<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 April 30, 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
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2472410
----------------------------------------- -----------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
600 KELLWOOD PARKWAY, P.O. BOX 14374, ST. LOUIS, MO 63178
--------------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 576-3100
------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
Number of shares of common stock, par value $.01, outstanding at April
30, 2000 (only one class): 23,901,802.
-----------
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 10-15
PART II. OTHER INFORMATION 16
2
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
<CAPTION>
April 30,
------------------------- January 31,
2000 1999 2000
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and time deposits $ 40,312 $ 25,482 $ 54,501
Receivables, net 414,915 392,628 326,868
Inventories 323,928 340,778 394,988
Prepaid taxes and expenses 37,209 38,392 47,921
---------- ---------- ----------
Total current assets 816,364 797,280 824,278
Property, plant and equipment, net 102,865 102,298 103,674
Intangible assets, net 66,763 60,207 68,220
Other assets 105,009 94,427 101,681
---------- ---------- ----------
Total assets $1,091,001 $1,054,212 $1,097,853
========== ========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Current portion of long-term debt $ 9,373 $ 16,504 $ 10,992
Notes payable 24,490 93,963 4,083
Accounts payable 133,291 117,014 151,637
Accrued expenses 89,053 104,264 81,446
---------- ---------- ----------
Total current liabilities 256,207 331,745 248,158
Long-term debt 344,302 227,659 346,479
Deferred income taxes and other 58,049 48,620 57,346
Shareowners' equity:
Common stock 166,304 163,097 166,312
Retained earnings 385,163 333,340 361,000
Accumulated other comprehensive income (8,923) (9,330) (9,378)
---------- ---------- ----------
542,544 487,107 517,934
Less treasury stock, at cost (110,101) (40,919) (72,064)
---------- ---------- ----------
Total shareowners' equity 432,443 446,188 445,870
---------- ---------- ----------
Total liabilities & shareowners' equity $1,091,001 $1,054,212 $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
April 30,
-----------------------
2000 1999
-------- ---------
<S> <C> <C>
Net sales $649,440 $ 628,444
Costs and expenses:
Cost of products sold 507,976 484,951
Selling, general and
administrative expenses 83,957 88,064
Amortization of intangible assets 1,717 4,204
Interest expense 8,088 8,052
Interest income and other, net (602) (333)
Costs of Koret merger - 5,288
Provision for facilities shut-down - 6,793
Provision for goodwill impairment - 48,945
-------- ---------
Earnings before income taxes 48,304 (17,520)
Income taxes 19,300 13,491
-------- ---------
Net earnings $ 29,004 $ (31,011)
======== =========
Weighted average shares outstanding:
Basic 24,706 27,309
======== =========
Diluted 24,733 28,146
======== =========
Earnings per share:
Basic $ 1.17 $ (1.13)
======== =========
Diluted $ 1.17 $ (1.13)
======== =========
Dividends paid per share $ .16 $ .16
======== =========
See notes to condensed consolidated financial statements.
</TABLE>
4
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<PAGE>
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
<CAPTION>
Three Months Ended
April 30,
-----------------------
2000 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 29,004 $ (31,011)
Add/(deduct) items not affecting operating cash flows:
Depreciation and amortization 6,348 8,193
Increase in prepaid pension cost (2,199) (1,237)
Deferred income taxes and other (1,161) 635
Non-cash portion of facilities shut-down provision - 1,146
Provision for goodwill impairment - 48,945
Changes in working capital:
Receivables, net (88,047) (112,649)
Inventories 71,060 75,397
Prepaid taxes and expenses 10,712 510
Accounts payable (18,346) 14,763
Accrued expenses 7,607 34,589
-------- ---------
Net cash provided/(used) by operating activities 14,978 39,281
-------- ---------
INVESTING ACTIVITIES:
Additions to fixed assets (3,802) (7,889)
Investment in subsidiaries - (8,804)
Other investing activities 1 464
-------- ---------
Net cash provided/(used) by investing activities (3,801) (16,229)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from / (reduction) of notes payable, net 20,407 (41,496)
Reduction of long-term debt (3,796) (9,284)
Dividends paid (3,931) (3,598)
Stock repurchase pursuant to announced plan (38,127) -
Stock transactions under incentive plans 81 2,586
-------- ---------
Net cash provided/(used) by financing activities (25,366) (51,792)
-------- ---------
NET INCREASE IN CASH AND TIME DEPOSITS (14,189) (28,740)
Cash and time deposits, beginning of period 54,501 54,222
-------- ---------
Cash and time deposits, end of period $ 40,312 $ 25,482
======== =========
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. All prior year data
have been restated for the merger with Koret effective April 30, 1999
which was accounted for as a pooling of interests.
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 April 30, 2000 are as follows:
<TABLE>
<CAPTION>
Accrual Spending in the Accrual
Balance at Quarter ended Balance at
January 31, 2000 April 30, 2000 April 30, 2000
---------------- --------------- --------------
<S> <C> <C> <C>
Employee severance $3,298 $502 $2,796
Vacant facilities / lease termination 1,167 27 1,140
Other cash restructuring costs 189 18 171
------ ---- ------
Total restructuring, excluding non-cash $4,654 $547 $4,107
====== ==== ======
</TABLE>
Facility consolidations represented by the remaining accrual are
expected to be substantially completed in fiscal 2000.
4. SUPPLEMENTAL BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
April 30,
----------------------- January 31,
2000 1999 2000
-------- -------- -----------
<S> <C> <C> <C>
Inventories:
Finished goods $174,525 $196,214 $221,765
Work in process 79,968 77,992 96,086
Raw materials 69,435 66,572 77,137
-------- -------- --------
Total Inventories $323,928 $340,778 $394,988
======== ======== ========
</TABLE>
If inventories were valued at current replacement costs, they
would have totaled $325,910, $346,074 and $396,970 at April 30,
2000, April 30, 1999, and January 31, 2000, respectively.
6
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<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
April 30,
---------------------- January 31,
2000 1999 2000
------- ------- -----------
<S> <C> <C> <C>
Intangible assets:
Goodwill $63,548 $65,477 $63,886
less accumulated amortization 21,162 19,479 20,509
------- ------- -------
Net goodwill 42,386 45,998 43,377
------- ------- -------
Other identifiable intangibles 52,922 40,229 52,722
less accumulated amortization 28,545 26,020 27,879
------- ------- -------
Net other identifiable intangibles 24,377 14,209 24,843
------- ------- -------
Net intangible assets $66,763 $60,207 $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. 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 April 30, 2000,
outstanding short-term loans and letters of credit under the agreement
were $0 and $152,000, respectively.
The Company maintains informal, uncommitted lines of credit with several
banks which totaled $125,000 at April 30, 2000. Borrowings under these
uncommitted lines totaled $20,000 at April 30, 2000.
6. COMMON STOCK REPURCHASE. On November 23, 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, on December 9, 1999 the Company purchased 1.68
million shares through a privately negotiated transaction with an
institutional holder at $18.00 per share, which was below the market
price. Additionally, during February 2000 the Company purchased 1.11
million shares in open market transactions at an average price of $16.32
per share.
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) 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 of March 28, 2000 the Company had
purchased 1.17 million shares pursuant to this authorization at an
average cost of $17.07 per share. As discussed in Note 6 to the
Transition Period financial statements, certain debt covenants may limit
purchases under this authorization.
7. COMPREHENSIVE INCOME. The Company's total comprehensive income for
the quarter ended April 30, 2000 and 1999, was $29,459 and ($30,230),
respectively. Differences between net earnings and total comprehensive
income in each year, respectively, resulted from foreign currency
translation.
7
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<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(Amounts in thousands)
8. 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 private
label 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
ended April 30, 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 April 30,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
Net Sales:
Women's Sportswear $466,071 $470,030
Men's Sportswear 81,625 64,295
Other Soft Goods 101,744 94,119
-------- --------
Kellwood net sales $649,440 $628,444
======== ========
Operating earnings:
Women's Sportswear $ 46,236 $ 50,656
Men's Sportswear 6,350 3,510
Other Soft Goods 12,255 11,888
-------- --------
Total segments 64,841 66,054
Amortization of Intangibles (1,717) (4,204)
Interest expense (8,088) (8,052)
General corporate and other (6,732) (10,292)
Impairment, restructuring & merger costs - (61,026)
-------- --------
Earnings before income taxes $ 48,304 $(17,520)
======== ========
Net Assets at quarter-end:
Women's Sportswear $504,478 $537,460
Men's Sportswear 117,483 120,365
Other Soft Goods 144,648 104,060
Corporate and other 43,999 22,429
-------- --------
Kellwood total $810,608 $784,314
======== ========
</TABLE>
8
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<PAGE>
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.
Unaudited quarterly segment data for the four quarters prior to the
current fiscal year are as follows:
<TABLE>
<CAPTION>
Q u a r t e r e n d e d
-----------------------------------------------------
4/30/99 7/31/99 10/31/99 1/31/2000
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales:
Women's Sportswear $470,030 $333,080 $466,119 $323,341
Men's Sportswear 64,295 73,152 105,540 85,130
Other Soft Goods 94,119 64,343 61,797 52,760
-------- -------- -------- --------
Kellwood net sales $628,444 $470,575 $633,456 $461,231
======== ======== ======== ========
Operating earnings:
Women's Sportswear $ 50,656 $ 22,649 $ 40,588 $ 8,005
Men's Sportswear 3,510 3,823 13,430 9,349
Other Soft Goods 11,888 4,747 5,203 2,216
-------- -------- -------- --------
Total segments 66,054 31,219 59,221 19,570
Amortization of Intangibles (4,204) (1,659) (1,640) (1,566)
Interest expense (8,052) (6,357) (8,453) (7,844)
General corporate and other (10,292) (7,146) (5,362) (1,382)
Impairment, restructuring & merger costs (61,026) - - -
-------- -------- -------- --------
Earnings before income taxes $(17,520) $ 16,057 $ 43,766 $ 8,778
======== ======== ======== ========
Net Assets:
Women's Sportswear $537,460 $527,054 $510,860 $475,416
Men's Sportswear 120,365 139,016 151,408 133,964
Other Soft Goods 104,060 96,507 93,326 130,365
Corporate and other 22,429 82,455 107,655 67,679
-------- -------- -------- --------
Total Kellwood $784,314 $845,032 $863,249 $807,424
======== ======== ======== ========
</TABLE>
9. 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
<PAGE>
<PAGE>
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 achieved record sales and earnings for the first
quarter ended April 30, 2000. Sales for the quarter were $649.4, up
3.3% from last year's record quarter of $628.4. Net earnings before
unusual items increased 13.7% to $29.0 from $25.5 in the prior year.
Last year in the April quarter, Kellwood recorded unusual items totaling
$61.0 (pretax) or $2.04 per diluted share including costs of the Koret
merger, goodwill impairment charges and a provision for the closing of
certain domestic facilities.
Earnings per share before unusual items increased 28.6% to $1.17 from
$.91 in the prior year on a diluted basis. Earnings per share grew
faster than net earnings due to the Company's share repurchase program,
which began in December 1999. Since then, the Company has repurchased
approximately 3.9 million shares resulting in 24.7 million average
diluted shares in the current quarter vs. 28.1 million average diluted
shares last year.
The year-to-year growth came from the acquisition of Biflex
International, Inc., a bra company which was acquired in January 2000.
Top line growth was also driven by strong demand for the recently
introduced line of Slates(R) men's business casual sportswear, and a
strong demand for dress and sport shirts in updated colors and
fabrications. Women's Sportswear results were mixed, with significant
growth in dresses across a broad range of Kellwood's key brands offset
by lost volume due to contractor delivery problems, which should be
resolved by the end of June 2000.
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 April 30 have historically been higher than for the other
quarters of the fiscal year. In recent years, the April quarter's
results have represented approximately 28% of the year's sales and 40%
of net earnings before unusual items.
SUMMARIZED FINANCIAL DATA for the quarter ended April 30, 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 April 30,
------------------------------------
2000 1999 % Change
----- ----- --------
<S> <C> <C> <C>
Net Sales $ 649 $ 628 3.3%
Cost of products sold 508 485 4.7%
S, G & A 84 88 -4.7%
----- ----- ------
Operating earnings 58 55 3.7%
Amort. of intangibles 2 4 -59.2%
Interest, net & other 7 8 -3.0%
Koret merger costs - 5
Facilities shut-down - 7
Goodwill impairment - 49
----- -----
Earnings before tax 48 (18)<F*>
Income Taxes 19 13
----- -----
Net Earnings $ 29 $ (31)<F**>
===== =====
Effective tax rate<F***> 40.0% 41.4% -1.4%
<FN>
<F*> - Earnings before income taxes, excluding the impact of the unusual
items (Merger costs, facilities shut-down, and Goodwill impairment),
were $48 in 2000 compared to $44 in 1999, an 11.0% increase.
<F**> - Net Earnings, excluding the impact of the unusual items (Merger
costs, facilities shut-down, and Goodwill impairment), were $29 in 2000
compared to $26 in 1999, a 13.7% increase.
<F***> - Excluding the impact of the unusual items (Merger costs,
facilities shut-down, and Goodwill impairment).
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended April 30,
------------------------------------
2000 1999 Change
------ ------ ------
<S> <C> <C> <C>
As a percentage of Net Sales:
Net Sales 100.0% 100.0%
Cost of products sold 78.2% 77.2% 1.0%
S, G & A 12.9% 14.0% -1.1%
----- ----- ----
Operating earnings 8.9% 8.8% .1%
Amort. of intangibles .3% .7% -.4%
Interest, net & other 1.2% 1.2% -
----- ----- ----
Earnings before income taxes
and unusual items 7.4% 6.9% .5%
Impairment, restructuring
& merger costs - 9.7%
----- -----
Earnings before income taxes 7.4% -2.8%
Income Taxes 3.0% 2.1%
----- -----
Net Earnings 4.5% -4.9%
===== =====
</TABLE>
Cost of Products Sold as a percentage of sales in the quarter increased
to 78.2% from 77.2% in the prior year. This was caused by:
* Non-recurring items and reclassifications (.7% impact).
* The year-end LIFO adjustment for the Company's old
April 30 fiscal year reduced the cost of products sold
margin by approximately .3% in the prior year. No
similar adjustment was recorded in the current year.
* Additionally, in an effort to further standardize
accounting policies, distribution expenses for one of
the Company's business units was classified in cost of
products sold in the current year, but had been
included in S,G&A in the prior year. This
reclassification increased the cost of products sold
by approximately 3.% of sales and decreased S,G&A
expenses as a percentage of sales by a corresponding
amount.
* Late delivery of product from some of the company's
contractors which resulted in additional airfreight and
markdown expenses (.3% impact).
S,G&A expense for the quarter decreased $4.1 to 12.9% of sales from
14.0% in the prior year principally due to the impact of the
reclassification of certain distribution costs out of S,G&A into burden
as discussed above. In addition, S,G&A costs were reduced as a result
of the consolidation of certain administrative support and other
activities. These savings were partially offset by higher investment
spending to develop and install new information systems and to launch
several new marketing initiatives.
Amortization of intangible assets decreased compared to the prior year
as a result of the provision for goodwill impairment recorded in the
April 1999 quarter.
The effective tax rate decreased to 40.0% from 41.4% in the prior year
as a result of the decreased amortization of goodwill. Smaller
permanent differences between book income and taxable income resulted
from the lower level of 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 24.7 million average shares outstanding for the first quarter,
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 planned to be substantially completed by April 30, 2000.
During the quarter, $.5 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.
11
<PAGE>
<PAGE>
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
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.
The increase in sales for the quarter was in the Men's Sportswear
segment (up $18 or 27.0%) and the Other Soft Goods segment (up $8 or
8.1%). This growth was partially offset by a small decline in the
Women's Sportswear segment as a result of the contractor delivery
problems discussed above. Sales by segment for the quarter were as
follows:
<TABLE>
<CAPTION>
Three months ended April 30,
------------------------------------
2000 1999 % Change
---- ---- --------
<S> <C> <C> <C>
Net Sales:
Women's Sportswear $466 $470 -.8%
Men's Sportswear 82 64 27.0%
Other Soft Goods 102 94 8.1%
---- ---- ----
Total Net Sales $649 $628 3.3%
==== ==== ====
</TABLE>
The business portfolios contributed the following percentages of
Kellwood Net Sales for the quarter, respectively:
<TABLE>
<CAPTION>
Three months ended April 30,
----------------------------
2000 1999
----- -----
<S> <C> <C>
Women's Sportswear 71.8% 74.8%
Men's Sportswear 12.6% 10.2%
Other Soft Goods 15.7% 15.0%
----- -----
Total Net Sales 100.0% 100.0%
===== =====
</TABLE>
Operating Earnings by segment for the quarter were as follows:
<TABLE>
<CAPTION>
Three months ended April 30, Operating margin
------------------------------ ----------------
2000 1999 % Change 2000 1999
---- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Earnings:
Women's Sportswear $46.2 $50.7 -8.7% 9.9% 10.8%
Men's Sportswear 6.4 3.5 80.9% 7.8% 5.5%
Other Soft Goods 12.3 11.9 3.1% 12.0% 12.6%
----- ----- ---- ---- ----
Segment Operating Earnings $64.8 $66.1 -1.8% 10.0% 10.5%
===== ===== ==== ==== ====
</TABLE>
Women's Sportswear sales for the first quarter were down $4 or .8%
compared to the prior year due primarily to the late deliveries of
Spring product from a number of contractors, principally in Mexico.
Approximately $20 of product was not received into Kellwood's
distribution centers in time to ship within the retailers' shipping
window. As a result, some orders were cancelled and the goods had to be
liquidated at distressed prices. In other cases, the retailer did
accept late delivery, but substantial airfreight was incurred, and late
delivery charges were assessed by some retailers. As a result of the
late shipment of $20 of product, management estimates that gross margin
for the quarter was reduced by $5.5. 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 contractor delivery problems
discussed above.
12
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Men's Sportswear sales for the quarter increased $17 or 27% 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(R) and
Hilfiger(R). 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. These volume increases are
partially offset by price decreases brought on by competitive pressures
and enabled by the expansion of the Company's network of contractors in
low cost areas. Operating earnings increases and the increase in the
operating margin were driven by the increase in sales.
The Other Soft Goods segment reported an 8.1% increase in sales for the
quarter as a result of the acquisition of Biflex International, Inc., a
bra company, in January 2000. While the Biflex acquisition added $12 in
sales for the quarter, this was partially offset by declines in the
sales of recreation products and intimate apparel. 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 47% of capital at April 30, 2000 as compared to
45% and January 31, 2000 and 43% at April 30, 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 increased to 3.2 at April 30, 2000 and 3.3 at January
31, 2000 compared to 2.4 at April 30, 1999, 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 April 30 increased $22 or 6% vs. the prior year,
generally in line with the increase in sales.
The receivables increase was partially offset by a $17 (5%) decrease in
inventory levels as compared to the prior year as a result of contractor
delivery problems discussed above and better inventory management.
Kellwood's overall inventory days on hand were reduced to 72 at April
30, 2000 compared to 82 in the prior year. Additionally, accounts
payable increased by $16 (14%) as a result of the Company's increased
focus on working capital management and the negotiation of more
favorable terms from suppliers.
FINANCING AND INVESTING ACTIVITIES
----------------------------------
Capital expenditures were $4 for the first quarter compared to $8 in the
prior year. The current year's first quarter capital expenditures were
unusually low due to the timing of individual investment projects.
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, $198 was available for future use under
this credit facility.
13
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KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
The Company continually evaluates possible acquisition candidates as a
part of its ongoing corporate development process. Various potential
acquisition candidates are in different stages of this process.
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) 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 of March 28, 2000 the company had
purchased 1.17 million shares pursuant to this authorization at an
average cost of $17.07 per share. No repurchases have occurred under
this authorization since that date. 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 3.9 million shares, or 14% of the outstanding shares,
at a total cost of $68.2, an average price of $17.25 per share.
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 JUNE 13, 2000
---------------------------
Management expects Kellwood's sales in the first half of fiscal 2000 to
be up approximately 5%, with growth picking up in the second half as a
result of the introduction of new product lines and brands; sales for
the year are expected to be up approximately 6-7%. The operating
earnings margin for fiscal 2000 is expected to be approximately 7% of
sales for the year, and the income tax rate is expected to be
approximately 40%. 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 April 30, 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 $339 at April 30, 2000 which compares to
their book value of $354. With respect to the Company's fixed-rate debt
outstanding at April 30, 2000, a 10% increase in interest rates would
have resulted in approximately an $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.
14
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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.
15
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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 April 30, 2000:
Current Report on Form 8-K dated February 14, 2000
Current Report on Form 8-K dated February 28, 2000
16
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KELLWOOD COMPANY
June 13, 2000 /s/ Thomas H. Pollihan
---------------------------------------------
Thomas H. Pollihan
Vice President, Secretary and General Counsel
June 13, 2000 /s/ Gerald M. Chaney
---------------------------------------------
Gerald M. Chaney
Vice President Finance
(Principal Financial & Accounting Officer)
17
