<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 July 31, 2000
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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 576-3100
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
Number of shares of common stock, par value $.01, outstanding at July
31, 2000 (only one class): 23,965,273.
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1
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KELLWOOD COMPANY
----------------
INDEX
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Page No.
--------
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Earnings 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II. OTHER INFORMATION 17
2
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PART I. FINANCIAL INFORMATION
------------------------------
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
July 31,
------------------------- January 31,
2000 1999 2000
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and time deposits $ 14,347 $ 71,578 $ 54,501
Receivables, net 314,628 339,114 326,868
Inventories 450,961 382,447 394,988
Prepaid taxes and expenses 37,322 39,395 47,921
---------- ---------- ----------
Total current assets 817,258 832,534 824,278
Property, plant and equipment, net 105,297 105,048 103,674
Intangible assets, net 67,140 58,852 68,220
Other assets 106,987 97,165 101,681
---------- ---------- ----------
Total assets $1,096,682 $1,093,599 $1,097,853
========== ========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Current portion of long-term debt $ 9,303 $ 16,412 $ 10,992
Notes payable 19,467 2,124 4,083
Accounts payable 152,658 118,014 151,637
Accrued expenses 77,543 80,552 81,446
---------- ---------- ----------
Total current liabilities 258,971 217,102 248,158
Long-term debt 341,767 373,494 346,479
Deferred income taxes and other 59,628 50,001 57,346
Shareowners' equity:
Common stock 167,554 165,420 166,312
Retained earnings 389,010 338,458 361,000
Accumulated other comprehensive income (9,836) (9,558) (9,378)
---------- ---------- ----------
546,728 494,320 517,934
Less treasury stock, at cost (110,412) (41,318) (72,064)
---------- ---------- ----------
Total shareowners' equity 436,316 453,002 445,870
---------- ---------- ----------
Total liabilities & shareowners' equity $1,096,682 $1,093,599 $1,097,853
========== ========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
--------------------------------------------------------
(Amounts in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
----------------------- -------------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $469,283 $470,575 $1,118,723 $1,099,019
Costs and expenses:
Cost of products sold 372,297 369,859 880,273 854,810
Selling, general and
administrative expenses 77,918 76,714 161,875 164,778
Amortization of intangible assets 1,818 1,659 3,535 5,863
Interest expense 6,418 6,357 14,506 14,409
Interest income and other, net 194 (71) (408) (404)
Costs of Koret merger - - - 5,288
Provision for facilities shut-down - - - 6,793
Provision for goodwill impairment - - - 48,945
-------- -------- ---------- ----------
Earnings before income taxes 10,638 16,057 58,942 (1,463)
Income taxes 4,000 6,500 23,300 19,991
-------- -------- ---------- ----------
Net earnings $ 6,638 $ 9,557 $ 35,642 $ (21,454)
======== ======== ========== ==========
Weighted average shares outstanding:
Basic 23,944 27,722 24,327 27,515
======== ======== ========== ==========
Diluted 24,002 28,081 24,370 28,114
======== ======== ========== ==========
Earnings per share:
Basic $ .28 $ .34 $ 1.47 $ (.78)
======== ======== ========== ==========
Diluted $ .28 $ .34 $ 1.46 $ (.76)
======== ======== ========== ==========
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
July 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 35,642 $ (21,454)
Add/(deduct) items not affecting operating cash flows:
Depreciation and amortization 12,817 14,687
Increase in prepaid pension cost (4,072) (2,679)
Deferred income taxes and other 178 615
Non-cash portion of facilities shut-down provision - 1,146
Provision for goodwill impairment - 48,945
Changes in working capital:
Receivables, net 12,240 (59,135)
Inventories (55,973) 33,728
Prepaid taxes and expenses 10,599 (493)
Accounts payable 1,021 15,763
Accrued expenses (3,903) 10,877
--------- ---------
Net cash provided by operating activities 8,549 42,000
--------- ---------
INVESTING ACTIVITIES:
Additions to fixed assets (13,188) (15,699)
Investment in subsidiaries - (8,888)
Other investing activities 240 346
--------- ---------
Net cash provided/(used) by investing activities (12,948) (24,241)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 149,127
Reduction of long-term debt (6,401) (12,668)
Proceeds from notes payable 258,856 541,980
Reduction of notes payable (243,472) (675,315)
Dividends paid (7,765) (8,033)
Stock repurchase pursuant to announced plan (38,127) -
Stock transactions under incentive plans 1,154 4,506
--------- ---------
Net cash provided/(used) by financing activities (35,755) (403)
--------- ---------
NET INCREASE IN CASH AND TIME DEPOSITS (40,154) 17,356
Cash and time deposits, beginning of period 54,501 54,222
--------- ---------
Cash and time deposits, end of period $ 14,347 $ 71,578
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
5
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Amounts in thousands)
1. ACCOUNTING POLICIES. 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 Annual Report to Shareowners for the Nine-Month Transition
Period Ended January 31, 2000. For additional information regarding the
Company's financial condition, refer to the footnotes accompanying the
Transition Period financial statements. Details in those notes have not
changed significantly except as indicated herein and as a result of
normal transactions in the interim.
2. CHANGE IN FISCAL YEAR. In August 1999 the company changed its fiscal
year-end from April 30 to January 31. This change resulted in a short
fiscal year covering the nine month transition period from May 1, 1999
to January 31, 2000. References to the company's fiscal periods
represent the following:
Fiscal Period Represents
------------- ----------
fiscal 2000 the year ended January 31, 2001
the Transition Period the nine months ended January 31, 2000
fiscal 1999 the year ended April 30, 1999
3. FACILITY CONSOLIDATIONS. In the fourth quarter of fiscal 1999, the
Company recorded a provision for facilities shut-down of $6,793.
Details of activity during the quarter related to this provision and the
accrual balances remaining at July 31, 2000 are as follows:
<TABLE>
<CAPTION>
Accrual Spending in the quarter ended Accrual
Balance at -------------------------------- Balance at
January 31, 2000 April 30, 2000 July 31, 2000 July 31, 2000
---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Employee severance $3,298 $502 $1,977 $ 819
Vacant facilities / lease termination 1,167 27 338 802
Other cash restructuring costs 189 18 21 150
------ ---- ------ ------
Total restructuring, excluding non-cash $4,654 $547 $2,336 $1,771
====== ==== ====== ======
</TABLE>
Facility consolidations represented by the remaining accrual are
expected to be substantially completed in fiscal 2000.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
July 31,
----------------------- January 31,
2000 1999 2000
-------- -------- ----------
<S> <C> <C> <C>
Inventories:
Finished goods $274,230 $230,405 $221,765
Work in process 95,349 89,574 96,086
Raw materials 81,382 62,468 77,137
-------- -------- --------
Total Inventories $450,961 $382,447 $394,988
======== ======== ========
</TABLE>
If inventories were valued at current replacement costs, they would have
totaled $452,943, $387,743 and $396,970 at July 31, 2000, July 31, 1999,
and January 31, 2000, respectively.
6
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
July 31,
---------------------- January 31,
2000 1999 2000
------- ------- -----------
<S> <C> <C> <C>
Intangible assets:
Goodwill $63,548 $63,887 $63,886
less accumulated amortization 22,153 18,558 20,509
------- ------- -------
Net goodwill 41,395 45,329 43,377
------- ------- -------
Other identifiable intangibles 55,007 40,156 52,722
less accumulated amortization 29,262 26,633 27,879
------- ------- -------
Net other identifiable intangibles 25,745 13,523 24,843
------- ------- -------
Net intangible assets $67,140 $58,852 $68,220
======= ======= =======
</TABLE>
5. DEBT. On August 31, 1999 the Company executed a $350,000 Senior
Credit Facility with Bank of America as lead arranger and other
participating banks (the "1999 Facility"). In connection with the
execution of the 1999 Facility the Company paid various fees and costs
totaling approximately $750. Facility fees range from .15% to .20% of
the committed amount. The 1999 Facility comprises a $100,000 364 day
revolving credit facility and a $250,000 three-year revolving credit
facility. In August 2000 the 364 day revolving credit facility was
extended for an additional year. The $250,000 three-year revolving
credit facility can also be used for letters of credit. Borrowings under
the 1999 Facility bear interest at a spread of approximately .6% over
LIBOR. Covenants related to the 1999 Facility are more flexible than
those currently existing for Kellwood's notes due insurance companies.
At July 31, 2000, outstanding short-term loans and letters of credit
under the agreement were $0 and $166,000, respectively.
The Company maintains informal, uncommitted lines of credit with several
banks which totaled $125,000 at July 31, 2000. Borrowings under these
uncommitted lines totaled $15,000 at July 31, 2000.
6. COMMON STOCK REPURCHASE. In November 1999 the Board of Directors
authorized the Company to repurchase up to ten percent of the
outstanding shares of its Common Stock (up to approximately 2.8 million
shares) in the open market or through privately negotiated transactions
at management's discretion and depending on market conditions. Pursuant
to this authorization, from December 1999 to February 2000 the Company
purchased 2.78 million shares at an average price of $17.35 per share.
In March 2000 the Board of Directors authorized the Company to
repurchase up to ten percent of the outstanding shares of its Common
Stock (up to approximately 2.5 million shares) in the open market or
through privately negotiated transactions at management's discretion and
depending on market conditions. Purchases will be financed out of the
Company's cash resources. Pursuant to this authorization, during March
2000 the Company purchased 1.17 million shares at an average cost of
$17.07 per share, and during the period August 11 - September 12, 2000
the Company purchased .79 million shares at an average cost of $16.69
per share. As discussed in Note 6 to the Transition Period financial
statements, certain debt covenants may limit purchases under this
authorization.
On September 8, 2000 the Board of Directors authorized the Company to
repurchase up to an additional ten percent of the outstanding shares of
its Common Stock (up to approximately 2.27 million shares) in the open
market or through privately negotiated transactions at management's
discretion and depending on market conditions. Purchases will be
financed out of the Company's cash resources. As discussed in Note 6 to
the Transition Period financial statements, certain debt covenants may
limit purchases under this authorization.
7
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Amounts in thousands)
7. REPORTABLE SEGMENTS. The Company and its subsidiaries are
principally engaged in the apparel and related soft goods industry.
Reflecting the change in the way the Company's business units are viewed
and evaluated by management, effective in fiscal 2000, the Company
changed the segments by which its results are reported. Segment
information for prior periods has been restated. The Company's business
units are aggregated into the following reportable segments:
* Women's Sportswear designs, merchandises and sells women's
sportswear sold through leading retailers in all channels of
distribution. The product line includes blazers, dresses,
sweaters, blouses, vests, other tops, skirts, pants, and
skorts. The business is primarily branded goods sold at the
popular-to-moderate price points, but the segment does
include some better-to-bridge lines -- upper price point
women's sportswear sold principally to small specialty
stores, regional department stores and catalog houses.
* Men's Sportswear designs, manufactures and sells men's woven
and knit shirts, pants, jeans and outerwear sold to leading
department stores, catalog houses and national chains. The
business is primarily private label but also includes a
number of branded programs such as Slates(R) business casual
shirts, sweaters and outerwear and Nautica(R) dress shirts
and rainwear.
* Other Soft Goods includes intimate apparel and recreation
products.
Sales, operating earnings, and net assets by segment for the quarters
and six month periods ended July 31, 2000 and 1999 as well as a
reconciliation of the operating earnings (defined as Net Sales less Cost
of Products Sold and Selling, General and Administrative expenses) of
the reported segments to total Kellwood earnings before income taxes are
as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
Women's Sportswear $313,611 $333,080 $ 779,681 $ 803,110
Men's Sportswear 77,303 73,152 158,929 137,447
Other Soft Goods 78,369 64,343 180,113 158,462
-------- -------- ---------- ----------
Kellwood net sales $469,283 $470,575 $1,118,723 $1,099,019
======== ======== ========== ==========
Operating earnings:
Women's Sportswear $ 14,412 $ 22,649 $60,625 $73,305
Men's Sportswear 8,989 3,823 15,362 7,333
Other Soft Goods 4,885 4,747 17,140 16,635
-------- -------- ---------- ----------
Total segments 28,286 31,219 93,127 97,273
Amortization of Intangibles (1,818) (1,659) (3,535) (5,863)
Interest expense (6,418) (6,357) (14,506) (14,409)
General corporate and other (9,412) (7,146) (16,144) (17,438)
Impairment, restructuring & merger costs - - - (61,026)
-------- -------- ---------- ----------
Earnings before income taxes $ 10,638 $ 16,057 $ 58,942 $ (1,463)
======== ======== ========== ==========
Net Assets at quarter-end:
Women's Sportswear $502,975 $527,054
Men's Sportswear 131,769 139,016
Other Soft Goods 140,801 96,507
Corporate and other 31,308 82,455
-------- --------
Kellwood total $806,853 $845,032
======== ========
</TABLE>
8
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Amounts in thousands)
Segment net assets measures net working capital, net fixed assets and
other non-current operating assets and liabilities of the segment.
8. STOCK OPTION PLANS. On June 1, 2000, the Company granted
nonqualified stock options to certain officers and other key employees
for 565,050 shares of common stock at an exercise price of $16.97, which
was equal to the market value of the shares on the grant date.
9. COMPREHENSIVE INCOME. The Company's total comprehensive income for
the quarter ended July 31, 2000 and 1999, was $6,635 and $9,329,
respectively. The Company's total comprehensive income for the six
months ended July 31, 2000 and 1999, was $35,184 and ($20,901),
respectively. Differences between net earnings and total comprehensive
income in each year, respectively, resulted from foreign currency
translation.
10. SUBSEQUENT EVENT - ACQUISITIONS. On August 4, 2000, the Company
acquired the business assets of Academy Broadway Corp. for book value of
approximately $6,775. Academy Broadway will become part of the Other
Soft Goods segment. The transaction will be accounted for as a
purchase.
On August 24, 2000 the Company announced that it had signed a definitive
agreement to acquire Dorby Frocks, Ltd., a New York-based maker of
women's apparel with over $100 million in annual sales. Dorby will be a
part of the Women's Sportswear segment. The transaction is expected to
close in September and will be accounted for as a purchase.
9
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - $ IN MILLIONS EXCEPT PER SHARE DATA
-----------------------------------------------------------
OPERATING RESULTS
-----------------
Kellwood Company recorded sales for the second quarter ended July 31,
2000 of $469.3, essentially flat with the $470.6 reported in the prior
year. Net earnings for the quarter were $6.6 or $.28 per share on a
diluted basis, down from $9.6 or $.34 per share last year. As a result
of Kellwood's share repurchase program initiated in December 1999,
average diluted shares in the quarter were 24.0 million vs. 28.1 million
in the prior year.
Sales in the first half were a record $1,119, up 2% compared to the
prior year. Net earnings for the half were also a record, up 2% to
$35.6 from the $35.1 before unusual items reported last year. Diluted
earnings per share for the first half increased 17% to $1.46 per share
compared to $1.25 per share before unusual items reported last year.
Since December 1999 the Company has repurchased approximately 4.7
million shares at a total cost of approximately $81.5, an average cost
of $17.18 per share.
SEASONALITY: 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
quarter ended July 31 have historically been lower than for the other
quarters of the fiscal year. In recent years, the July quarter's
results have represented approximately 22% of the year's sales and 14%
of net earnings before unusual items.
SUMMARIZED FINANCIAL DATA for the quarter and the six months ended July
31, 2000 and 1999 are as follows. (percentages are calculated based on
actual data, but columns may not add due to rounding)
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
------------------------------- ---------------------------------
2000 1999 % Change 2000 1999 % Change
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 469 $ 471 -0.3% $1,119 $1,099 1.8%
Cost of products sold 372 370 0.7% 880 855 3.0%
S, G & A 78 77 1.6% 162 165 -1.8%
------ ------ ----- ------ ------ -----
Operating earnings 19 24 -20.6% 77 79 -3.6%
Amort. of intangibles 2 2 9.6% 4 6 -39.7%
Interest, net & other 6 6 1.0% 15 14 0.7%
Koret merger costs - - - 5
Facilities shut-down - - - 7
Goodwill impairment - - - 49
------ ------ ------ ------
Earnings before tax 11 16 59 (1)<F*>
Income Taxes 4 7 23 20
------ ------ ------ ------
Net Earnings $ 7 $ 10 $ 36 $ (21)<F**>
====== ====== ====== ======
Effective tax rate<F***> 37.6% 40.5% -2.9% 39.5% 41.1% -1.6%
Average diluted shares 24.0 28.1 -14.5% 24.4 28.1 -13.3%
------ ------ ----- ------ ------ -----
<FN>
<F*> - Earnings before income taxes, excluding the impact of the unusual
items (Merger costs, facilities shut-down, and Goodwill impairment),
were $59 in 2000 compared to $60 in 1999, a 1.0% decrease.
<F**> - Net Earnings for the six months, excluding the impact of the
unusual items (Merger costs, facilities shut-down, and Goodwill
impairment), were $36 in 2000 compared to $35 in 1999, a 1.7% increase.
<F***> - Excluding the impact of the unusual items (Merger costs,
facilities shut-down, and Goodwill impairment).
</TABLE>
10
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<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
------------------------------- --------------------------------
2000 1999 % Change 2000 1999 % Change
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
As a percentage of Net Sales:
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 79.3% 78.6% .7% 78.7% 77.8% .9%
S, G & A 16.6% 16.3% .3% 14.5% 15.0% -.5%
----- ----- ---- ----- ----- ---
Operating earnings 4.1% 5.1% -1.0% 6.8% 7.2% -.4%
Amort. of intangibles .4% .4% - .3% .5% -.2%
Interest, net & other 1.4% 1.3% .1% 1.3% 1.3% -
----- ----- ---- ----- ----- ---
Earnings before income taxes
and unusual items 2.3% 3.4% -1.1% 5.3% 5.4% -.1%
Impairment, restructuring
& merger costs - - - 5.6%
----- ----- ----- -----
Earnings before income taxes 2.3% 3.4% 5.3% -.1%
Income Taxes 0.9% 1.4% 2.1% 1.8%
----- ----- ----- -----
Net Earnings 1.4% 2.0% 3.2% -2.0%
===== ===== ===== =====
</TABLE>
SALES. The primary sales weakness in the quarter was in Women's
Sportswear which declined 6% from the prior year due to softness in
Spring and Summer sales in this segment across nearly every channel of
distribution. As a result, retailers have cancelled some early fall
orders and pushed out delivery dates for fall merchandise.
The year-to-year drop in sales of Women's Sportswear for the quarter was
largely offset by:
* a 6% increase in sales of Men's Sportswear due to the
successful introduction of the new Slates(R) line of men's
casual business sportswear,
* growth in the Company's private label shirt business, and
* the sales of Biflex, a bra company, acquired in January
2000.
Sales for the first half were $1,119, up $20 or 2%. The year-to-year
$23 (3%) drop in sales of Women's Sportswear was offset by a $21 (16%)
increase in sales of Men's Sportswear and a $22 (14%) increase in sales
of Other Soft Goods as a result of the acquisition of Biflex.
COST OF PRODUCTS SOLD as a percentage of sales in the quarter increased
.7% to 79.3% from 78.6% in the prior year. This was caused by a two
percentage point drop in Women's Sportswear margins due to the
previously mentioned soft retail climate which resulted in having to
take higher markdown allowances than planned as well as higher inventory
markdowns required to liquidate some merchandise below full wholesale
prices due to cancelled orders. This margin decline was partially
offset by:
* a strong performance by the Men's Sportswear segment, driven
by more competitive sourcing and running most of the
segment's facilities at near full capacity, and
* the acquisition of Biflex in January 2000.
Cost of Products Sold as a percentage of sales for the half increased to
78.7% from 77.8% in the prior year. In addition to the above second
quarter factors which are also applicable to the first half, a
reclassification of certain distribution costs in the first quarter from
S,G&A expense into Cost of Goods Sold combined with the year-end LIFO
adjustment recorded in April 1999 had a .4% impact.
S,G&A EXPENSE for the quarter increased $1.2 to 16.6% of sales from
16.3% in the prior year principally due to higher investment spending to
develop and install new information systems and to launch several new
marketing initiatives. These investments were partially offset by S,G&A
cost reductions as a result of the consolidation of certain
administrative support and other activities.
S,G&A expense for the first half decreased $2.9 to 14.5% of sales from
15.0% in the prior year. In addition to the above second quarter
factors, which were applicable to the first half, the first quarter
reclassification of certain distribution costs out of S,G&A into burden
reduced reported S,G&A and S,G&A as a percentage of sales in the current
year.
11
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<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
AMORTIZATION of intangible assets for the first half decreased compared
to the prior year as a result of the provision for goodwill impairment
recorded in the April 1999 quarter.
INTEREST EXPENSE for the quarter was flat compared to the prior year as
a result of the net impact of:
* a $1.2 reduction in interest expense from the marking to
market of the swap and swaption entered into in January 2000
offset by
* $1.2 higher interest expense associated with increased debt
level resulting from the repurchase of $68 of the Company's
outstanding shares.
The Company also incurred $.4 higher interest expense due to the higher
fixed rates on the $150 Senior Notes issued in July 1999. Offsetting
this was lower interest expense resulting from continued improvements in
working capital management.
THE EFFECTIVE TAX RATE for the quarter and the six months ended July 31,
2000 decreased to 37.6% and 39.5% from 40.5% and 41.1% in the prior year
as a result of the decreased amortization of goodwill and as the result
of certain business initiatives undertaken to reduce the company's
effective state income tax rate. The decreased amortization of goodwill
resulted from the provision for goodwill impairment recorded in April
1999 which reduced the Company's non-deductible amortization expense.
SHARES OUTSTANDING AND EPS
--------------------------
From December 1999 through March 2000, the Company repurchased over 3.9
million shares of Kellwood Company common stock. As a result, there
were only 24.0 million average shares outstanding for the quarter (and
24.4 million for the six months ended July 31, 2000), compared with 28.1
million shares on a diluted basis in the prior year.
RESTRUCTURING
-------------
In the fourth quarter of fiscal 1999 the Company recorded a provision
for facilities shut-down which included an accrual of $5.2 for costs of
plant closures. During the second quarter, $2.3 was expended on
termination benefits, vacant facilities costs, and other costs pursuant
to this charge. Facility consolidations represented by the remaining
accrual balance are expected to be substantially completed in fiscal
2000.
SEGMENT RESULTS
---------------
The Company and its subsidiaries are principally engaged in the apparel
and related soft goods industry. Reflecting the change in the way the
Company's business units are viewed and evaluated by management,
effective in fiscal 2000, the Company changed the segments by which its
results are reported. Segment information for prior periods has been
restated. The Company's business units are aggregated into the
following reportable segments:
* Women's Sportswear,
* Men's Sportswear, and
* Other Soft Goods, which includes intimate apparel and
recreation products.
Sales by segment for the quarter were as follows:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
----------------------------- -------------------------------
2000 1999 % Change 2000 1999 % Change
---- ---- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Women's Sportswear $314 $333 -5.8% $ 780 $ 803 -2.9%
Men's Sportswear 77 73 5.7% 159 137 15.6%
Other Soft Goods 78 64 21.8% 180 158 13.7%
---- ---- ---- ------ ------ ----
Total Net Sales $469 $471 -0.3% $1,119 $1,099 1.8%
==== ==== ==== ====== ====== ====
</TABLE>
12
<PAGE>
<PAGE>
The business portfolios contributed the following percentages of
Kellwood Net Sales for the quarter, respectively:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales:
Women's Sportswear 66.8% 70.8% 69.7% 73.1%
Men's Sportswear 16.5% 15.5% 14.2% 12.5%
Other Soft Goods 16.7% 13.7% 16.1% 14.4%
----- ----- ----- -----
Total Net Sales 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Operating Earnings by segment for the quarter and the six months were as
follows:
<TABLE>
<CAPTION>
Three months ended July 31, Operating margin
------------------------------ -----------------
2000 1999 % Change 2000 1999
----- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Operating Earnings:
Women's Sportswear $14.4 $22.6 -36.4% 4.6% 6.8%
Men's Sportswear 9.0 3.8 135.1% 11.6% 5.2%
Other Soft Goods 4.9 4.7 2.9% 6.2% 7.4%
----- ----- ----- ---- ---
Segment Operating Earnings $28.3 $31.2 -9.4% 6.0% 6.6%
===== ===== ===== ==== ===
<CAPTION>
Six months ended July 31, Operating margin
------------------------------ ----------------
2000 1999 % Change 2000 1999
----- ----- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Operating Earnings:
Women's Sportswear $60.6 $73.3 -17.3% 7.8% 9.1%
Men's Sportswear 15.4 7.3 109.5% 9.7% 5.3%
Other Soft Goods 17.1 16.6 3.0% 9.5% 10.5%
----- ----- ----- --- ----
Segment Operating Earnings $93.1 $97.3 -4.3% 8.3% 8.9%
===== ===== ===== === ====
</TABLE>
Women's Sportswear sales for the second quarter were down $19 or 6%
compared to the prior year due to weak consumer demand in this sector of
the marketplace over the past three months. As a result, retailers have
cancelled some orders, pushed out delivery dates for fall merchandise
and cancelled other orders of summer product if the merchandise was not
delivered within their shipping window. Sales for this segment for the
first half were down $23 or 3% due to the impact of these second quarter
factors and as a result of late deliveries of Spring product from a
number of contractors, principally in Mexico. Partially offsetting this
slippage was growth from Kellwood's dress businesses, including Kathie
Lee(R), Sag Harbor(R), Plaza South(TM), MHM(R), Studio Ease(R), M by
David Meister(TM), and Vintage Blue(TM). Operating earnings (defined as
net sales less cost of products sold and selling, general and
administrative expenses) decreased as a consequence of the cancelled or
delayed orders (for the second quarter) and the contractor delivery
problems discussed above (for the first half).
Men's Sportswear sales for the second quarter increased $4 or 6% ($22 or
16% for the first half) due principally to the increased distribution of
the new Slates(R) line of men's casual business sportswear and dress
shirts. Growth is also being driven by the newly expanded knit shirt
capacity in the Maldives and by an increase in sales of men's pants made
in Sri Lanka to Polo and Hilfiger. The shirt business is also
benefiting from pipeline filling as the retailers change their product
mix to include a more broad range of new colors and upgraded
fabrications. Operating earnings increases and the increase in the
operating margin were driven by increased capacity in China, Sri Lanka
and the Maldives as well as expansion of the Company's network of
contractors in low cost areas. More efficient operation as facilities
are operating closer to capacity has also improved gross margins.
The Other Soft Goods segment reported a 22% increase in sales for the
quarter (14% for the first half) as a result of the acquisition of
Biflex International, Inc., a bra company, in January 2000. While the
Biflex acquisition added $15 in sales for the quarter ($27 for the first
half), this was partially offset by a 4% decline in the sales of
recreation products for the quarter. The segment's operating earnings
for the quarter increased slightly as compared to the prior year as a
result of the addition of Biflex, but the segment's operating margin
declined slightly because of product mix within this segment. Future
results of this segment will include the sales of Academy Broadway, a
$25 (sales) competitor in the discount mass merchandising market, which
Kellwood acquired in August.
13
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
FINANCIAL CONDITION
-------------------
Cash flow from operations is ordinarily the Company's primary source of
liquidity. Kellwood uses financial leverage to minimize the overall
cost of capital and maintain adequate operating and financial
flexibility. Management monitors leverage through its debt-to-capital
ratio. Working capital management is monitored primarily by analysis of
the Company's investment in accounts receivable and inventories and by
the amount of accounts payable.
LEVERAGE
--------
Total debt represents 46% of capital at July 31, 2000 as compared to 45%
at January 31, 2000 and 46% at July 31, 1999. The major items impacting
leverage in this period were the acquisition of Biflex in January 2000
for $29 and the repurchase of 3.9 million Kellwood shares at a cost of
$68 during the November 1999 to March 2000 time frame. The Company's
borrowing needs were held down by improved working capital management.
WORKING CAPITAL
---------------
The current ratio decreased to 3.2 at July 31, 2000 and 3.3 at January
31, 2000 compared to 3.8 at July 31, 1999. The July 1999 level was
unusually high, largely as a result of the $150 long-term debt issuance
in July 1999. This debt issuance substantially eliminated current Notes
payable and temporarily increased the Company's balance of Cash and time
deposits.
Accounts Receivable at July 31 decreased $24 or 7% vs. the prior year,
while accounts payable increased $35 or 29%, both as a result of the
Company's increased focus on improving working capital management.
The receivables and payables improvements were offset by a $68 increase
in inventory levels as compared to the prior year. Part of this
increase resulted from of the acquisition of Biflex, which added $16 to
inventory. The remaining increase was needed to support higher sales
levels expected for the second half of the year. Kellwood's overall
inventory days on hand were 71 at July 31, 2000 compared to 66 in the
prior year.
FINANCING AND INVESTING ACTIVITIES
----------------------------------
Capital expenditures were $13 for the first half compared to $16 in the
prior year. Capital spending for fiscal 2000 is expected to be about
$30.
In July 1999 the Company completed a public debt offering totaling $150.
These Senior Notes mature in July 2009 and carry a 7.875% coupon rate.
They received investment grade ratings from Moody's and S&P of Baa3/BBB.
As discussed in Note 6 to the Transition Period financial statements,
the Company has also entered into an interest rate swap agreement and
related swap cancellation option agreement to convert the interest rate
on this debt from fixed to variable.
The Company maintains a $350 credit facility. This facility comprises a
364 day revolving credit facility in the amount of $100, and a $250
three-year revolving credit facility which can also be used for letters
of credit. At April 30, 2000, $184 was available for future use under
this credit facility.
ACQUISITIONS:
* On August 4, 2000, the Company acquired the business assets
of Academy Broadway Corp. for book value of approximately
$6.8. Academy Broadway will become part of the Other Soft
Goods segment. The transaction will be accounted for as a
purchase.
* On August 24, 2000 the Company announced that it had signed
a definitive agreement to acquire Dorby Frocks, Ltd., a New
York-based maker of women's apparel with over $100 in annual
sales. Dorby will be a part of the Women's Sportswear
segment. The transaction is expected to close in September
and will be accounted for as a purchase.
The Company continually evaluates possible acquisition candidates as a
part of its ongoing corporate development process. Various other
potential acquisition candidates are in different stages of this
process.
14
<PAGE>
<PAGE>
On March 2, 2000 the Board of Directors authorized the Company to
repurchase up to ten percent of the outstanding shares of its Common
Stock (up to approximately 2.5 million shares) at management's
discretion and depending on market conditions. Purchases will be
financed out of the Company's cash resources. Pursuant to this
authorization, during March 2000 the Company purchased 1.17 million
shares at an average cost of $17.07 per share, and during the period
August 11 - September 12, 2000 the Company purchased .79 million shares
at an average cost of $16.69 per share. As discussed in Note 6 to the
Transition Period financial statements, certain debt covenants may limit
purchases under this authorization. Since November 1999 the Company has
repurchased over 4.7 million shares, or 17.0% of the outstanding shares,
at a total cost of $81.5, an average price of $17.18 per share.
On September 8, 2000 the Board of Directors authorized the Company to
purchase up to an additional ten percent of the outstanding shares of
its Common Stock (up to approximately 2.27 million shares) at
management's discretion.
Management believes that the combined operating, cash and equity
position and credit facilities of the Company will continue to provide
the capital flexibility necessary to fund future opportunities and to
meet existing obligations.
OUTLOOK AS OF SEPTEMBER 13, 2000
--------------------------------
Management expects Kellwood's sales for the year to be up approximately
6%, and the operating earnings margin for fiscal 2000 is expected to be
approximately 6.4% of sales for the year, excluding the impact of the
Dorby acquisition. The income tax rate is expected to be approximately
39.5%.
The Dorby acquisition, if closed in September as anticipated, will add
approximately $30 of sales to fiscal 2000. Due to purchase accounting
adjustments and goodwill amortization, however, the acquisition of Dorby
will reduce operating earnings by about $1 (to 6.2% of sales for the
year). The impact on earnings per share for fiscal 2000 is expected to
be dilution of approximately $.10.
Kellwood is also continuing to pursue a number of new programs that are
expected to further drive growth rates to the mid-to-high single digit
percentage rates in fiscal 2001 and beyond.
CHANGE IN THE COMPANY'S FISCAL YEAR FROM APRIL 30 TO JANUARY 31, 2000
---------------------------------------------------------------------
In August 1999 the company changed its fiscal year-end from April 30 to
January 31 to bring Kellwood more in line with the operating cycle of
its business and the fiscal year-ends of its customers and other apparel
companies. The Company has decided to identify the twelve-month period
ending January 31, 2001 as "fiscal 2000" in keeping with the custom of
many retail and apparel companies.
MARKET RISK DISCLOSURES - INTEREST RATE RISK; FAIR VALUE DISCLOSURE
-------------------------------------------------------------------
At July 31, 2000, the Company's debt portfolio was composed of
approximately 46% variable-rate debt (including the amount of debt
subject to the swap and option discussed above) and 54% fixed-rate debt.
Kellwood's strategy regarding management of its exposure to interest
rate fluctuations did not change significantly during the quarter.
Except for the outcome of the option to cancel the interest rate swap
discussed in note 6 to the Transition Period financial statements,
management does not expect any significant changes in its exposure to
interest rate fluctuations or in how such exposure is managed during
fiscal 2000.
Based on quoted market prices obtained through independent pricing
sources for the same or similar types of borrowing arrangements, the
Company believes the major components of its long-term debt have a
market value of approximately $341 at July 31, 2000 which compares to
their book value of $351. With respect to the Company's fixed-rate debt
outstanding at July 31, 2000, a 10% increase in interest rates would
have resulted in approximately a $11 decrease in the market value of
Kellwood's fixed-rate debt; a 10% decrease in interest rates would have
resulted in approximately a $20 increase in the market value of
Kellwood's fixed-rate debt. With respect to the Company's variable-rate
debt, a 10% change in interest rates would have had an immaterial impact
on the Company's interest expense for the quarter.
15
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
CAUTIONARY NOTE CONCERNING FACTORS THAT MAY AFFECT FUTURE RESULTS
-----------------------------------------------------------------
This Quarterly Report contains statements which, to the extent they are
not statements of historical or present fact, constitute "forward-
looking statements" within the meaning of the Securities Act of 1933,
the Securities Exchange Act of 1934, and the Private Securities
Litigation Reform Act of 1995. These forward-looking statements
represent the Company's expectations or beliefs concerning future events
and are based on various assumptions and subject to a wide variety of
risks and uncertainties. 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. The Company's forward-looking statements are based
on certain assumptions, and the Company's operations are subject to
various risks and uncertainties. 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:
* changes in trends in the market segments in which the
Company competes,
* the performance of the Company's products within the
prevailing retail environment,
* customer acceptance of both new designs and newly introduced
product lines,
* actions of competitors that may impact the Company's
business,
* financial or operational difficulties encountered by
customers or suppliers,
* the impact of economic changes such as:
* the overall level of consumer spending for apparel,
* national and regional economic conditions,
* inflation or deflation,
* currency exchange fluctuations,
* changes in interest rates and other capital market
conditions,
* 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,
* the scope, nature or impact of acquisition activity, and
* changes in the Company's plans, strategies, objectives,
expectations and intentions which may happen at any time at
the discretion of the Company.
The reader is also directed to the Company's periodic filings with the
Securities and Exchange Commission for additional factors that may
impact the Company's results of operations and financial condition.
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 Annual Report including
without limitation, the statements under "Financial Review" and
"Outlook", are also forward-looking statements.
Forward-looking statements are not guarantees, as actual results could
differ materially from those expressed or implied in forward-looking
statements. The Company specifically disclaims any obligation to
publicly update, modify, retract or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. All forward-looking statements contained herein, the entire
contents of the Company's website, 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.
16
<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 July 31, 2000:
none
17
<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
September 13, 2000 /s/ Thomas H. Pollihan
---------------------------------------------
Thomas H. Pollihan
Vice President, Secretary and General Counsel
September 13, 2000 /s/ Gerald M. Chaney
---------------------------------------------
Gerald M. Chaney
Vice President Finance
(Principal Financial & Accounting Officer)
18