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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1998
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,
1998 (only one class): 21,634,316
------------
The undersigned registrant hereby amends Part I of its Quarterly Report on
Form 10-Q for the quarter ended October 31, 1998 as follows:
Item 1: On the CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (page 5),
* delete the subtotals ("37,379" and "36,878") and the
related underline above them, and
* delete the word "non-cash" from the caption "Changes in
non-cash working capital components:"
Item 2: replace the section captioned "Year 2000 Compliance" on pages 11 - 13
with an expanded and extended discussion of Year 2000 Issues.
1 <PAGE>
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KELLWOOD COMPANY
----------------
INDEX
-----
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 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II. OTHER INFORMATION 15
2<PAGE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
October 31,
----------------------- April 30,
1998 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and time deposits $ 35,825 $ 25,248 $ 31,752
Receivables, net 292,896 300,041 320,104
Inventories 328,436 304,958 374,472
Prepaid taxes and expenses 29,258 29,897 32,655
-------- -------- ----------
Total current assets 686,415 660,144 758,983
Property, plant and equipment, net 85,862 61,409 65,946
Intangible assets, net 98,154 108,800 105,425
Other assets 87,948 81,986 85,159
-------- -------- ----------
$958,379 $912,339 $1,015,513
======== ======== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 15,762 $ 15,371 $ 15,298
Notes payable 98,544 78,319 141,736
Accounts payable 87,564 83,069 110,725
Accrued expenses 68,662 65,553 74,746
-------- -------- ----------
Total current liabilities 270,532 242,312 342,505
Long-term debt 235,997 251,807 242,720
Deferred income taxes and other 46,167 46,680 46,123
Shareowners' equity:
Common stock 113,814 108,730 109,657
Retained earnings 341,418 309,899 323,035
Cumulative translation adjustment (8,566) (7,291) (8,542)
-------- -------- ----------
446,666 411,338 424,150
Less treasury stock, at cost (40,983) (39,798) (39,985)
-------- -------- ----------
Total shareowners' equity 405,683 371,540 384,165
-------- -------- ----------
$958,379 $912,339 $1,015,513
======== ======== ==========
See notes to condensed consolidated financial statements.
</TABLE>
3<PAGE>
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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,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $509,763 $502,852 $937,432 $903,456
Costs and expenses:
Cost of products sold 405,702 402,882 752,502 724,484
Selling, general and
administrative expenses 62,928 60,754 119,300 117,177
Amortization of intangible
assets 3,732 4,007 7,342 7,759
Interest expense 7,651 7,104 15,524 13,991
Interest income and other, net (790) (507) (1,230) (983)
-------- -------- -------- --------
Earnings before income taxes 30,540 28,612 43,994 41,028
Income taxes 13,000 12,100 18,700 17,300
-------- -------- -------- --------
Net earnings $ 17,540 $ 16,512 $ 25,294 $ 23,728
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 21,620 21,433 21,596 21,339
======== ======== ======== ========
Diluted 22,012 22,091 22,067 21,923
======== ======== ======== ========
Earnings per share:
Basic $ .81 $ .77 $ 1.17 $ 1.11
======== ======== ======== ========
Diluted $ .80 $ .75 $ 1.15 $ 1.08
======== ======== ======== ========
Dividends paid per share $ .16 $ .16 $ .32 $ .32
======== ======== ======== ========
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,
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 25,294 $ 23,728
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 14,842 14,709
Increase in prepaid pension cost (2,306) (4,250)
Deferred income taxes and other (451) 2,691
Changes in working capital components:
Receivables, net 27,208 (28,412)
Inventories 46,036 (6,020)
Prepaid taxes and expenses 3,397 (1,453)
Accounts payable (23,161) (38,980)
Accrued expenses (6,084) (12,270)
-------- --------
Net cash provided by (used for) operating
activities 84,775 (50,257)
-------- --------
Investing activities:
Additions to property, plant and equipment (29,835) (5,651)
Investment in subsidiaries (120) (2,610)
Other investing activities 2,456 126
-------- --------
Net cash (used for) investing activities (27,499) (8,135)
-------- --------
Financing activities:
Proceeds from debentures - 148,327
Reduction of notes payable, net (43,192) (80,810)
Reduction of long-term debt (6,259) (6,389)
Dividends paid (6,911) (6,825)
Stock transactions under incentive plans 3,159 6,824
-------- --------
Net cash provided by
(used for) financing activities (53,203) 61,127
-------- --------
Net increase in cash and time deposits 4,073 2,735
Cash and time deposits - beginning of period 31,752 22,513
-------- --------
Cash and time deposits - end of period $ 35,825 $ 25,248
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
5<PAGE>
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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 1998 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,
1998 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Finished goods $174,440 $161,222 $175,953
Work in process 88,855 76,536 128,051
Raw materials 65,141 67,200 70,468
-------- -------- --------
$328,436 $304,958 $374,472
======== ======== ========
</TABLE>
If inventories were valued at current replacement costs, they would
have totaled $336,678, $314,722 and $384,714 at October 31, 1998,
October 31, 1997, and April 30, 1998, respectively.
3. Intangible assets consisted of:
<TABLE>
<CAPTION>
October 31,
-------------------------------- April 30,
1998 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Goodwill $116,421 $112,100 $116,301
Other identifiable
intangibles 80,076 81,087 81,106
-------- -------- --------
196,497 193,187 197,407
Less accumulated
amortization 98,343 84,387 91,982
-------- -------- --------
$ 98,154 $108,800 $105,425
======== ======== ========
</TABLE>
6
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
(Continued)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Amounts in thousands)
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. 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, 1998, outstanding
short-term loans and letters of credit under the agreement were $0 and
$133,000, respectively. Covenants are more flexible than those
currently existing for Kellwood's notes due insurance companies.
5. During the year, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS
130 requires the reporting of comprehensive earnings in addition to net
earnings. Comprehensive earnings is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the
calculation of net earnings.
The Company's total comprehensive income for the six months ended
October 31, 1998 and 1997 was $25,270 and $24,717, respectively; total
comprehensive income for the three months ended October 31, 1998 and
1997, was $17,565 and $16,628, respectively. Differences between Net
Earnings and total comprehensive income resulted from foreign currency
translation.
6. On December 1, 1998 the Company signed a definitive agreement to merge
Koret, Inc. into Kellwood in a transaction to be accounted for as a
pooling of interests. Kellwood expects to issue 5,241,000 additional
shares of common stock in this transaction.
On December 11, 1998 the Company purchased substantially all of the
non-real estate assets of Fritzi California, a California corporation,
in exchange for 844,000 shares of Kellwood common stock and the
assumption of certain liabilities. The effect of the Fritzi
transaction would not have been significant to the financial statements
of the Company.
7
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KELLWOOD COMPANY AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
OPERATING RESULTS
- -----------------
Kellwood Company achieved record sales and earnings for the second quarter
ended October 31, 1998. Summarized financial data for the quarter and the six
month period ended October 31, 1998 and 1997 are as follows ($ 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,
----------------------------- -----------------------------
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $510 $503 1.4% $937 $903 3.8%
Cost of products sold 406 403 0.7% 753 724 3.9%
S, G & A 63 61 3.6% 119 117 1.8%
---- ---- ---- ---- ---- ----
Operating earnings 41 39 4.9% 66 62 6.2%
Amort. of intangibles 4 4 -6.9% 7 8 -5.4%
Interest, net & other 7 7 4.0% 14 13 9.9%
---- ---- ---- ---- ---- ----
Earnings before tax 31 29 6.7% 44 41 7.2%
Income Taxes 13 12 7.4% 19 17 8.1%
---- ---- ---- ---- ---- ----
Net Earnings $ 18 $ 17 6.2% $ 25 $ 24 6.6%
==== ==== ==== ==== ==== ====
As a percentage of Sales:
- -------------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 79.6% 80.1% 80.3% 80.2%
S, G & A 12.3% 12.1% 12.7% 13.0%
----- ----- ----- -----
Operating earnings 8.1% 7.8% 7.0% 6.8%
Amort. of intangibles 0.7% 0.8% 0.8% 0.9%
Interest, net & other 1.3% 1.3% 1.5% 1.4%
---- ---- ---- ----
Earnings before tax 6.0% 5.7% 4.7% 4.5%
Income Taxes 2.6% 2.4% 2.0% 1.9%
---- ---- ---- ----
Net Earnings 3.4% 3.3% 2.7% 2.6%
==== ==== ==== ====
</TABLE>
The increase in sales for the quarter and the half was concentrated in the
Popular-to-Moderate Women's Sportswear and Smart Shirts business portfolios,
partially offset by declines in the Better-to-Bridge Women's Sportswear and
Private label businesses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
---------------------------- -----------------------------
1998 1997 % Change 1998 1997 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Popular-to-Moderate
Women's Sportswear $289 $271 6.8% $529 $467 13.3%
Better-to-Bridge
Women's Sportswear 49 64 -22.9% 89 114 -21.3%
Private Label 82 92 -10.6% 143 168 -15.1%
Smart Shirts 64 51 24.8% 114 90 27.0%
Recreation Products 25 25 0.0% 62 65 -4.4%
---- ---- ----- ---- ---- -----
Total Net Sales $510 $503 1.4% $937 $903 3.8%
==== ==== ===== ==== ==== =====
</TABLE>
8
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
The five business portfolios contributed the following percentages of sales,
respectively, for the quarter and for the six months ended October 31, 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a % of total Sales:
- ---------------------
Popular-to-Moderate
Women's Sportswear 56.8% 53.9% 56.5% 51.7%
Better-to-Bridge
Women's Sportswear 9.6% 12.7% 9.5% 12.6%
Private Label 16.1% 18.3% 15.2% 18.6%
Smart Shirts 12.5% 10.2% 12.2% 9.9%
Recreation Products 5.0% 5.0% 6.6% 7.2%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
The increased sales of branded sportswear in the Popular-to-Moderate price
category was driven by continued growth of the Sag Harbor(R) brand, including
a recently introduced line of Sag Harbor(R) dresses. In keeping with the
strategy of building on the Sag Harbor(R) name, a new line of casual
sportswear called Sag Harbor(R) Sport will be introduced for Spring 1999
(shipments expected to start in this fiscal year's third quarter).
The Better-to-Bridge Women's Sportswear business continues to struggle, with
sales for the quarter down 23% from the corresponding period in the prior
year. Marketing and merchandising initiatives are underway to address
styling issues and lost market share in our better category brands in this
segment, and some office, warehousing and distribution functions have been
consolidated to reduce overhead. The outlook for the third quarter calls for
sales to be down in the range of 5% - 6%.
Private label sales were down vs. the prior year primarily due to the loss of
the Brittania(R) license for men's casual pants (as a result of the brand
being sold to VF Corporation). Another factor contributing to the decline
was the lower orders for outerwear resulting from inventory carried over by
our customers due to the warm winter weather last year.
Smart Shirts sales for the second quarter were up 25% vs. the prior year.
Sales increased to Polo Ralph Lauren(R) as well as to a number of department
stores, catalog houses and specialty stores. As a result of quota
constraints in Sri Lanka, Smart Shirts may have to delay some of its third
quarter shipments until February. This is expected to cause sales in the
third quarter of this fiscal year to be 6-8% less than the prior year; sales
in the fourth quarter, however, are expected to be up 16-18% vs. fiscal '98
levels.
9
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
The ability of the woven shirt business to grow over the long term
is constrained by capacity and quota. In response to these constraints,
Smart Shirts management is evaluating opportunities in Malaysia and other
countries (which have ample quota).
The Recreation Products segment had unusually strong sales (up 16%) in the
fourth quarter of fiscal '98, which marks the beginning of the camping sales
season. Sales in the first quarter of fiscal '99 were off due to a softening
in consumer demand at retail; second quarter sales were flat with the prior
year. The outlook for the third quarter is for sales to be up in excess of
9% vs. the comparable quarter in the prior year.
Cost of Products Sold as a percentage of sales decreased from 80.1% to 79.6%
in the quarter vs. the comparable period in the prior year due principally to
improved sourcing and savings generated from the Vision 2000 supplier
management initiative.
S,G&A expense in the quarter was basically flat as a percentage of sales,
increasing to 12.3% of sales from 12.1% of sales in the prior year due to
increased spending on the Vision 2000 program, partially offset by overhead
reductions resulting from consolidation of operations in the Better-to-Bridge
segment.
Operating earnings (defined as net sales less cost of products sold and
selling, general and administrative expenses) increased 4.9% for the quarter
and 6.2% for the six month period vs. the corresponding periods in the prior
year. The increase in operating earnings for the quarter was due to the
lower Cost of Products Sold as a percentage of sales (discussed above)
partially offset by increased spending this year on the Vision 2000 program.
For the six month period, control of S,G&A spending offset a modest increase
in Cost of Products Sold margin to result in a slight increase in Operating
earnings margin from 6.8% in the prior year to 7.0%.
The increase in interest expense is due primarily to the increase in average
debt and the higher interest rate that resulted from replacing short term
debt with the 20 year debentures, partially offset by lower interest rates on
short-term debt.
FINANCIAL CONDITION
- -------------------
Total debt represents 46% of capital at October 31, 1998 vs. 48% at October
31, 1997. Long-term fixed rate debt is now 72% of total debt as a result of
the October 1997 $150 million public debt offering. Capital expenditures
were $29.8 million year-to-date; total capital expenditures for fiscal 1999
are expected to be approximately $45 million due to heavy capital spending on
Vision 2000 projects. This compares with Kellwood's historical levels of
10
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
capital spending of $11 - 12 million per year.
The current ratio decreased from 2.7 to 1 at October 31, 1997 to 2.2 to 1 at
April 30, 1998 and 2.5 to 1 at October 31, 1998, largely as a result of a $22
million increase in short-term notes payable. Inventory levels have
increased faster than sales (up 7.7% vs. October 31, 1997) because of a shift
to more offshore sourcing which results in higher inventories.
In November 1998 the Board of Directors rescinded the share repurchase plan
which had been adopted in September 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, 1998, $167 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.
Recent Developments
- -------------------
During December 1998 the Company signed definitive agreements to:
* Purchase substantially all of the non-real estate assets of Fritzi
California, a California corporation ("Fritzi") in exchange for 844,000
shares of Kellwood common stock and the assumption of certain liabilities,
and
* Merge Koret, Inc. into Kellwood in a transaction to be accounted for
as a pooling of interests. Kellwood expects to issue 5,241,000 additional
shares of common stock in this transaction.
The Fritzi transaction closed on December 11, 1998. The Koret transaction is
contingent upon the terms and conditions set forth in the Merger Agreement;
it is expected to close in January or February 1999. More information on
these transactions can be obtained by review of the Form 8-K filed with the
SEC on December 2, 1998 (for the Fritzi transaction), and by review of the
Form 8-K filed with the SEC on December 3, 1998 (for the Koret transaction).
Year 2000 Compliance
- --------------------
In July 1996 the Company outsourced its Information Systems function to
Electronic Data Systems Corporation (EDS). Together, EDS and Kellwood
employees have completed an assessment and developed plans to make key
operational and financial systems year 2000 compliant and ensure
uninterrupted functionality through the year 2000. The Company is
monitoring the progress and currently believes such plans are 70%
11
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
implemented. The major components of the plan include:
* As part of the Vision 2000 initiative, several new information
technologies have been and are being installed to implement a
Consistent Office Environment (COE) and to replace several legacy
systems with an Integrated Business System (IBS). These systems
will be year 2000 compliant.
* The COE initiative is a corporate-wide effort to install new PC's
and servers, and desktop software, all of which are year 2000
compliant. This initiative is nearing completion and is scheduled
to be fully implemented by March 1999.
* The IBS initiative is a corporate-wide effort to install a common
business system throughout the Company. IBS implementation is
currently planned to occur at locations with systems that are not
year 2000 compliant and is in process for certain of these
locations. Testing of IBS is taking place in conjunction with
implementation and is progressing as planned. As part of its
contingency plan, the Company is in the process of remediating the
current systems at three operating locations to make them year 2000
compliant in the event implementation of IBS is delayed at those
locations. Testing of systems modifications for the systems being
remediated is planned and will occur as part of the remediation
process. Remediation projects are expected to be substantially
completed by June 1999. Implementation of IBS at the noncompliant
locations is expected to be substantially completed by Fall 1999.
* Remediation or replacement of certain "non-IT" systems, including
telephone systems, voice mail and shipping software and equipment is
approximately 80-90% complete. Testing is currently in process
where necessary and is progressing as planned.
* The Company is incurring significant business process reengineering
and system replacement expenses as part of the Vision 2000
initiative as described in the "Results of Operations" section. The
portion of Vision 2000 expenses that relates to remediation and
replacement of non-year 2000 compliant systems is estimated to be
$2.5 million, of which approximately $1.5 million has already been
incurred. The Company has utilized cash flow from operations to
fund year 2000 expenditures.
* Several of the Company's legacy systems are already year 2000
compliant (accounting for approximately 70% of Fiscal 1998 sales),
thus the implementation of IBS is not scheduled until fiscal 2000 or
later. Testing of year 2000 compliance for these legacy systems has
been substantially completed.
The Company believes its most reasonably likely worst case scenario with
respect to its own systems would involve particular system modules which
are not properly implemented or not fully or properly remediated. In
this case, the Company would retain the appropriate resources to correct
the problems. Until necessary system modifications could be made,
manual procedures would be employed. Such a situation may result in
additional remediation costs to be incurred and/or delays in operating
activities.
12
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
Key trading partners such as customers, suppliers, banks, shipping
companies and insurance companies have been contacted to assess year
2000 compliance in key potentially impacted business relationships. The
Company does not have control over these third parties and, as a result,
the Company cannot currently determine to what extent future operating
results may be adversely affected by the failure of these third parties
to successfully address their year 2000 issues. Electronic transactions
with key trading partners have been identified and year 2000 compliance
has been addressed.
* The Company's ability to process electronic data interchange
transactions with its customers has been tested and certified Year
2000 compliant by the National Retail Federation.
* Electronic transactions dealing with funds transfers, letters of
credit, payroll, and employee benefits have also been addressed and
are currently either already year 2000 compliant or are in the
process of becoming compliant.
Based on the results of the Year 2000 readiness information received
from third parties, the Company believes that its key trading partners
are putting forth their best efforts to minimize identified exposures.
However, the Company has identified alternative suppliers for
significant raw materials should current key suppliers prove unable to
satisfactorily address year 2000 issues and supply necessary raw
materials. The Company believes its contractors' most significant
challenges will relate to transportation and infrastructure of the
foreign countries in which they operate. Alternative contractors will
be identified if current key contractors are unable to satisfactorily
address year 2000 issues and manufacture product. Should customers be
unable to satisfactorily address year 2000 issues, manual procedures
would be employed to ensure key functions such as ordering and invoicing
could be continued. The Company believes the most reasonably likely
worst case scenario with respect to key trading partners would involve
the inability of such partners to conduct business requiring manual
processes to the employed and/or alternative partners to be utilized.
Such a situation may result in temporary increases in costs, delays in
receiving cash payments and/or delays in operating activities.
OUTLOOK
- -------
Kellwood is into a period of solid internal growth led by the Popular-to-
Moderate Women's Branded Sportswear business. As the retail industry
continues to consolidate, Kellwood is increasingly becoming the vendor of
choice for popular-to-moderately priced women's sportswear, men's woven
shirts and other value priced categories of apparel. The Company expects
fiscal 1999 sales to be up approximately 4% to 6% (excluding the impact of
the Koret and Fritzi transactions described above).
The Company is investing in its Vision 2000 initiative which will further
enhance the Company's competitive position and ability to continue to gain
market share and improve profitability in the future.
SAFE HARBOR REGARDING FORWARD-LOOKING STATEMENTS
- ------------------------------------------------
This Form 10-Q includes "forward-looking statements" within the meaning of
the Securities Act of 1933, and of the Securities Exchange Act of 1934, which
represent the Company's expectations or beliefs concerning future events.
Although the Company believes that its expectations reflected in the forward-
13
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
looking statements are reasonable, it cannot and does not give any assurance
that such expectations will prove to be correct. Certain phases of the
Company's operations are subject to influences and factors outside its
control. Any one of these factors or any combination of these factors could
materially affect the results of the Company's operations and cause actual
results to differ materially from the Company's expectations. These factors
include but are not limited to national and regional economic conditions,
inflation or deflation, the overall level of consumer spending, the level of
consumer debt, currency exchange fluctuations, other capital market
conditions, competitive pressures, the performance of the Company's products
within the prevailing retail environment, customer acceptance of both new
designs and newly introduced product lines, the timing and magnitude of
spending on and savings realized from our Vision 2000 initiative, stable
governments and business conditions in the nations where the Company's
products are manufactured, and financial difficulties encountered by
customers. The words "believe", "expect", "will", "estimate", "project",
"forecast", "should", "anticipate" and similar expressions may identify
forward-looking statements. Additionally, all statements other than
statements of historical facts included in this Report on Form 10-Q,
including without limitation, the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
are also forward-looking statements. All forward-looking statements
contained herein and all subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf, are
expressly qualified in their entirety by this cautionary statement.
14<PAGE>
<PAGE>
PART II. OTHER INFORMATION
---------------------------
KELLWOOD COMPANY
----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
The information required by this item is set forth in the Company's Proxy
Statement for the 1998 Annual Meeting of Shareholders, at pages 16 and 18
under the caption "Shareholder Proposed Resolution Report On Contract
Supplier Standards Opposed By The Board Of Directors", which information is
incorporated herein by reference.
The results of the vote for, against, abstain and broker non-vote were
1,395,976, 14,034,586, 2,058,753 and 1,798,461, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) EXHIBITS:
S.E.C. Exhibit
Reference No. Description
------------- ----------------------------------------
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
October 31, 1998.
15
<PAGE>
<PAGE>
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
February 25, 1999 /s/ Thomas H. Pollihan
-----------------------------------
Thomas H. Pollihan
Vice President, Secretary and
General Counsel
February 25, 1999 /s/ Gerald M. Chaney
-----------------------------------
Gerald M. Chaney
Vice President Finance
(Principal Financial Officer)
16
<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, 1998, and from the Condensed
Consolidated Statement of Earnings and Condensed Consolidated
Statement of Cash Flows for the six months ended October 31,
1998, 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-30-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 35,825
<SECURITIES> 0
<RECEIVABLES> 304,482
<ALLOWANCES> 11,586
<INVENTORY> 328,436
<CURRENT-ASSETS> 686,415
<PP&E> 209,854
<DEPRECIATION> 123,992
<TOTAL-ASSETS> 958,379
<CURRENT-LIABILITIES> 270,532
<BONDS> 235,997
0
0
<COMMON> 113,814
<OTHER-SE> 291,869
<TOTAL-LIABILITY-AND-EQUITY> 958,379
<SALES> 937,432
<TOTAL-REVENUES> 937,432
<CGS> 752,502
<TOTAL-COSTS> 752,502
<OTHER-EXPENSES> 125,412
<LOSS-PROVISION> 1,952
<INTEREST-EXPENSE> 15,524
<INCOME-PRETAX> 43,994
<INCOME-TAX> 18,700
<INCOME-CONTINUING> 25,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,294
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
</TABLE>
