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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, 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
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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
---- ----
Number of shares of common stock, par value $.01, outstanding at January 31,
1997 (only one class): 20,986,921 .
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KELLWOOD COMPANY
-----------------
INDEX
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<TABLE>
<CAPTION>
Page No.
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<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 7
PART II. OTHER INFORMATION 9
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</TABLE>
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
January 31,
--------------------------- April 30,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and time deposits $ 36,678 $ 13,485 $ 25,043
Receivables, net 200,652 192,016 235,108
Inventories 303,133 280,369 264,583
Prepaid taxes and expenses 27,272 27,695 19,624
-------- -------- --------
Total current assets 567,735 513,565 544,358
Property, plant and equipment, net 62,708 64,749 63,808
Intangible assets, net 113,038 119,919 120,401
Other assets 73,980 66,640 68,121
-------- -------- --------
$ 817,461 $ 764,873 $ 796,688
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 15,431 $ 18,193 $ 18,198
Notes payable 163,242 133,330 128,765
Accounts payable 99,071 76,981 98,148
Accrued expenses 56,237 53,000 61,179
-------- -------- --------
Total current liabilities 333,981 281,504 306,290
Long-term debt 110,593 126,178 125,443
Deferred income taxes and other 39,780 39,681 39,763
Shareowners' equity:
Common stock 95,485 94,374 94,562
Retained earnings 281,762 261,836 269,060
Cumulative translation adjustment (8,960) (8,788) (8,800)
-------- -------- --------
368,287 347,422 354,822
Less treasury stock, at cost (35,180) (29,912) (29,630)
-------- -------- --------
Total shareowners' equity 333,107 317,510 325,192
-------- -------- --------
$ 817,461 $ 764,873 $ 796,688
======== ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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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 Nine Months Ended
January 31, January 31,
---------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 315,791 $ 288,490 $ 1,072,661 $ 1,054,750
Costs and expenses:
Cost of products sold 254,099 235,840 857,754 844,230
Selling, general and
administrative expenses 50,329 47,839 151,424 153,188
Amortization of intangible
assets 3,794 3,803 11,422 11,650
Interest expense 5,067 5,058 15,633 17,266
Interest income and other,
net (823) (606) (1,853) (1,503)
--------- --------- ---------- ----------
Earnings before income taxes 3,325 (3,444) 38,281 29,919
Income taxes 1,300 (1,400) 16,000 12,300
--------- --------- ---------- ----------
Net earnings $ 2,025 $ (2,044) $ 22,281 $ 17,619
========= ========= ========== ==========
Weighted average shares
outstanding:
Primary 21,001 21,180 21,159 21,156
========= ========= ========== ==========
Fully diluted 21,489 21,411 21,661 21,389
========= ========= ========== ==========
Earnings per share:
Primary $ .10 $ (.10) $ 1.05 $ .83
========= ========= ========== ==========
Fully diluted $ .09 $ (.09) $ 1.03 $ .82
========= ========= ========== ==========
Dividends paid per share $ .15 $ .15 $ .45 $ .45
========= ========= ========== ==========
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,
----------------------------
1997 1996
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<S> <C> <C>
Operating activities:
Net earnings $ 22,281 $ 17,619
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 20,829 21,244
Increase in prepaid pension cost (6,000) (5,681)
Deferred taxes and other 672 121
-------- --------
37,782 33,303
Changes in noncash working capital components,
net of effect of acquisition:
Receivables 37,292 48,029
Inventories (36,256) (40,908)
Prepaid expenses (8,011) (7,008)
Accounts payable 865 (882)
Accrued expenses (7,531) (10,947)
-------- --------
Net cash provided by
operating activities 24,141 21,587
-------- --------
Investing activities:
Additions to property, plant and equipment (8,394) (13,795)
Proceeds from disposal of assets - 2,750
Investment in subsidiaries (7,185) -
Other investing activities 419 (125)
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Net cash (used for) investing activities (15,160) (11,170)
-------- --------
Financing activities:
Proceeds from notes payable, net 34,477 9,063
Reduction of long-term debt (17,617) (8,698)
Dividends paid (9,579) (9,519)
Purchase of treasury stock (5,766) -
Stock transactions under incentive plans 1,139 1,140
-------- --------
Net cash provided by (used for)
financing activities 2,654 (8,014)
-------- --------
Net increase in cash and time deposits 11,635 2,403
Cash and time deposits - beginning of period 25,043 11,082
-------- --------
Cash and time deposits - end of period $ 36,678 $ 13,485
======== ========
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
----------------------------------------------------
(Amounts in thousands except per share data)
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 1996 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>
January 31,
--------------------------- April 30,
1997 1996 1996
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<S> <C> <C> <C>
Finished goods $ 153,836 $ 153,215 $ 110,207
Work in process 90,150 63,874 91,682
Raw materials 59,147 63,280 62,694
-------- -------- --------
$ 303,133 $ 280,369 $ 264,583
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</TABLE>
If inventories were valued at current replacement costs, they
would have totalled $314,774, $289,391 and $274,722 at January 31,
1997, January 31, 1996, and April 30, 1996, respectively.
3. Intangible assets consisted of:
<TABLE>
<CAPTION>
January 31,
--------------------------- April 30,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Goodwill $ 104,827 $ 101,907 $ 100,765
Other identifiable
intangibles 84,245 90,884 90,840
-------- -------- --------
189,072 192,791 191,605
Less accumulated
amortization 76,034 72,872 71,204
-------- -------- --------
$ 113,038 $ 119,919 $ 120,401
======== ======== ========
</TABLE>
4. 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 provided that the combined
utilization does not exceed $300,000. 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. At January 31,
1997, outstanding short-term loans and letters of credit under the
agreement were $50,000 and $105,945, respectively. 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
- -----------------
Sales reached record levels for both the quarter and the nine months ended
January 31, 1997. Earnings for the quarter rebounded from a loss in the
prior year and were up 26% for the nine month period.
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.
Sales by Domestic branded operations increased 12% for the quarter and 2% for
the nine month period. The increase in branded sales is principally
attributable to growth in popular-to-moderately priced women's apparel as
Kellwood continues to gain market share in this segment with the leading
retailers. Sales from the branded portfolio accounted for approximately 70%
of Kellwood's total volume for both nine month periods. The Domestic branded
operations continued to contribute significantly to total company earnings.
Sales by Domestic private label operations increased 10% for the quarter and
1% for the nine month period. Operating profits in the Domestic private label
portfolio remained strong as a result of several successful private label
programs with key retailers.
Sales by Far East operations, principally of high quality private label
shirts sold to U.S. department stores and premier mail order houses, were
down 2% for the quarter but up 2% for the nine month period. Without the
drain on operations of the Saipan plant, which was sold in October 1995,
operating profits in the Far East operations have improved significantly.
The decrease in interest expense for the nine months ended January 31, 1997
correlates with the decrease in average outstanding debt when compared to the
same period last year.
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
FINANCIAL CONDITION
- -------------------
The current ratio remained relatively constant at 1.7 to 1 at January 31,
1997 as compared to 1.8 to 1 at both April 30, 1996 and January 31, 1996.
Cash levels are up primarily due to improvement in our Far East operations.
Accounts receivable have declined from April 30, 1996 in response to seasonal
fluctuations in sales. Inventory levels have increased but remain in
balance with anticipated future demand.
The cash used for investing activities for the nine months ended January 31,
1997 includes approximately $7 million for the purchase of the assets of a
small business acquired to compliment one of Kellwood's existing business
units. The investment activity for the same period last year includes
approximately $5 million used to purchase an office and warehouse facility
for another Kellwood business unit.
Total debt represents 46% of capitalization at January 31, 1997 and April 30,
1996 as compared to 47% at January 31, 1996. Notes payable have increased to
fund the increase in inventory. In September 1996, the Board of Directors
authorized the Company to repurchase from time to time up to 10% of the
outstanding shares of its common stock in the open market through privately
negotiated transactions at management's discretion and depending on market
conditions. As of January 31, 1997, the Company had purchased 324,000
shares.
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 January 31, 1997, $144 million was
available for future use. 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
- -------
As we move into the spring shipping season, which began in January, we are
looking forward to a continuation of growth in sales and net earnings. We
have put in place a number of marketing programs and initiatives in each of
our business portfolios. These programs will drive our top line growth
during the fourth quarter, which ends April 30, and into our upcoming fiscal
year.
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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
- -----------------------------------------
a) EXHIBITS:
S.E.C. Exhibit
Reference No. Description
------------- ----------------------------------------------------
10.2 Employment agreement dated December 9, 1992, between
Kellwood Company and William J. McKenna,
effective December 1, 1992, incorporated herein
by reference to the Form 10-Q for the quarter
ended January 31, 1993, SEC File No. 1-7340;
Amendment dated May 28, 1993, effective May 1,
1993, incorporated herein by reference to Form
10-K for the fiscal year ended April 30, 1993,
SEC File No. 1-7340, and Amendment dated
November 26, 1996, effective May 1, 1996, filed
herewith.
27 Financial Data Schedule, filed herewith.
b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended
January 31, 1997.
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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 3, 1997 /s/ Thomas H. Pollihan
-------------------------------------
Thomas H. Pollihan
Vice President, Secretary
and General Counsel
March 3, 1997 /s/ James C. Jacobsen
-------------------------------------
James C. Jacobsen
Vice Chairman
(Chief Financial Officer)
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EXHIBIT 10.2
------------
AMENDMENT
---------
OF
--
EMPLOYMENT AGREEMENT
--------------------
This Amendment Agreement made this 26th day of November, 1996, between
Kellwood Company (the "Corporation") and William J. McKenna (the
"Executive");
WHEREAS, the Corporation and Executive entered into an Employment Agreement
dated December 9, 1992 (the "Agreement"); and
WHEREAS, the Compensation Committee of this company effective May 1, 1996,
agreed to amend the Agreement to increase Executive's compensation to Eight
Hundred Fifty Thousand Dollars ($850,000) per annum; and
WHEREAS, the Compensation Committee of this company agreed to amend the
Agreement to extend its term for one more year until November 30, 1997; and
WHEREAS, the Corporation and Executive desire to amend the Agreement
accordingly.
NOW THEREFORE, in consideration of their mutual promises and undertakings,
the parties hereby amend the Agreement as follows:
1. By deleting from paragraph 1 all references to the title "President"
and inserting in their place the title "Chairman".
2. By deleting from paragraph 1 the words "November 30, 1996" and
inserting in their place "November 30, 1997".
3. By deleting from paragraph 2 the amended amount of "Eight Hundred
Twenty Thousand Dollars ($820,000)" and inserting in its place "Eight
Hundred Fifty Thousand Dollars ($850,000)". This change shall be
effective as of May 1, 1996.
4. By deleting from paragraph 15 the words "November 30, 1996, the month
in which Executive will reach age 70." and inserting in their place
"November 30, 1997."
IN WITNESS WHEREOF, the parties have executed this Amendment of Employment
Agreement the day and year first above written.
KELLWOOD COMPANY
Secretary
/s/ Thomas H. Pollihan By: /s/ James S. Marcus
- ---------------------- ---------------------------------
James S. Marcus, Chairman,
Compensation Committee
EXECUTIVE
/s/ Thomas H. Pollihan /s/ William J. McKenna
- ---------------------- -------------------------------------
Witness William J. McKenna
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kellwood
Company and Subsidiaries Condensed Consolidated Balance Sheet at January 31,
1997, and from the Condensed Consolidated Statement of Earnings and Condensed
Consolidated Statement of Cash Flows for the nine months ended January 31, 1997,
and is qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 36,678
<SECURITIES> 0
<RECEIVABLES> 205,810
<ALLOWANCES> 5,158
<INVENTORY> 303,133
<CURRENT-ASSETS> 567,735
<PP&E> 174,907
<DEPRECIATION> 112,199
<TOTAL-ASSETS> 817,461
<CURRENT-LIABILITIES> 333,981
<BONDS> 110,593
<COMMON> 95,485
0
0
<OTHER-SE> 237,622
<TOTAL-LIABILITY-AND-EQUITY> 817,461
<SALES> 1,072,661
<TOTAL-REVENUES> 1,072,661
<CGS> 857,754
<TOTAL-COSTS> 857,754
<OTHER-EXPENSES> 160,993
<LOSS-PROVISION> 1,012
<INTEREST-EXPENSE> 15,633
<INCOME-PRETAX> 38,281
<INCOME-TAX> 16,000
<INCOME-CONTINUING> 22,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,281
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
</TABLE>
