<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 October 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 October 31,
2000 (only one class): 22,662,902.
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1
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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 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II. OTHER INFORMATION 18
2
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<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
October 31,
------------------------------ January 31,
2000 1999 2000
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and time deposits $ 23,071 $ 111,958 $ 54,501
Receivables, net 452,141 417,138 326,868
Inventories 413,208 301,580 394,988
Prepaid taxes and expenses 36,470 38,093 47,921
---------- ---------- ----------
Total current assets 924,890 868,769 824,278
Property, plant and equipment, net 111,422 108,647 103,674
Intangible assets, net 119,962 57,255 68,220
Other assets 108,654 101,833 101,681
---------- ---------- ----------
Total assets $1,264,928 $1,136,504 $1,097,853
========== ========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Current portion of long-term debt $ 9,245 $ 15,791 $ 10,992
Notes payable 65,722 2,609 4,083
Accounts payable 165,940 129,507 151,637
Accrued expenses 108,828 93,049 81,446
---------- ---------- ----------
Total current liabilities 349,735 240,956 248,158
Long-term debt 418,625 369,544 346,479
Deferred income taxes and other 59,949 50,699 57,346
Shareowners' equity:
Common stock 167,577 166,288 166,312
Retained earnings 412,124 360,075 361,000
Accumulated other comprehensive income (10,169) (9,286) (9,378)
---------- ---------- ----------
569,532 517,077 517,934
Less treasury stock, at cost (132,913) (41,772) (72,064)
---------- ---------- ----------
Total shareowners' equity 436,619 475,305 445,870
---------- ---------- ----------
Total liabilities & shareowners' equity $1,264,928 $1,136,504 $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 Nine Months Ended
October 31, October 31,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 703,140 $ 633,456 $ 1,821,863 $ 1,732,475
Costs and expenses:
Cost of products sold 558,029 495,657 1,438,302 1,350,467
Selling, general and
administrative expenses 91,660 84,216 253,535 248,994
Amortization of intangible assets 2,019 1,640 5,553 7,503
Interest expense 8,048 8,453 22,554 22,862
Interest income and other, net 154 (276) (254) (680)
Costs of Koret merger - - - 5,288
Provision for facilities shut-down - - - 6,793
Provision for goodwill impairment - - - 48,945
-------------- ------------- ------------- -------------
Earnings before income taxes 43,230 43,766 102,173 42,303
Income taxes 16,500 17,700 39,800 37,691
-------------- ------------- ------------- -------------
Net earnings $ 26,730 $ 26,066 $ 62,373 $ 4,612
============== ============= ============= =============
Weighted average shares outstanding:
Basic 23,241 27,805 23,964 27,612
============== ============= ============= =============
Diluted 23,292 28,046 24,009 28,091
============== ============= ============= =============
Earnings per share:
Basic $ 1.15 $ .94 $ 2.60 $ .17
============== ============= ============= =============
Diluted $ 1.15 $ .93 $ 2.60 $ .16
============== ============= ============= =============
Dividends paid per share $ .16 $ .16 $ .48 $ .48
============== ============= ============= =============
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>
Nine Months Ended
October 31,
----------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 62,373 $ 4,612
Add/(deduct) items not affecting operating cash flows:
Depreciation and amortization 19,596 21,299
Increase in prepaid pension cost (5,949) (4,121)
Deferred income taxes and other 976 (1,711)
Non-cash portion of facilities shut-down provision - 1,146
Provision for goodwill impairment - 48,945
Changes in working capital:
Receivables, net (107,609) (137,159)
Inventories 7,297 114,595
Prepaid taxes and expenses 12,270 809
Accounts payable 7,580 27,256
Accrued expenses 21,010 23,374
--------------- -------------
Net cash provided by operating activities 17,544 99,045
--------------- -------------
INVESTING ACTIVITIES:
Additions to fixed assets (19,538) (24,689)
Investment in subsidiaries (91,796) (8,888)
Other investing activities 1,155 792
--------------- -------------
Net cash provided/(used) by investing activities (110,179) (32,785)
--------------- -------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 149,127
Reduction of long-term debt (9,601) (17,319)
Proceeds from notes payable 834,074 681,472
Reduction of notes payable (692,435) (814,322)
Dividends paid (11,530) (12,482)
Stock repurchase pursuant to announced plan (60,738) -
Stock transactions under incentive plans 1,435 5,000
--------------- -------------
Net cash provided/(used) by financing activities 61,205 (8,524)
--------------- -------------
NET INCREASE IN CASH AND TIME DEPOSITS (31,430) 57,736
Cash and time deposits, beginning of period 54,501 54,222
--------------- -------------
Cash and time deposits, end of period $ 23,071 $ 111,958
=============== =============
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:
<TABLE>
<CAPTION>
Fiscal Period Represents
------------- ----------
<S> <C>
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
</TABLE>
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 October 31, 2000 are as follows:
<TABLE>
<CAPTION>
Spending in fiscal 2000
Accrual ------------------------------- Accrual
Balance at through quarter ended Balance at
January 31, 2000 July 31, 2000 October 31, 2000 October 31, 2000
---------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Employee severance $ 3,298 $ 2,479 $ 559 $ 260
Vacant facilities / lease termination 1,167 365 63 739
Other cash restructuring costs 189 39 4 146
----------- ------------ ------------- ------------
Total restructuring, excluding non-cash $ 4,654 $ 2,883 $ 626 $ 1,145
=========== ============ ============= ============
</TABLE>
Facility consolidations represented by the remaining accrual are expected to
be substantially completed in fiscal 2000.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
October 31,
------------------------------- January 31,
2000 1999 2000
------------- ------------- --------------
<S> <C> <C> <C>
Inventories:
Finished goods $ 252,819 $ 169,769 $ 221,765
Work in process 77,381 72,020 96,086
Raw materials 83,008 59,791 77,137
------------- ------------- --------------
Total Inventories $ 413,208 $ 301,580 $ 394,988
============= ============= ==============
</TABLE>
If inventories were valued at current replacement costs, they would
have totaled $415,964, $303,976 and $396,970 at October 31, 2000,
October 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>
October 31,
------------------------------- January 31,
2000 1999 2000
------------- ------------- --------------
<S> <C> <C> <C>
Intangible assets:
Goodwill $ 112,814 $ 63,886 $ 63,886
less accumulated amortization 24,132 19,549 20,509
------------- ------------- --------------
Net goodwill 88,682 44,337 43,377
------------- ------------- --------------
Other identifiable intangibles 60,478 40,220 52,722
less accumulated amortization 29,198 27,302 27,879
------------- ------------- --------------
Net other identifiable intangibles 31,280 12,918 24,843
------------- ------------- --------------
Net intangible assets $ 119,962 $ 57,255 $ 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 October 31, 2000, outstanding short-term loans and
letters of credit under the agreement were $75,000 and $144,184,
respectively.
The Company maintains informal, uncommitted lines of credit with several
banks which totaled $125,000 at October 31, 2000. Borrowings under these
uncommitted lines totaled $67,000 at October 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 2.8
million shares at an average price of $17.35 per share, completing this
authorization.
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. 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 - October 24, 2000 the Company purchased 1.32
million shares at an average cost of $17.14 per share, completing 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. No purchases have been made pursuant to 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 sell 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
nine month periods ended October 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 October 31, Nine Months ended October 31,
-------------------------------- ------------------------------
2000 1999 2000 1999
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales:
Women's Sportswear $ 501,587 $ 466,119 $ 1,281,268 $ 1,269,229
Men's Sportswear 109,883 105,540 268,812 242,987
Other Soft Goods 91,670 61,797 271,783 220,259
------------- -------------- ------------- --------------
Kellwood net sales $ 703,140 $ 633,456 $ 1,821,863 $ 1,732,475
============= ============== ============= ==============
Operating earnings:
Women's Sportswear $ 44,085 $ 40,588 $ 104,710 $ 113,893
Men's Sportswear 14,327 13,430 29,688 20,763
Other Soft Goods 5,933 5,203 23,073 21,838
------------- -------------- ------------- --------------
Total segments 64,345 59,221 157,471 156,494
Amortization of Intangibles (2,019) (1,640) (5,553) (7,503)
Interest expense (8,048) (8,453) (22,554) (22,862)
General corporate and other (11,048) (5,362) (27,191) (22,800)
Impairment, restructuring & merger costs - - - (61,026)
------------- -------------- ------------- --------------
Earnings before income taxes $ 43,230 $ 43,766 $ 102,173 $ 42,303
============= ============== ============= ==============
Net Assets at quarter-end:
Women's Sportswear $ 622,240 $ 510,860
Men's Sportswear 112,375 151,408
Other Soft Goods 157,348 93,326
Corporate and other 38,248 107,655
------------- --------------
Kellwood total $ 930,211 $ 863,249
============= ==============
</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 October 31, 2000 and 1999, was $26,397 and $26,338,
respectively. The Company's total comprehensive income for the nine months
ended October 31, 2000 and 1999, was $61,582 and $5,437, respectively.
Differences between net earnings and total comprehensive income in each
year, respectively, resulted from foreign currency translation.
10. ACQUISITIONS. On August 4, 2000, the Company acquired the business
assets of Academy Broadway, a marketer of camping and outdoor products.
Academy Broadway will become part of the Other Soft Goods segment. The
transaction will be accounted for as a purchase.
On September 22, 2000 the Company acquired 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 will
be accounted for as a purchase.
On September 29, 2000 the Company acquired the business assets of Romance du
Jour, a Los Angeles-based sleepwear company. Romance du Jour will be a part
of the Other Soft Goods segment. The transaction will be accounted for as a
purchase.
On December 1, 2000 the Company acquired the business assets of Group B
Clothing Company, a California-based maker of women's apparel known for its
Democracy(R) brand. Group B will be a part of the Women's Sportswear
segment. The transaction 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 reported record sales for the third quarter ended October
31, 2000 of $703.1, up 11% from the $633.5 reported in the prior year. Four
acquisitions completed in the past year contributed $31 of the year-to-year
sales growth. Excluding acquisitions, sales were up six percent. Net
earnings for the quarter were $26.7 or $1.15 per share on a diluted basis,
up from $26.1 or $.93 per share last year. As a result of Kellwood's share
repurchase program initiated in December 1999, average diluted shares in the
quarter were 23.3 million vs. 28.0 million in the prior year.
Sales in the first nine months were a record $1,822, up 5.2% compared to the
prior year. Net earnings for the nine months were also a record, up 2% to
$62.4 from the $61.1 before unusual items reported last year. Diluted
earnings per share for the first nine months increased 19% to $2.60 per
share compared to $2.18 per share before unusual items reported last year.
Since December 1999 the Company has repurchased approximately 5.3 million
shares at a total cost of approximately $90.8, an average cost of $17.23 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 third quarter (ended
October 31) have historically been higher than for the second or fourth
quarters of the fiscal year. In recent years, the third quarter's results
have represented approximately 30% of the year's sales and 42% of net
earnings before unusual items.
SUMMARIZED FINANCIAL DATA for the quarter and the nine months ended October
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 October 31, Nine months ended October 31,
--------------------------------- ------------------------------------
2000 1999 % Change 2000 1999 % Change
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 703 $ 633 11.0% $ 1,822 $ 1,732 5.2%
Cost of products sold 558 496 12.6% 1,438 1,350 6.5%
S, G & A 92 84 8.8% 254 249 1.8%
-------- -------- -------- --------- --------- --------
Operating earnings 53 54 -0.2% 130 133 -2.2%
Amort. of intangibles 2 2 23.1% 6 8 -26.0%
Interest, net & other 8 8 0.3% 23 22 0.5%
Impairment, restructuring
& merger costs - - - - 61
-------- -------- -------- --------- ---------
Earnings before tax 43 44 -1.2% 102 42*
Income Taxes 17 18 -6.8% 40 38
-------- -------- -------- --------- ---------
Net Earnings $ 27 $ 26 2.5% $ 62 $ 5**
======== ======== ======== ========= =========
Effective tax rate *** 38.2% 40.4% -2.2% 39.0% 40.8% -1.8%
Average diluted shares 23.3 28.0 -17.0% 24.0 28.1 -14.5%
-------- -------- -------- --------- --------- --------
Diluted Earnings per Share $ 1.15 $ .93 23.5% $ 2.60 $ .16**
-------- -------- -------- --------- ---------
<FN>
* - Earnings before income taxes, excluding the impact of the unusual items
(Merger costs, facilities shut-down, and Goodwill impairment), were $102 in
2000 compared to $103 in 1999, a 1.1% decrease.
** - Net Earnings for the nine months, excluding the impact of the unusual
items (Merger costs, facilities shut-down, and Goodwill impairment) were $62
in 2000 compared to $61 in 1999, a 2.0% increase; Diluted earnings per share
were $2.60 in 2000 compared to $2.18 in 1999 before unusual items, a 19.3%
increase.
*** - 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 October 31, Nine months ended October 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 79.4% 78.2% 1.2% 78.9% 78.0% .9%
S, G & A 13.0% 13.3% -0.3% 13.9% 14.4% -.5%
------ ------ ------ ------ ------ -----
Operating earnings 7.6% 8.5% -0.9% 7.1% 7.7% -.6%
Amort. of intangibles .3% .3% - .3% .4% -.1%
Interest, net & other 1.2% 1.3% -0.1% 1.2% 1.3% -.1%
------ ------ ------ ------ ------ -----
Earnings before income taxes
and unusual items 6.1% 6.9% -0.8% 5.6% 6.0% -.4%
Impairment, restructuring
& merger costs - - - 3.5%
------ ------ ------ ------
Earnings before income taxes 6.1% 6.9% 5.6% 2.4%
Income Taxes 2.3% 2.8% 2.2% 2.2%
------ ------ ------ ------
Net Earnings 3.8% 4.1% 3.4% 0.3%
====== ====== ====== ======
</TABLE>
SALES. The Company's sales growth for the quarter was broad-based in terms
of business segments and channels of distribution. Each of Kellwood's three
business segments contributed to the 11% growth. Sales of women's sportswear
were up 8%, men's sportswear sales were up 4%, and other soft goods, which
includes intimate apparel and recreation products, were up 48%.
* Sales growth for the quarter was broad-based among all major
distribution channels, including department stores, national chains,
discounters, specialty stores and mail order.
* Kellwood increased its penetration with its largest customers.
* Acquisitions contributed 5% of the 11% increase, including:
- Biflex International (acquired January 2000), part of the Other
Soft Goods segment,
- Academy Broadway Corp. (acquired August 2000), part of the Other
Soft Goods segment,
- Dorby Frocks, Ltd., (acquired September 2000), part of the Women's
Sportswear segment, and
- Romance du Jour (acquired September 29, 2000), part of the
Other Soft Goods segment.
Excluding acquisitions, women's sportswear sales were up 5%, and other soft
goods sales were up 16%.
Sales for the first nine months were $1,822, up $90 or 5%. Each of
Kellwood's business segments contributed to the year-to-year growth. Women's
Sportswear was up $12 or 1%, principally as a result of the acquisition of
Dorby Frocks. Men's Sportswear sales increased $26 (11%), and Other Soft
Goods sales were up $52 (23%) primarily due to the acquisition of Biflex and
Romance du Jour.
COST OF PRODUCTS SOLD as a percentage of sales in the quarter increased 1.2%
to 79.4% from 78.2% in the prior year. Kellwood experienced higher markdowns
this year to assist our customers in liquidating some of our updated
contemporary women's sportswear brands, which resulted in .8% of the
decline. Unfavorable manufacturing variances resulting from phasing out of
essentially all domestic pants, jeans and outerwear sewing, along with labor
inefficiency and unabsorbed burden in the new intimate apparel plant in
Mexico were largely responsible for the balance of the erosion in margin.
Cost of Products Sold as a percentage of sales for the nine months increased
to 78.9% from 78.0% in the prior year. In addition to the above third
quarter factors which are also applicable to the nine month period, the soft
retail climate in the second quarter resulted in the Company having to take
higher markdown allowances than planned. Additional inventory markdowns were
required to liquidate some merchandise below full wholesale prices due to
cancelled orders. Also, 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.
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)
-----------------------------------------------------
S,G&A EXPENSE for the quarter decreased to 13.0% of sales from 13.3% in the
prior year principally due to cost reductions as a result of the
consolidation of certain administrative support and other activities. These
efficiencies were partially offset by higher investment spending to develop
and install new information systems and to launch several new marketing
initiatives.
S,G&A expense for the nine months decreased to 13.9% of sales from 14.4% in
the prior year. In addition to the above third quarter factors, which were
applicable to the nine-month period, certain distribution costs which were
classified in S,G&A before May 1999 were included in burden after that date.
AMORTIZATION of intangible assets for the nine month period 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 down $.4 compared to the prior year
(down .3 for the nine months) as a result of the net impact of:
* a $1.9 reduction in interest expense for the quarter ($3.1 for the
nine months) from the marking to market of the swap and swaption
entered into in January 2000, partially offset by
* $1.5 higher interest expense for the quarter ($2.7 for the nine
months) associated with increased debt levels resulting from the
repurchase of $91 of the Company's outstanding shares.
Additionally, the increases in the Company's average debt outstanding as a
result of the acquisitions of Biflex, Academy Broadway, Dorby and Romance du
Jour resulted in $1.5 of higher interest expense, but this was offset by
lower interest expense resulting from debt paid down using cash flow from
operations.
THE EFFECTIVE TAX RATE for the quarter and the nine months ended October 31,
2000 decreased to 38.2% and 39.0% from 40.4% and 40.8% in the prior year as
a result of the decreased amortization of goodwill and as the result of
certain business initiatives which had the effect of reducing 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 October 2000, the Company repurchased 5.3 million
shares of Kellwood Company common stock. As a result, there were only 23.3
million average shares outstanding for the quarter (and 24.0 million for the
nine months ended October 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 third quarter, $.6 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.
12
<PAGE>
<PAGE>
Sales by segment for the quarter and nine months were as follows:
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
--------------------------------- ------------------------------------
Net Sales 2000 1999 % Change 2000 1999 % Change
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Women's Sportswear $ 502 $ 466 7.6% $ 1,281 $ 1,269 0.9%
Men's Sportswear 110 106 4.1% 269 243 10.6%
Other Soft Goods 92 62 48.3% 272 220 23.4%
-------- -------- -------- --------- --------- --------
Total Net Sales $ 703 $ 633 11.0% $ 1,822 $ 1,732 5.2%
======== ======== ======== ========= ========= ========
</TABLE>
The business portfolios contributed the following percentages of Kellwood
Net Sales:
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------ -----------------------------
Net Sales: 2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Women's Sportswear 71.3% 73.6% 70.3% 73.3%
Men's Sportswear 15.6% 16.7% 14.8% 14.0%
Other Soft Goods 13.0% 9.8% 14.9% 12.7%
------ ------ ------ ------
Total Net Sales 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
</TABLE>
Operating Earnings by segment for the quarter and the nine months were as
follows:
<TABLE>
<CAPTION>
Three months ended October 31, Operating margin
---------------------------------- -----------------
Operating Earnings: 2000 1999 % Change 2000 1999
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Women's Sportswear $ 44.1 $ 40.6 8.6% 8.8% 8.7%
Men's Sportswear 14.3 13.4 6.7% 13.0% 12.7%
Other Soft Goods 5.9 5.2 14.0% 6.5% 8.4%
-------- -------- ----- ----- -----
Segment Operating Earnings $ 64.3 $ 59.2 8.7% 9.2% 9.3%
======== ======== ===== ===== =====
<CAPTION>
Nine months ended October 31, Operating margin
---------------------------------- -----------------
Operating Earnings: 2000 1999 % Change 2000 1999
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Women's Sportswear $ 104.7 $ 113.9 -8.1% 8.2% 9.0%
Men's Sportswear 29.7 20.8 43.0% 11.0% 8.5%
Other Soft Goods 23.1 21.8 5.6% 8.5% 9.9%
-------- -------- ----- ----- -----
Segment Operating Earnings $ 157.5 $ 156.5 0.6% 8.6% 9.0%
======== ======== ===== ===== =====
</TABLE>
Women's Sportswear sales for the third quarter were up $35 or 8% compared to
the prior year. The acquisition of Dorby Frocks in September contributed $11
of this increase. Sales for this segment for the nine months were up $12
resulting from the addition of Dorby and otherwise flat sales for the
segment. Other factors in the first half, including weak consumer demand in
this sector in the second quarter and late deliveries of Spring product from
a number of contractors in the first quarter, were offset for the nine month
period by growth in Kellwood's dress businesses, including Kathie Lee(R),
Sag Harbor(R), Plaza South(TM), and MHM(R). Operating earnings (defined as
net sales less cost of products sold and selling, general and administrative
expenses) increased $3.5 for the quarter in line with the increase in sales.
Operating earnings for the nine month period both in dollars and as a
percent of sales decreased as a consequence of the cancelled or delayed
orders (in the second quarter) and the contractor delivery problems
discussed above (in the first quarter).
<PAGE>
Men's Sportswear sales for the second quarter increased $4 or 4% ($26 or 11%
for the nine months) 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. 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.
13
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
The Other Soft Goods segment reported a $30 or 48% increase in sales for the
quarter (23% for the nine months) largely due to acquisitions. Acquisitions
added $20 in sales for the quarter ($47 for the nine months). Sales
excluding acquisitions for both of the business units in this segment were
up for the quarter (intimate apparel sales were up 13%, and recreation
products sales were up 20%) due largely to new product introductions. 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.
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 53% of capital at October 31, 2000 as compared to 45%
at January 31, 2000 and 45% at October 31, 1999. The major items impacting
leverage in this period were the completion of acquisitions as discussed
below, and the repurchase of 5.3 million Kellwood shares at a cost of $91
during the November 1999 to October 2000 time frame. The Company's borrowing
needs were held down by improved working capital management.
WORKING CAPITAL
---------------
The current ratio decreased to 2.6 at October 31, 2000 and 3.3 at January
31, 2000 compared to 3.6 at October 31, 1999. The October 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 October 31 increased $35 or 8% vs. the prior year -
less than the 11% increase in sales. Customer accounts receivable days
outstanding were down one day from last year at 57 days. Accounts payable
increased $36 or 28%. Both the decrease in accounts receivable days
outstanding and the increase in accounts payable were the result of the
Company's increased focus on improving working capital management.
The receivables and payables improvements were offset by a $112 increase in
inventory levels as compared to the prior year. Part of this increase
resulted from of the acquisitions discussed below, which added $47 to
inventory. The remaining increase was needed to support higher sales levels
and to ensure on-time delivery to customers. Kellwood's overall inventory
days on hand (excluding recent acquisitions) were 85 at October 31, 2000
compared to 76 in the prior year.
FINANCING AND INVESTING ACTIVITIES
----------------------------------
Capital expenditures were $20 for the first nine months compared to $25 in
the prior year. Capital spending for fiscal 2000 is expected to be about
$25-30.
PENSION PLAN TERMINATION:
Kellwood has announced its intention to terminate the Kellwood Company
Pension Plan. The plan to be terminated generated substantially all of the:
Net pension (credit), Prepaid pension cost, Projected benefit obligation,
and Fair market value of plan assets for the past three years as set forth
in Note 7 to the Transition Period financial statements. In connection with
this planned termination, the company has amended the plan to fully vest all
current participants. Upon receipt of the final approvals discussed below,
the Company will purchase annuities for or make distributions to
14
<PAGE>
<PAGE>
all current participants, as directed by the participants. Additionally, in
connection with implementation of the planned pension plan termination,
the Company:
* has purchased annuity contracts to fund the benefits of all current
retirees and terminated vested participants,
* has frozen benefits under the pension plan effective August 31, 2000,
* has increased its 401(k) "company match effective September 1, 2000
from 3% of covered compensation to 4% of covered compensation for
participants in its 401(k) plan, and
* has received approval from the Internal Revenue Service of
the tax aspects of the plan termination.
As a result of this planned termination which is expected to be completed in
April 2001, the Company expects to:
* receive approximately $40 in excess cash from the plan (after
payment of related excise and income taxes),
* pre-fund approximately $35 of 401(k) plan contributions for its
participating employees, and
* recognize a gain of approximately $5 (net of income and excise
taxes) in the quarter ending April 30, 2001.
After the termination is completed, the Company:
* will no longer report a significant prepaid pension cost on its
balance sheet,
* will no longer record income - the "Net pension (credit)" - in its
income statement each year, and
* will have an increased cost to fund the "company match" of its
401(k) plan costs resulting from the increase to 4% in the company
matching percentage. But for the following seven years the total
cost of the "company match" is expected to be funded by the
approximately $35 of pre-funding transferred from the pension
plan.
The termination must be approved by both the Internal Revenue Service and
the Pension Benefit Guarantee Corporation before it can be completed. The
Company has applied to both the PBGC and the IRS and expects approval from
both entities by mid-February 2001. If, however, approval from both the PBGC
and the IRS is not received by mid February, completion of the transaction
and receipt of the proceeds will be delayed significantly.
DEBT:
As discussed in Note 6 to the Transition Period financial statements, the
Company has entered into an interest rate swap agreement and related swap
cancellation option agreement to convert the interest rate on certain debt
from fixed to variable. Based upon current market rates, management believes
that the swap agreement will be cancelled by the counterparty in January
2001.
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
October 31, 2000, $206 was available for future use under this credit
facility.
ACQUISITIONS:
* On August 4, 2000, the Company acquired the business assets of Academy
Broadway, a marketer of camping and outdoor products. Academy Broadway
will become part of the Other Soft Goods segment. The transaction will
be accounted for as a purchase.
* On September 22, 2000 the Company acquired 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 will be accounted for as a purchase.
* On September 29, 2000 the Company acquired the business assets of
Romance du Jour, a Los Angeles-based sleepwear company. Romance du
Jour will be a part of the Other Soft Goods segment. The
transaction will be accounted for as a purchase.
* On December 1, 2000 the Company acquired the business assets of
Group B Clothing Company., a California-based maker of women's
apparel known for its Democracy(R) brand. Group B will be a part of
the Women's Sportswear segment. The transaction 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.
15
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
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. 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
- October, 2000 the Company purchased 1.32 million shares at an average cost
of $17.14 per share. Since November 1999 the Company has repurchased over
5.3 million shares, or 19.0% of the outstanding shares, at a total cost of
$90.8, an average price of $17.23 per share. Outstanding shares totaled 22.7
million at October 31, 2000.
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 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. No purchases have been made under this
authorization to date.
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 DECEMBER 14, 2000
-------------------------------
Management's outlook for the fourth quarter, which ends January 31, calls
for sales of approximately $523, up $62 or 13%, with the three recent
acquisitions contributing $34 million of the increase. Net earnings in this
seasonally weak fourth quarter are expected to be approximately $1 or $.03
per share on a diluted basis compared to $5.4 or $.20 per share reported
last year.
With those results for the fourth quarter, management expects Kellwood's
sales for the year to be up approximately 7% to $2.345 billion. Net earnings
for the year are expected to be approximately $63 million, and diluted
earnings per share are expected to be up 11% to $2.65 per share compared to
$2.39 per share before unusual items last year.
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 October 31, 2000, the Company's debt portfolio was composed of
approximately 30% variable-rate debt (excluding the amount of debt subject
to the swap and option discussed above) and 70% 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 $337 at October 31, 2000 which compares to their book value of
$348. 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 $10 decrease in the market value of Kellwood's fixed-rate debt; a 10%
decrease in interest rates would have resulted in approximately a $19
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.
16
<PAGE>
<PAGE>
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.
17
<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 October 31, 2000:
* Current Report on Form 8-K dated August 11, 2000.
18
<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
December 14, 2000 /s/ Thomas H. Pollihan
--------------------------------------------------
Thomas H. Pollihan
Vice President, Secretary and General Counsel
December 14, 2000 /s/ W. Lee Capps, III
--------------------------------------------------
W. Lee Capps, III
Vice President Finance and Chief Financial Officer
(Principal Financial & Accounting Officer)
19
