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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 2)
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1997
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 1-11752
ST. JOHN KNITS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2245070
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
17422 DERIAN AVENUE
IRVINE, CALIFORNIA 92614
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 863-1171
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of Registrant's Common Stock held by
nonaffiliates as of April 28, 1998 was $682,419,119 based on 15,421,901 shares
outstanding on such date and the closing sales price for the Common Stock on
such date of $44.25 as reported on the New York Stock Exchange.
As of April 28, 1998, the Registrant had 16,738,384 shares of Common Stock
outstanding.
PART III incorporates information by reference from the Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders filed
with the Commission on February 19, 1998.
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PART I
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 17422 Derian
Avenue, Irvine, California 92614.
COMPANY-OWNED PROPERTIES
The general location, use and approximate size of the Company-owned
properties are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
AREA IN
LOCATION USE SQUARE FEET
- ------------------------ ----------------------------------------------- -----------
<S> <C> <C>
Irvine, California...... Design Facility, Showroom, Sewing, Warehousing, 110,500
Shipping
Van Nuys, California.... Assembling, Sewing 27,900
San Ysidro, California.. Assembling 27,300
Irvine,
California(/1/)........ Under Construction 24,300
Irvine, California...... Knitting 20,500
</TABLE>
LEASED PROPERTIES
The general location, use, approximate size and lease expiration date of the
Company's principal leased properties are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
AREA IN EXPIRATION
LOCATION USE SQUARE FEET DATE
- ------------------------ -------------------------------------- ----------- ----------
<S> <C> <C> <C>
Irvine, Knitting, Sewing, Finishing, Shipping, 175,000 7/10
California(/2/)........ Administrative Offices
Irvine, California...... Corporate Headquarters, Showroom, 85,000 5/01
Twisting, Dyeing
Alhambra, California.... Assembling, Sewing 41,000 8/01
Santa Ana, California... Jewelry and Hardware Manufacturing 23,000 5/99
New York, New York...... Showroom 12,300 11/04
New York, 7,500 6/11
New York(/3/).......... Retail Boutique
Beverly Hills, 7,000 3/06
California............. Retail Boutique
New York, New 6,200 6/01
York(/3/).............. Retail Boutique
Chicago, Illinois....... Retail Boutique 6,000 9/04
Las Vegas, Nevada(/4/).. Retail Boutique 5,500 1/08
Munich, Germany......... Retail Boutique 4,400 4/02
</TABLE>
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(1) The Company closed escrow on this property on October 30, 1997. Once
renovation is complete, this property will give the Company additional
office and manufacturing space.
(2) The Company leases this property from a general partnership in which the
Company holds a 50% interest.
(3) The square footage of the retail boutique located on 5th Avenue in New
York City is covered by these two leases.
(4) This lease was entered on December 10, 1997 for a new boutique location in
Las Vegas, Nevada. It is anticipated that the new boutique will open
during the second quarter of fiscal 1998.
As of November 2, 1997, annual base rents for the Company's leased
properties listed in the table above ranged from approximately $127,000 to
$1,204,000. In general, the terms of these leases provide for rent escalations
dependent upon either increases in the lessor's operating expenses or
fluctuations in the consumer price index in the relevant geographical area.
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The Company believes that there are facilities available for lease in the
event that either the productive capacities of the Company's manufacturing
facilities need to be expanded or a current lease of a manufacturing facility
expires. The Company also leases space for thirteen additional retail
boutiques, two additional showrooms, one additional administrative facility,
seven outlet stores, four Amen Wardy Home stores and a storage facility
(aggregating approximately 135,000 square feet).
The Company leases certain of its facilities from affiliates of the Company.
See "Certain Relationships and Related Transactions." The Company believes
that its existing facilities are well maintained and in good operating
condition.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "SJK." The high and low trading prices of the Company's Common
Stock during each quarter of fiscal years 1997 and 1996, and the dividends
paid per share were as follows:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
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QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fourth............................ $49.19 $38.50 $0.025 $51.75 $39.38 $0.025
Third............................. $54.50 $38.75 $0.025 $48.50 $29.50 $0.025
Second............................ $45.50 $37.50 $0.025 $34.38 $22.88 $0.025
First............................. $48.13 $41.13 $0.025 $27.13 $23.19 $0.025
</TABLE>
All amounts have been adjusted for the 2-for-1 stock split which occurred
during the third quarter of fiscal 1996.
As of January 28, 1998, the closing sales price for the Company's Common
Stock, as reported on the New York Stock Exchange, was $38.9375.
During fiscal years 1997 and 1996, the Company paid in the aggregate $0.10
per share in cash dividends to its shareholders. In addition, the Company
declared another quarterly dividend of $0.025 per share on December 16, 1997
to be paid in cash on February 14, 1998 to the shareholders of record on
January 14, 1998. The Company's ability to pay other dividends will depend
upon limitations under applicable law, certain covenants under the Company's
bank line of credit and other factors the Board of Directors deems relevant,
including results of operations, financial condition and capital and surplus
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
As of January 28, 1998, the number of holders of record of the Company's
Common Stock was approximately 350, and there were approximately 11,500
beneficial owners of the Company's Common Stock.
3
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes related thereto.
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Income and sets forth, for the periods indicated, the results of operations as
a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR ENDED
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NOVEMBER 2, NOVEMBER 3, OCTOBER 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 41.1 43.8 45.9
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Gross profit.............................. 58.9 56.2 54.1
Selling, general and administrative
expenses................................. 34.9 33.7 33.7
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Operating income.......................... 24.0 22.5 20.4
Other income.............................. 0.3 0.7 0.5
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Income before income taxes................ 24.3 23.2 20.9
Income taxes.............................. 10.0 9.8 8.8
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Net income................................ 14.3% 13.4% 12.1%
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</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for fiscal 1997 increased by $39,150,000, or 19.3% over fiscal
1996. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $23,017,000, (ii) an
increase in sales by Company owned retail stores of approximately $12,820,000,
due in part to the expansion of the New York boutique, which was completed in
October 1996, and the addition of one retail boutique and two retail outlet
stores since the beginning of fiscal 1996 and (iii) an increase in sales to
international retail customers of $3,313,000. Net sales increased primarily as
a result of increased unit sales of various product lines.
Gross profit for fiscal 1997 increased by $28,476,000, or 25.0% as compared
with fiscal 1996, and increased as a percentage of net sales to 58.9% from
56.2%. This increase in the gross profit margin was primarily due to an
increase in the number of garments being produced and sold without a
corresponding increase in the production costs, due in part to the fixed
nature of certain costs.
Selling, general and administrative expenses for fiscal 1997 increased by
$16,160,000, or 23.6% over fiscal 1996, and increased as a percentage of net
sales to 34.9% from 33.7%. This increase was primarily due to (i) an increase
in promotion and advertising expenses related to an expansion of the Company's
advertising program, (ii) an increase in salaries due to the Company's
continued effort to build its sales and marketing team and (iii) an expansion
of the Company's sales to foreign customers which include, among other things,
import duty, sales commissions, and additional freight charges.
Operating income for fiscal 1997 increased by $12,316,000 or 27.0% over
fiscal 1996. Operating income as a percentage of net sales increased to 24.0%
from 22.5% during the same period. This increase in operating income as a
percentage of net sales was due to the increase in the gross profit margin
which was partially offset by the increase in selling, general and
administrative expenses as a percentage of net sales.
Other income for fiscal 1997 decreased by $642,000 as compared with fiscal
1996. This decrease was primarily due to the receipt of a workers'
compensation insurance dividend of $316,000 during the first quarter of fiscal
1996, which related to the policy period ended December 31, 1994.
4
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FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased by $41,156,000, or 25.4% over fiscal
1995. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $23,992,000, (ii) an
increase in sales by Company owned retail stores of approximately $12,503,000,
due in part to the addition of three retail boutiques and two retail outlet
stores since the beginning of fiscal 1995 and (iii) an increase in sales to
international retail customers of $4,661,000. Net sales increased primarily as
a result of increased unit sales of various product lines.
Gross profit for fiscal 1996 increased by $26,537,000, or 30.3% as compared
with fiscal 1995, and increased as a percentage of net sales to 56.2% from
54.1%. This increase in the gross profit margin was due to (i) an increase in
the number of garments being produced and sold without a corresponding
increase in the production costs, due in part to the fixed nature of certain
costs, and (ii) an increase in the gross profit margin recorded for the
Company owned retail stores ("Retail Division").
Selling, general and administrative expenses for fiscal 1996 increased by
$13,835,000, or 25.4% over fiscal 1995, primarily as a result of the increase
in sales during fiscal 1996, as well as (i) an increase in advertising expense
due to the expansion of the Company's advertising program, (ii) an expansion
of the Company's sales to foreign customers, which include, among other
things, import duty, sales commissions and additional freight charges and
(iii) an expansion of the Company's Retail Division (collectively, the
"Expansion Expenses"). As a percentage of net sales, selling, general and
administrative expenses stayed constant at 33.7% from fiscal 1995 to fiscal
1996, primarily because a decrease in certain of the Company's selling,
general and administrative expenses as a percentage of net sales which
resulted from leveraging certain fixed costs over a higher sales base was
offset by the increased costs associated with the Expansion Expenses.
Operating income for fiscal 1996 increased by $12,702,000, or 38.5% over
fiscal 1995. Operating income as percentage of net sales increased to 22.5%
from 20.4% during the same period. This increase in operating income as a
percentage of net sales was due to the increase in the gross profit margin.
Other income for fiscal 1996 increased by $552,000 as compared with fiscal
1995. This increase was primarily due to the receipt of a workers'
compensation insurance dividend of $316,000 which related to the policy period
ended December 31, 1994. In addition, the Company reported higher interest
income due to the increase in its invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the
purchase of property and equipment. During fiscal 1997, cash provided by
operating activities was $30,459,000. Cash provided by operating activities
was primarily generated by net income and an increase in accounts payable,
while cash used in operating activities was primarily used to fund the
increases in accounts receivable and inventories. Cash used in investing
activities was $21,542,000 during fiscal 1997. The principal use of cash in
investing activities was for (i) the construction of the new design center,
(ii) the purchase of 40 computerized knitting machines, (iii) the purchase of
1.8 acres of land including a 24,300 square foot building in Irvine,
California to be used for future expansion, (iv) the construction of
improvements for two new manufacturing facilities in Southern California and
(v) the construction of leasehold improvements for new boutique locations in
Dallas and Palm Beach.
During fiscal 1997, the Company purchased the trademark Marie Gray for Best
International(R) from its distributor in Japan. In addition, the Company
formed St. John Company, Ltd. in Japan to operate as a 51 percent owned
subsidiary to distribute the Company's products in Japan. The Company also
formed Amen Wardy Home Stores, LLC, which currently operates two home
furnishing stores under the name Amen Wardy Home.
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The Company anticipates purchasing property and equipment of approximately
$20,000,000 during 1998. The estimated $20,000,000 will be used principally
for (i) the purchase of computerized knitting machines, (ii) the purchase of
property and the construction of improvements for a jewelry manufacturing
facility in Mexico, (iii) upgrades to the Company's computer systems and (iv)
the construction of leasehold improvements for new boutique locations in both
Hawaii and Las Vegas.
As of November 2, 1997, the Company had approximately $69,693,000 in working
capital and $16,618,000 in cash and marketable securities. The Company's
principal source of liquidity is internally generated funds. The Company also
has a $25,000,000 bank line of credit ("Line of Credit"). Subsequent to the
end of fiscal 1997, the Company amended the Line of Credit to extend the
expiration date to March 1, 2000. The Line of Credit is unsecured and
borrowings thereunder bear interest at the Company's choice of the bank's
reference rate (8.5 percent at November 2, 1997) or an offshore rate plus 1.5
percent. The availability of funds under the Line of Credit is subject to the
Company's continued compliance with certain covenants, including a covenant
that sets the maximum amount the Company can spend annually on the acquisition
of fixed or capital assets and certain financial covenants, including a
minimum quick ratio, minimum tangible net worth and a maximum ratio of total
liabilities to tangible net worth. The Company may not declare or pay any
dividends if the Company fails to perform its obligations under, or fails to
meet the conditions of, the Line of Credit or if payment of the dividend
creates a default under the Line of Credit. As of November 2, 1997, no amounts
were outstanding under the Line of Credit. The Company invests its excess
funds primarily in a money market fund, investment grade commercial paper,
adjustable rate tax deferred municipal obligations collateralized by letters
of credit issued by financial institutions and tax exempt municipal bonds.
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis with
internally generated funds.
The Company paid approximately $1,661,000 in dividends to its shareholders
during fiscal 1997. On December 16, 1997, the Company declared another
quarterly cash dividend of $0.025 per outstanding share to be paid on February
14, 1998 to shareholders of record on January 14, 1998. Future dividends by
the Company remain subject to limitations under applicable law, certain
covenants under the Line of Credit and other factors the Board of Directors
deems relevant, including results of operations, financial condition and
capital requirements.
YEAR 2000
The Company has assessed and is continuing to assess the impact of Year 2000
issues on its computer systems. The Company plans to begin implementing the
replacement of some of its existing systems during fiscal 1998, primarily to
improve productivity, but such replacement systems will also address Year 2000
issues. The Company plans to complete the replacement of such systems during
fiscal 1999. The estimated costs of the new systems are included in the
capital budget for fiscal 1998. Management currently believes that the impact
of Year 2000 issues will not have a material effect on its financial condition
or results of operations.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 1, 1998
ST. JOHN KNITS, INC. (Registrant)
/s/ Bob E. Gray
By:__________________________________
Bob E. Gray
Chairman of the Board and
Chief Executive Officer
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