfolios:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------------------- ------------------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Branded $360 $301 19.5% $646 $540 19.6%
Domestic Private Label 92 81 13.0% 168 135 24.8%
Far East Private Label 51 47 8.5% 90 82 9.1%
---- ---- ----- ---- ---- -----
Total Net Sales $503 $429 17.1% $903 $757 19.4%
==== ==== ===== ==== ==== =====
</TABLE>
The business portfolios contributed 71% (Branded), 19% (Domestic Private
Label), and 10% (Far East Private Label) of sales, respectively, for the six
months ended October 31, 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
-------------------- -------------------
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
As a % of total Sales:
----------------------
Branded 71.6% 70.1% 71.5% 71.4%
Domestic Private Label 18.3% 18.9% 18.6% 17.8%
Far East Private Label 10.2% 11.0% 9.9% 10.9%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
</TABLE>
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Operating earnings (defined as net sales less cost of products sold and
selling, general and administrative expenses) increased 17.5% for the
quarter and 18.6% for the six month period vs. the corresponding periods in
the prior year. The increase in operating earnings was due to increased
volume partially offset by increased spending this year on the Vision 2000
program.
Last year's margins included the benefit of the $1.9 million (pretax) sale of
certain excess quota rights. Operating earnings as a % of sales for the six
months ended October 31, 1996 would have been 6.6% without this gain, which
compares to the current year's operating earnings margin of 6.8% for the six
months ended October 31, 1997.
The increase in interest expense is due primarily to the increase in average
debt.
FINANCIAL CONDITION
- -------------------
On October 27, 1997 the Company completed a public debt offering totaling
$150 million. These debentures mature October 15, 2017 and carry a 7.625%
coupon rate. They received investment grade ratings from Moody's and S&P of
Baa3/BBB.
The current ratio increased from 1.7 to 1 at April 30, 1997 and 1.8 to 1 at
October 31, 1996 to 2.7 to 1 at October 31, 1997, primarily due to the use of
debt proceeds to retire short-term Notes Payable. Accounts receivable
increased 16% vs. October 31, 1996, which is in line with the increase in
sales. Inventory levels have increased faster than sales (up 23% vs. October
31, 1996) because of a shift to more offshore sourcing which results in
higher inventories.
Total debt represents 48% of capital at October 31, 1997 vs. 46% at October
31, 1996 and 45% at April 30, 1997. The increased leverage is due to
increased working capital requirements to support the sales growth of 19.4%
vs. the comparable six -month period in the prior fiscal year. Management
expects total debt as a percent of capital to drop to the 46%-47% range at the
end of the third quarter (January 31, 1998).
In September 1996, the Board of Directors authorized the Company to repur-
chase from time to time up to 10% of the outstanding shares of its common
stock (approximately 2 million shares) in the open market through privately
negotiated transactions at management's discretion and depending on market
conditions. As of October 31, 1997, the Company had purchased approximately
324,000 shares at a total cost of $5.8 million. The most recent share
purchase under this authorization was in November 1996.
Kellwood maintains a $300 million credit facility agreement of which up to
$200 million can be utilized for short-term loans and up to $200 million can
be utilized for letters of credit. At October 31, 1997, $151 million was
available for future use. Management believes that the combined operating,
cash and equity position and credit facilities of the Company will continue
to provide the capital flexibility necessary to fund future opportunities and
to meet existing obligations.
OUTLOOK
- -------
Kellwood is into a period of solid internal growth. As the retail industry
continues to consolidate, Kellwood is increasingly becoming the vendor of
9
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
choice for popular-to-moderately priced women's sportswear, men's woven
shirts and other value priced catgergories of apparel. Additionally, the
Company is benefiting from the turnaround of certain restructured divisions.
Future interest expense will be higher due to the recent $150 million
twenty-year debt offering. Though management believes that the rate on this
debt (7.625%) is favorable, this rate is approximately 1.5% higher than the
Company was paying for short-term floating rate debt.
10
<PAGE> 11
PART II. OTHER INFORMATION
---------------------------
KELLWOOD COMPANY
----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) EXHIBITS:
<TABLE>
<CAPTION>
S.E.C. Exhibit
Reference No. Description
-------------- ---------------------------------------
<C> <S>
27 Financial Data Schedule, filed herewith.
</TABLE>
b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended
October 31, 1997.
11
<PAGE> 12
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.
KELLWOOD COMPANY
December 12, 1997 /s/ Thomas H. Pollihan
-------------------------------------
Thomas H. Pollihan
Vice President, Secretary and General
Counsel
December 12, 1997 /s/ James C. Jacobsen
-------------------------------------
James C. Jacobsen
Vice Chairman
(Chief Financial Officer)
12
<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,
1997, and from the Condensed Consolidated Statement of Earnings and Condensed
Consolidated Statement of Cash Flows for the six months ended October 31, 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 25,248
<SECURITIES> 0
<RECEIVABLES> 306,054
<ALLOWANCES> 6,013
<INVENTORY> 304,958
<CURRENT-ASSETS> 660,144
<PP&E> 182,810
<DEPRECIATION> 121,401
<TOTAL-ASSETS> 912,339
<CURRENT-LIABILITIES> 242,312
<BONDS> 251,807
<COMMON> 108,730
0
0
<OTHER-SE> 262,810
<TOTAL-LIABILITY-AND-EQUITY> 912,339
<SALES> 903,456
<TOTAL-REVENUES> 903,456
<CGS> 724,484
<TOTAL-COSTS> 724,484
<OTHER-EXPENSES> 123,953
<LOSS-PROVISION> 1,737
<INTEREST-EXPENSE> 13,991
<INCOME-PRETAX> 41,028
<INCOME-TAX> 17,300
<INCOME-CONTINUING> 23,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,728
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.08
</TABLE>
