<PAGE>
<PAGE>
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, 1999
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
January 31, 1999 (only one class): 22,485,892
----------
1
<PAGE>
<PAGE>
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 8-15
PART II. OTHER INFORMATION 17
2
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
January 31,
------------------------- April 30,
1999 1998 1998
---------- -------- ----------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and time deposits $ 53,420 $ 29,449 $ 31,752
Receivables, net 284,149 243,009 320,104
Inventories 357,976 365,456 374,472
Prepaid taxes and expenses 31,866 34,997 32,655
---------- -------- ----------
Total current assets 727,411 672,911 758,983
Property, plant and equipment, net 93,919 61,541 65,946
Intangible assets, net 95,710 105,016 105,425
Other assets 90,983 84,167 85,159
---------- -------- ----------
$1,008,023 $923,635 $1,015,513
========== ======== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 15,762 $ 15,336 $ 15,298
Notes payable 135,459 94,145 141,736
Accounts payable 89,874 94,869 110,725
Accrued expenses 64,841 58,702 74,746
---------- -------- ----------
Total current liabilities 305,936 263,052 342,505
Long-term debt 227,679 243,455 242,720
Deferred income taxes and other 46,883 46,586 46,123
Shareowners' equity:
Common stock 136,345 109,037 109,657
Retained earnings 340,960 308,878 323,035
Cumulative translation adjustment (8,789) (7,376) (8,542)
---------- -------- ----------
468,516 410,539 424,150
Less treasury stock, at cost (40,991) (39,997) (39,985)
---------- -------- ----------
Total shareowners' equity 427,525 370,542 384,165
---------- -------- ----------
$1,008,023 $923,635 $1,015,513
========== ======== ==========
See notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<PAGE>
<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,
----------------------- -------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $388,744 $373,680 $1,326,176 $1,277,136
Costs and expenses:
Cost of products sold 313,520 304,195 1,066,022 1,028,679
Selling, general and
administrative expenses 59,518 54,975 178,818 172,152
Amortization of intangible
assets 3,673 3,842 11,015 11,601
Interest expense 6,935 6,944 22,459 20,934
Interest income and other, net (4) (390) (1,234) (1,373)
-------- -------- ---------- ----------
Earnings before income taxes 5,102 4,114 49,096 45,143
Income taxes 2,100 1,700 20,800 19,000
-------- -------- ---------- ----------
Net earnings $ 3,002 $ 2,414 $ 28,296 $ 26,143
======== ======== ========== ==========
Weighted average shares
outstanding:
Basic 22,104 21,466 21,767 21,380
======== ======== ========== ==========
Diluted 22,478 22,033 22,205 21,944
======== ======== ========== ==========
Earnings per share:
Basic $ .14 $ .11 $ 1.30 $ 1.22
======== ======== ========== ==========
Diluted $ .13 $ .11 $ 1.28 $ 1.19
======== ======== ========== ==========
Dividends paid per share $ .16 $ .16 $ .48 $ .48
======== ======== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Nine Months Ended
January 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net earnings $ 28,296 $ 26,143
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 22,588 21,424
Increase in prepaid pension cost (3,543) (6,375)
Deferred income taxes and other 1,045 2,226
Changes in working capital components:
Receivables, net 51,453 28,620
Inventories 30,557 (66,518)
Prepaid taxes and expenses 1,316 (6,553)
Accounts payable (28,822) (27,180)
Accrued expenses (11,365) (19,121)
-------- --------
Net cash provided by (used for) operating
activities 91,525 (47,334)
-------- --------
Investing activities:
Additions to property, plant and equipment (41,680) (8,530)
Investment in subsidiaries (120) (2,610)
Other investing activities 3,213 170
-------- --------
Net cash (used for) investing activities (38,587) (10,970)
-------- --------
Financing activities:
Proceeds from debentures - 148,327
Reduction of notes payable, net (9,184) (64,984)
Reduction of long-term debt (15,057) (14,776)
Dividends paid (10,371) (10,259)
Stock transactions under incentive plans 3,342 6,932
-------- --------
Net cash provided by
(used for) financing activities (31,270) 65,240
-------- --------
Net increase in cash and time deposits 21,668 6,936
Cash and time deposits - beginning of period 31,752 22,513
-------- --------
Cash and time deposits - end of period $ 53,420 $ 29,449
======== ========
Significant Noncash investing and financing activities:
Issuance of stock for the acquisition of Fritzi $ 22,340 $ -
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
<PAGE>
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>
January 31,
----------------------- April 30,
1999 1998 1998
-------- -------- ---------
<S> <C> <C> <C>
Finished goods $203,756 $180,508 $175,953
Work in process 85,561 113,370 128,051
Raw materials 68,659 71,578 70,468
-------- -------- --------
$357,976 $365,456 $374,472
======== ======== ========
</TABLE>
If inventories were valued at current replacement costs, they
would have totaled $365,218, $375,720 and $384,714 at January 31,
1999, January 31, 1998, and April 30, 1998, respectively.
3. Intangible assets consisted of:
<TABLE>
<CAPTION>
January 31,
----------------------- April 30,
1999 1998 1998
-------- -------- ---------
<S> <C> <C> <C>
Goodwill $117,585 $112,101 $116,301
Less accumulated
amortization 46,548 37,847 39,974
-------- -------- --------
71,037 74,254 76,327
-------- -------- --------
Other identifiable
intangibles 79,685 81,087 81,106
Less accumulated
amortization 55,012 50,325 52,008
-------- -------- --------
24,673 30,762 29,098
-------- -------- --------
$ 95,710 $105,016 $105,425
======== ======== ========
</TABLE>
6
<PAGE>
PAGE>
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 January 31, 1999, outstanding short-term loans and letters of
credit under the agreement were $60,000 and $112,000,
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 nine months ended
January 31, 1999 and 1998 was $28,049 and $27,047, respectively;
total comprehensive income for the three months ended January 31,
1999 and 1998, was $2,779 and $2,329, 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. Had the
acquisition of Fritzi occurred at the beginning of the earliest
period presented, the impact would not have been significant to
the results of operations of the Company.
7
<PAGE>
<PAGE>
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 nine months
ended January 31, 1999. Sales and earnings for the quarter were up 4%
and 24%, respectively, compared to the prior year.
Kellwood's businesses are quite seasonal. The Company generally sells
its products prior to the principal retail selling seasons: spring,
summer, fall, and holiday. Sales and earnings for the third quarter
have historically been lower than other quarters of the fiscal year
since the month of December falls between the peak periods for the
holiday and spring selling seasons.
On December 11, 1998 the Company purchased 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. The transaction has been
accounted for as a purchase. It contributed $13 million to sales for
the third quarter and the nine month period and has been incorporated
into the Popular-to-Moderate Women's Sportswear segment.
Summarized financial data for the quarter and the nine month period
ended January 31, 1999 and 1998 are as follows ($ in millions;
percentages are calculated based on actual data, but columns may not add
due to rounding):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------------------- -------------------------------------
1999 1998 % Change 1999 1998 % Change
----- ----- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 389 $ 374 4.0% $1,326 $1,277 3.8%
Cost of products sold 314 304 3.1% 1,066 1,029 3.6%
S, G & A 60 55 8.3% 179 172 3.9%
----- ----- ---- ------ ------ ----
Operating earnings 16 15 8.2% 81 76 6.6%
Amort. of intangibles 4 4 -4.4% 11 12 -5.1%
Interest, net & other 7 7 5.8% 21 20 8.5%
----- ----- ---- ------ ------ ----
Earnings before tax 5 4 24.0% 49 45 8.8%
Income Taxes 2 2 23.5% 21 19 9.5%
----- ----- ---- ------ ------ ----
Net Earnings $ 3 $ 2 24.4% $ 28 $ 26 8.2%
===== ===== ==== ====== ====== ====
As a percentage of Sales:
- -------------------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 80.6% 81.4% 80.4% 80.5%
S, G & A 15.3% 14.7% 13.5% 13.5%
----- ----- ------ ------
Operating earnings 4.0% 3.9% 6.1% 6.0%
Amort. of intangibles 0.9% 1.0% 0.8% 0.9%
Interest, net & other 1.8% 1.8% 1.6% 1.5%
----- ----- ------ ------
Earnings before tax 1.3% 1.1% 3.7% 3.5%
Income Taxes 0.5% 0.5% 1.6% 1.5%
----- ----- ------ ------
Net Earnings 0.8% 0.6% 2.1% 2.0%
===== ===== ====== ======
</TABLE>
8
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The increase in sales for the quarter and for the nine month period was
concentrated in the Popular-to-Moderate Women's Sportswear segment,
partially offset by expected declines in the Better-to-Bridge Women's
Sportswear and Private label businesses:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------------------- -------------------------------------
1999 1998 % Change 1999 1998 % Change
---- ---- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Popular-to-Moderate
Women's Sportswear $235 $205 14.9% $ 765 $ 672 13.8%
Better-to-Bridge
Women's Sportswear 34 40 -14.1% 123 153 -19.4%
Private Label 54 63 -13.6% 197 231 -14.7%
Smart Shirts 40 43 -7.2% 154 133 15.9%
Recreation Products 25 23 7.2% 87 88 -1.3%
---- ---- ----- ------ ------ -----
Total Net Sales $389 $374 4.0% $1,326 $1,277 3.8%
==== ==== ===== ====== ====== =====
</TABLE>
The five business portfolios contributed the following percentages of
sales, respectively, for the quarter and for the nine months ended
January 31, 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a % of total Sales:
Popular-to-Moderate
Women's Sportswear 60.5% 54.8% 57.7% 52.6%
Better-to-Bridge
Women's Sportswear 8.8% 10.6% 9.3% 12.0%
Private Label 13.9% 16.8% 14.8% 18.1%
Smart Shirts 10.3% 11.6% 11.6% 10.4%
Recreation Products 6.4% 6.2% 6.6% 6.9%
----- ----- ----- -----
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, as
well as IVY(R) sportswear and Ease Sport(R) dresses. The current
quarter and nine-month period also include $13 million in sales of
Fritzi since the acquisition.
The Better-to-Bridge Women's Sportswear business continues to struggle,
with sales for the quarter and the nine month period down 14% and 19%,
respectively, from 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.
Private label sales in the third quarter were down approximately 14% vs.
the prior year primarily due to reduced outerwear shipments. The
unseasonably warm winter weather was the major cause of this reduction,
but this was further aggravated by inventory carried over by our
customers due to the warm winter weather last year
9
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
and an increasing amount of direct sourcing being done by some
customers. In addition to these factors, the loss of the Brittania(R)
license for men's casual pants (as a result of the brand being sold to
VF Corporation) contributed to Private Label sales being off
approximately 16% for the nine month period vs. the prior year.
Smart Shirts sales for the third quarter were down 7% as had been
expected. As a result of quota constraints in Sri Lanka, Smart Shirts
had to delay some of its third quarter shipments until February. Sales
in the fourth quarter are expected to be up 16-18% vs. fiscal '98
levels. 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
Singapore and other countries (which have ample quota).
The Recreation Products segment reported a 7% increase in sales for the
third quarter due primarily to inventory replenishment by customers in
advance of the '99 camping season. Sales for the nine month period were
1% below the prior year due to inventory reduction programs at retail
initiated earlier in the year.
Cost of Products Sold as a percentage of sales decreased from 81.4% to
80.6% 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. This impact was offset for the
nine month period by the mix impact of sales growth by segment. Five
domestic plants were closed during the first nine months of fiscal 1999,
with approximately $ .7 million of shutdown expense incurred in the
third quarter. Kellwood now sources 78% of its production offshore
compared to 75% last year.
S,G&A expense for the quarter increased to 15.3% of sales from 14.7% in
the prior year primarily due to the impact of increased systems
consulting and freight charges incurred by the Smart Shirts segment.
For the nine month period, SG&A was flat as a percentage of sales due to
a $2.3 million increase in 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 8.2% for the
quarter and 6.6% for the nine 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
systems consulting and freight charges at Smart Shirts. For the nine
month period, a modest decrease in Cost of Products Sold margin resulted
in a slight increase in Operating earnings margin from 6.0% in the prior
year to 6.1%.
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.
10
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Favorable trends in other income were offset by $ .7 million of
acquisition costs related to the pending acquisition of Koret which is
awaiting review by the Securities and Exchange Commission.
FINANCIAL CONDITION
- -------------------
Total debt represents 47% of capital at January 31, 1999 vs. 49% at
January 31, 1998. This decrease is primarily due to the issuance of
844,000 shares of common stock for the purchase of Fritzi. During the
fourth quarter of fiscal 1999 Kellwood will repatriate $35 million from
Smart Shirts (Asia); had this dividend been paid in January and been
used to pay down debt, the Company's total debt would have decreased to
44.4% of capital.
Capital expenditures were $42 million year-to-date; total capital
expenditures for fiscal 1999 are expected to be approximately $50
million due to heavy capital spending on Vision 2000 projects. This
compares with Kellwood's historical levels of capital spending of $11 -
12 million per year.
The current ratio decreased from 2.6 to 1 at January 31, 1998 to 2.2 to
1 at April 30, 1998 and 2.4 to 1 at January 31, 1999, largely as a
result of scheduled principal payments on long-term debt offset by a $22
million increase in short-term notes payable. Long-term fixed rate debt
is now 60% of total debt vs. 69% at January 31, 1998. Accounts
Receivable at January 31 increased $41 million or 17% vs. the prior
year. $15 million of this increase represents the receivables of Fritzi
(which impacted only the last 11/2 months of the third quarter 1999
results). The remainder of the increase is due to more aggressive
payables actions on the part of the Company's customers as well as an
increase in the proportion of Kellwood's business coming from customers
that pay more slowly than the average. The receivables increase was
partially offset by a 2% decrease in inventory levels vs. January 31,
1998.
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 January 31, 1999,
$128 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.
Pending acquisition of Koret
- ----------------------------
During December 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. The transaction is
contingent upon the terms and conditions set forth in the Merger
Agreement; it is expected to close in April or May 1999. More
11
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
information on this transaction can be obtained by review of the Forms
8-K filed with the SEC on December 3, 1998 and January 19, 1999.
In accordance with Pooling accounting treatment, the Koret transaction
will result in the Company having approximately $52 million in
additional equity and $67 million in additional debt (after termination
of Koret's factoring agreement). As a result, following the closing of
the Koret transaction, Kellwood will have a debt to capital ratio of
approximately 50% on a book basis (35% based on a current equity market
value basis). Nearly 50% of the Company's debt will be short-term. The
Company plans to term-out up to $150 million of this debt for a term of
5 - 10 years or more, based on market conditions.
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%
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
business and accounting systems with an Integrated Business System
(IBS).
* 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 expected
to be fully implemented by April 1999.
* The IBS initiative is a corporate-wide effort to install a common
business system throughout the Company. This system will be year
2000 compliant. The Company has four locations that are not
currently year 2000 compliant. IBS implementation is prioritized
to occur first at three of these non-compliant locations. This
implementation is in process and is expected to be substantially
completed by Fall 1999. Testing of IBS is taking place in
conjunction with implementation and is progressing as planned.
One non-compliant location is not scheduled for IBS implementation
until early calendar 2000; the systems at this location are being
remediated.
As part of its contingency plan, the Company is in the process of
remediating the current systems at the three non-compliant
locations scheduled for IBS implementation in calendar '99 in the
event implementation of IBS is delayed at any of these locations.
Testing of systems modifications for the systems being remediated
is planned and will occur as part of the remediation process.
Remediation projects at all four non-compliant locations are
expected to be substantially completed by June 1999.
* Remediation or replacement of certain "non-IT" systems, including
telephone systems, CAD systems, voice mail and shipping software
and equipment is
12
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
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 $1.6 million has already been incurred. The Company has
utilized cash flow from operations to fund year 2000 expenditures.
Several of the Company's pre-IBS business and accounting systems that
have been in use for several years are already year 2000 compliant.
These compliant legacy systems encompass approximately 73% of expected
fiscal 1999 sales. Testing of year 2000 compliance for these systems
has been substantially completed. Implementation of IBS to replace
these systems is not scheduled until fiscal 2000 or later.
The Company believes its most reasonably likely worst case scenario with
respect to its own systems would involve either:
* discrete modules of the IBS which do not handle year 2000 data
properly because they are not properly written, interfaced or
implemented, or
* components or subsystems of our legacy systems which are found to
be not fully or properly remediated.
In either case, the Company would utilize internal systems staff and
increase its utilization of EDS personnel and other qualified
consultants from our software vendors to correct the problems. Until
necessary system modifi- cations 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.
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
13
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
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 in 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 3% to 5% (excluding the
impact of the Koret transaction).
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.
Reorganization and Restructuring of Operating Assets
- ----------------------------------------------------
As part of its Vision 2000 program, Kellwood developed and began
implementing a plan to reorganize and restructure several operating
units that were experiencing operating losses or performing below
expectations. Key components of the plan include the consolidation of
similar types of operating units, relocation and consolidation of
distribution facilities in the northeast, midwest and west coast, and
elimination of redundancies between operating units. These activities
are currently in process and will continue through fiscal 2000.
Kellwood is presently evaluating the effect these changes and changing
market conditions have had or will have on the respective operations and
will review and analyze the financial plans which will be submitted by
the operating units in the fourth quarter of fiscal 1999. For these
operating units, Kellwood plans to review expected future cash flows and
assess the realizability of the carrying value of intangible assets,
including goodwill. The combined carrying value of goodwill for these
particular operating units approximates $50 million. It is possible
this assessment, which is expected to be completed in the fourth quarter
of fiscal 1999, will identify an impairment of goodwill and other
intangible assets or result in a change in the remaining useful lives of
these assets.
14
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
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-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.
15
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
---------------------------
KELLWOOD COMPANY
----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
None
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:
The following reports were filed on Form 8-K during the
three months ended January 31, 1999:
* Current Report on Form 8-K dated December 2, 1998;
* Current Report on Form 8-K dated December 3, 1998;
* Current Report on Form 8-K dated December 18, 1998;
* Current Report on Form 8-K dated January 19, 1999;
Additionally, the Company filed a Report on Form 10-QA for the quarterly
period ended October 31, 1998 on February 25, 1999;
16
<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
March 15, 1999 /s/ Thomas H. Pollihan
------------------------------------
Thomas H. Pollihan
Vice President, Secretary and General Counsel
March 15, 1999 /s/ Gerald M. Chaney
------------------------------------
Gerald M. Chaney
Vice President Finance
(Principal Financial & Accounting Officer)
17
<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,
1999, AND FROM THE CONDENSED CONSOLIDATED STATEMENT
OF EARNINGS AND CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE NINE MONTHS ENDED JANUARY 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 53,420
<SECURITIES> 0
<RECEIVABLES> 295,378
<ALLOWANCES> 11,229
<INVENTORY> 357,976
<CURRENT-ASSETS> 727,411
<PP&E> 225,936
<DEPRECIATION> 132,017
<TOTAL-ASSETS> 1,008,023
<CURRENT-LIABILITIES> 305,936
<BONDS> 227,679
0
0
<COMMON> 136,345
<OTHER-SE> 291,180
<TOTAL-LIABILITY-AND-EQUITY> 1,008,023
<SALES> 1,326,176
<TOTAL-REVENUES> 1,326,176
<CGS> 1,066,022
<TOTAL-COSTS> 1,066,022
<OTHER-EXPENSES> 188,599
<LOSS-PROVISION> 2,244
<INTEREST-EXPENSE> 22,459
<INCOME-PRETAX> 49,096
<INCOME-TAX> 20,800
<INCOME-CONTINUING> 28,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,296
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.28
</TABLE>
