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UNITED STATES
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, 2002
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 October 31,
2002 (only one class): 25,564,920.
----------
1
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 18-21
2
PART I. FINANCIAL INFORMATION
-----------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
October 31,
--------------------------------- January 31,
2002 2001 2002
-------------- -------------- --------------
ASSETS
- ------
Current assets:
Cash and time deposits $ 182,557 $ 46,245 $ 69,239
Receivables, net 345,240 359,192 318,931
Inventories 344,019 359,868 363,486
Prepaid taxes and expenses 43,344 30,437 31,325
-------------- -------------- --------------
Total current assets 915,160 795,742 782,981
Property, plant and equipment, net 108,017 109,409 108,938
Intangible assets, net 60,639 38,882 40,469
Goodwill 99,608 77,565 76,077
Other assets 47,042 36,897 35,959
-------------- -------------- --------------
Total assets $ 1,230,466 $ 1,058,495 $ 1,044,424
============== ============== ==============
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Current portion of long-term debt $ 17,594 $ 9,059 $ 18,811
Notes payable 246 25,315 7,612
Accounts payable 175,157 109,334 137,908
Accrued expenses 122,782 92,902 78,822
-------------- -------------- --------------
Total current liabilities 315,779 236,610 243,153
Long-term debt 300,742 320,875 307,869
Deferred income taxes and other 59,465 40,334 36,703
Shareowners' equity:
Common stock 214,550 169,499 173,010
Retained earnings 451,875 436,568 429,767
Accumulated other comprehensive income / (loss) (11,204) (11,713) (11,878)
-------------- -------------- --------------
655,221 594,354 590,899
Less treasury stock, at cost (100,741) (133,678) (134,200)
-------------- -------------- --------------
Total shareowners' equity 554,480 460,676 456,699
-------------- -------------- --------------
Total liabilities and shareowners' equity $ 1,230,466 $ 1,058,495 $ 1,044,424
============== ============== ==============
See notes to condensed consolidated financial statements.
3
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
--------------------------------------------------------
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Net sales $ 633,394 $ 601,400 $ 1,667,420 $ 1,811,769
Costs and expenses:
Cost of products sold 494,801 483,764 1,322,547 1,447,719
Selling, general and
administrative expenses 93,919 84,895 259,103 264,181
Provision for realignment 3,115 - 10,359 -
Amortization of intangible assets 1,943 2,535 3,998 7,251
Interest expense 7,564 8,195 21,475 27,765
Interest income and other, net (443) (820) (1,730) (2,022)
-------------- -------------- ------------- ------------
Earnings before income taxes 32,495 22,831 51,668 66,875
Income taxes 11,400 8,900 18,100 26,000
-------------- -------------- ------------- ------------
Net earnings $ 21,095 $ 13,931 $ 33,568 $ 40,875
============== ============== ============= ============
Weighted average shares outstanding:
Basic 25,563 22,745 24,234 22,730
============== ============== ============= ============
Diluted 25,761 22,885 24,546 22,889
============== ============== ============= ============
Earnings per share:
Basic $ .83 $ .61 $ 1.39 $ 1.80
============== ============== ============= ============
Diluted $ .82 $ .61 $ 1.37 $ 1.79
============== ============== ============= ============
Dividends paid per share $ .16 $ .16 $ .48 $ .48
============== ============== ============= ============
See notes to condensed consolidated financial statements.
4
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
Nine months ended
October 31,
----------------------------------
2002 2001
------------- --------------
OPERATING ACTIVITIES:
Net earnings $ 33,568 $ 40,875
Add/(deduct) items not affecting operating cash flows:
Depreciation and amortization 24,656 24,239
Non-cash and accrued realignment costs 6,889 -
Deferred income taxes and other 8,518 9,766
Changes in working capital:
Receivables, net (4,157) 10,056
Inventories 70,848 142,976
Prepaid taxes and expenses (4,900) 3,325
Accounts payable 27,322 (45,283)
Accrued expenses 9,232 (842)
------------- -------------
Net cash provided by operating activities 171,976 185,112
------------- -------------
INVESTING ACTIVITIES:
Additions to fixed assets (9,126) (12,970)
Acquisition, net of cash acquired (18,075) -
Investments (11,000) -
Net proceeds from termination of Pension Plan - 61,340
Disposition of fixed assets 2,658 74
------------- -------------
Net cash provided / (used) by investing activities (35,543) 48,444
------------- -------------
FINANCING ACTIVITIES:
Proceeds from notes payable 23,098 1,396,724
Reduction of notes payable (30,464) (1,489,111)
Reduction of long-term debt (10,143) (95,209)
Dividends paid (11,460) (10,911)
Stock transactions under incentive plans 5,854 759
------------- -------------
Net cash (used) by financing activities (23,115) (197,748)
------------- -------------
NET INCREASE IN CASH AND TIME DEPOSITS 113,318 35,808
Cash and time deposits, beginning of period 69,239 10,437
------------- -------------
Cash and time deposits, end of period $ 182,557 $ 46,245
============= =============
Significant non-cash investing and financing activities:
Issuance of stock for the acquisition of Gerber Childrenswear, Inc. $ 68,185
-------------
See notes to condensed consolidated financial statements.
5
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
(Dollars in thousands, except per share data)
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.
Except for the change in accounting for goodwill and intangible assets as
discussed in Note 9, 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 fiscal 2001 (the
year ended January 31, 2002). For additional information regarding the
Company's financial condition, refer to the footnotes accompanying the 2001
financial statements. Details in those notes have not changed significantly
except as indicated herein and as a result of normal transactions in the
interim.
RECLASSIFICATIONS. Certain amounts in the prior year condensed consolidated
financial statements have been reclassified to conform to the current year
presentation.
2. GERBER ACQUISITION. On June 25, 2002 the Company completed its
acquisition of Gerber Childrenswear, Inc., (Gerber) for approximately
$18,000 in cash, net of cash acquired of $51,000, and 2.3 million shares of
Kellwood common stock valued at $68,185. This acquisition has been accounted
for under the purchase method of accounting. Gerber's hosiery business has
been incorporated into the Men's Sportswear Segment, and the children's
apparel business has been incorporated into the Other Soft Goods Segment.
The Company's unaudited consolidated results of operations for the first
nine months, on a pro-forma basis, assuming the Gerber acquisition had
occurred at the beginning of fiscal 2002 are: net sales of $1,744,510, net
income of $37,157, and diluted earnings per share of $1.44. These pro forma
results are not necessarily indicative of the operating results that would
have occurred had this acquisition been consummated at the beginning of the
year or of future operating results.
In connection with the purchase accounting for the Gerber acquisition,
Kellwood is in the process of evaluating the tangible and intangible assets
and liabilities acquired. At October 31, 2002, the Company's accounting for
the Gerber acquisition was based on preliminary valuation information. In
addition, the Company is in the process of evaluating all aspects of the
Gerber operations including production facilities, sourcing programs, and
product distribution processes. These evaluations may result in adjustments
to the purchase accounting including the recorded amount of goodwill.
3. OTHER INCOME. Other income in the nine months ended October 31, 2001
includes $3,419 related to the change in accounting for certain inventories
from the LIFO to the FIFO method. The change was effected in the first
quarter of 2001 and was not considered material to require restatement of
prior years' income statements.
4. INVENTORIES:
October 31,
------------------------------- January 31,
2002 2001 2002
------------- ------------- --------------
Inventories:
Finished goods $ 259,791 $ 255,287 $ 273,037
Work in process 39,151 50,706 41,783
Raw materials 45,077 53,875 48,666
------------- ------------- --------------
Total Inventories $ 344,019 $ 359,868 $ 363,486
============= ============= ==============
6
5. FACILITIES REALIGNMENT COSTS. The Company has decided to implement
realignment actions, including the closing of certain domestic warehousing
and Latin American production facilities and the discontinuance of a
licensing agreement. The realignments will include the closing of three
warehouse operations and five manufacturing facilities and will result in a
reduction of employment by approximately 1,900. These actions will impact
fiscal 2002 earnings by approximately $15,000 before tax (approximately
$9,700 after tax, or $0.39 per share).
During the third quarter, the Company recorded pretax realignment and
related costs of $3,383 which included $267 recorded in cost of products
sold and $3,115 recorded as a provision for realignment. For the first nine
months of 2002 the Company recorded pretax realignment and related costs of
$13,000, which included $2,641 recorded in cost of sales and $10,359
recorded as a provision for realignment. During the first nine months of
2002, the Company closed three warehouse operations and one manufacturing
facility, resulting in a reduction of employment of approximately 600. These
costs include employee severance, vacant facilities costs, and other cash
realignment costs including minimum royalties and customer markdowns on a
discontinued license agreement. Detail for these costs through October 31,
2002 is as follows:
Amount Amount Remaining
Provided Utilized Accrual
------------- ------------- -------------
Employee severance $ 3,069 $ 1,455 $ 1,614
Vacant facilities costs 2,837 873 1,964
Other cash realignment costs 1,620 1,495 125
------------- ------------- -------------
Total realignment, excluding non-cash 7,526 $ 3,823 $ 3,703
Asset impairments 5,474 ============= =============
-------------
Total realignment costs $ 13,000
=============
The remaining expected cost of these actions, approximately $2,000, will be
expensed during the fourth quarter, as the related facility closings are
announced or as the expenses are incurred. These programs are expected to be
completed in 2003.
6. DEBT. On April 30, 2002 the Company executed a $240,000 3-year committed,
unsecured bank credit facility with Bank of America as lead arranger and
other participating banks (the "2002 Facility"). The 2002 Facility can be
used for borrowings and/or letters of credit. Borrowings under the 2002
Facility bear interest at a spread of approximately 1.75% over LIBOR. At
October 31, 2002 there were no outstanding short-term loans under the
agreement. Letters of credit outstanding were $107,473.
In conjunction with the execution of the 2002 Facility, the Company
cancelled the prior existing $350,000 bank credit facility. This credit
facility had been scheduled to terminate on August 31, 2002.
The Company maintains informal, uncommitted lines of credit with several
banks, which totaled $15,000 at October 31, 2002. There were no borrowings
under these uncommitted lines at October 31, 2002.
7. COMPREHENSIVE INCOME. Differences between net earnings and total
comprehensive income resulted from foreign currency translation and
unrecognized impacts of derivative instruments, as follows:
Three months ended October 31, Nine months ended October 31,
------------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net earnings $ 21,095 $ 13,931 $ 33,568 $ 40,875
Other comprehensive income:
Currency translation adjustment (630) (352) (712) (1,101)
Unrecognized gain/(loss) on derivatives 155 (115) 38 (40)
------------- ------------- ------------- -------------
Total comprehensive income $ 20,620 $ 13,464 $ 32,894 $ 39,734
============= ============= ============= =============
8. STOCK OPTION PLANS. On March 8, 2002 the Company granted nonqualified
stock options to certain officers and other key employees for 676,875 shares
of common stock at an exercise price of $25.50, which was equal to the
market value of the shares on the grant date. The options expire 10 years
after grant and are exercisable in cumulative installments usually over a
5-year period.
7
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
----------------------------------------------------------------
(Dollars in thousands, except per share data)
9. GOODWILL AND INTANGIBLE ASSETS. In July 2001 the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives are
not amortized but are subject to annual impairment tests in accordance with
the new Statements. Other intangible assets continue to be amortized over
their estimated useful lives.
The Company applied these new rules of accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. A reconciliation
of previously reported net income and earnings per share to the amounts
adjusted for the exclusion of goodwill amortization follows:
Three months ended October 31, Nine months ended October 31,
------------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net earnings:
As reported $ 13,931 $ 40,875
Goodwill amortization 1,376 4,128
------------- -------------
Adjusted net earnings $ 21,095 $ 15,307 $ 33,568 $ 45,003
============= ============= ============= =============
Diluted earnings per share:
As reported $ .61 $ 1.79
Goodwill amortization .06 .18
------------- -------------
Adjusted diluted earnings per share $ .82 $ .67 $ 1.37 $ 1.97
============= ============= ============= =============
During the first quarter of 2002 the Company completed the required
impairment tests of goodwill and indefinite-lived intangible assets as
recorded on February 1, 2002. Based on an evaluation of discounted cash
flows and multiple analyses of the Company's reporting units, no impairment
resulted from the initial application of the Statements.
During the quarter ended October 31, 2002 the Company recorded goodwill of
$23,531 resulting from the acquisition of Gerber. Goodwill balances and
changes therein since January 31, 2002 by segment are as follows:
Women's Other
Sportswear Soft Goods Total
------------ ------------ ------------
Balance as of January 31, 2002 $ 63,425 $ 12,652 $ 76,077
Acquisition of Gerber - 23,531 23,531
------------ ------------ ------------
Balance as of October 31, 2002 $ 63,425 $ 36,183 $ 99,608
============ ============ ============
Identifiable intangible assets as of October 31, 2002 include:
Gross Accumulated Net
Amount Amortization Book Value
------------- ------------- -------------
Customer Base $ 34,394 $ 7,478 $ 26,916
Trademarks 20,584 3,235 17,349
License Agreements 14,531 1,524 13,007
Other 11,536 8,169 3,367
------------- ------------- -------------
Total intangibles $ 81,045 $ 20,406 $ 60,639
============= ============= =============
Amortization of intangible assets was $1,943 for the quarter ended October
31, 2002 and $3,998 for the nine months ended October 31, 2002. Amortization
expense, including Gerber but excluding any future acquisitions, for the
years 2002 to 2006 is estimated to be approximately $7,500 per year.
The amortizable intangible assets have a weighted average estimated
remaining life of approximately 13 years. Estimated identifiable intangible
assets related to the acquisition of Gerber of $26,220 have been classified
as Customer Base (19%), Trademarks (32%), and License Agreements (49%) with
an expected weighted average life of 15 years based on an independent
appraisal. Additional adjustments to the purchase price and related
allocation may occur during the one-year period following the acquisition
date.
8
10. REPORTABLE SEGMENTS. The Company and its subsidiaries are principally
engaged in the apparel and related soft goods industry. The Company's
business units are aggregated into the following reportable segments:
Women's Sportswear, Men's Sportswear, and Other Soft Goods. Sales, segment
earnings, and net assets by segment for the quarter and nine months ended
October 31, 2002 as well as a reconciliation of the segment 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:
Three months ended October 31, Nine months ended October 31,
------------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net Sales:
Women's Sportswear $ 393,975 $ 403,432 $ 1,022,191 $ 1,216,680
Men's Sportswear 123,420 109,890 309,592 266,791
Other Soft Goods 115,999 88,078 335,637 328,298
------------- ------------- ------------- -------------
Kellwood net sales $ 633,394 $ 601,400 $ 1,667,420 $ 1,811,769
============= ============= ============= =============
Segment earnings*:
Women's Sportswear $ 40,395 $ 27,431 $ 84,476 $ 82,187
Men's Sportswear 11,579 12,815 22,897 25,300
Other Soft Goods 4,683 1,952 10,948 19,466
------------- ------------- ------------- -------------
Total segments 56,657 42,198 118,321 126,953
Amortization of Intangibles (1,943) (2,535) (3,998) (7,251)
Interest expense (7,564) (8,195) (21,475) (27,765)
Provision for realignment ** (3,115) - (10,359) -
General corporate and other (11,540) (8,637) (30,821) (25,062)
------------- ------------- ------------- -------------
Earnings before income taxes $ 32,495 $ 22,831 $ 51,668 $ 66,875
============= ============= ============= =============
Net Assets at quarter-end:
Women's Sportswear $ 384,112 $ 504,041
Men's Sportswear 157,478 137,819
Other Soft Goods 174,238 171,556
Corporate and other 157,234 2,508
------------- -------------
Kellwood total $ 873,062 $ 815,924
============= =============
* - Realignment costs included in segment earnings above:
Women's Sportswear $ 163 $ 565
Men's Sportswear (123) 305
Other Soft Goods 227 1,771
------------- -------------
Total segments $ 267 $ 2,641
------------- -------------
** - The provision for realignment relates to the segments as follows:
Women's Sportswear $ 276 $ 4,331
Men's Sportswear (196) 1,583
Other Soft Goods 3,035 4,445
------------- -------------
Total $ 3,115 $ 10,359
------------- -------------
Segment net assets measures net working capital, net fixed assets and other
non-current operating assets and liabilities of the segment. Goodwill and
net intangibles are included in segment net assets, however the related
amortization expense is included in Amortization of Intangibles and is not
allocated to the segments.
9
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS - $ IN MILLIONS EXCEPT PER SHARE DATA
-----------------------------------------------------------
OPERATING RESULTS
- -----------------
Sales for the third quarter were $633, up $32, or 5%, from last year. Net
earnings were $21.1, or $.82 per share compared to $13.9, or $.61 per share
last year on a diluted basis. Included in net earnings for the current
quarter are earnings from the acquisition of Gerber Childrenswear, Inc. The
earnings were offset with costs of $3.4 before-tax, or $2.2 after-tax ($.08
per share) in business and facilities realignment costs (facilities
realignment costs). This represents the continuation of the previously
announced $15 pretax facility realignment program. Excluding the third
quarter facilities realignment costs, net earnings for the quarter were
$23.3, or $.90 per share.
Sales in the first nine months were $1,667, down $144, or 8% from the prior
year. Net earnings were $33.6, or $1.37 per share compared to $40.9, or
$1.79 per share last year on a diluted basis. Included in net earnings for
the first nine months is $13.0 before-tax, or $8.5 after-tax ($.35 per
share) in facilities realignment costs. Excluding the first nine months
facilities realignment costs, net earnings were $42.1, or $1.72 per share.
GERBER ACQUISITION. On June 25, 2002 the Company completed its acquisition
of Gerber Childrenswear, Inc., (Gerber) for approximately $18 in cash, net
of cash acquired of $51, and 2.3 million shares of Kellwood common stock
valued at $68. This acquisition has been accounted for under the purchase
method of accounting. Gerber's hosiery business will be included in the
Men's Sportswear Segment, and the children's apparel business will be
included in the Other Soft Goods Segment.
In connection with the purchase accounting for the Gerber acquisition,
Kellwood is in the process of evaluating the tangible and intangible assets
and liabilities acquired. At October 31, 2002, the Company's accounting for
the Gerber acquisition was based on preliminary valuation information. In
addition, the Company is in the process of evaluating all aspects of the
Gerber operations including production facilities, sourcing programs, and
product distribution processes. These evaluations may result in adjustments
to the purchase accounting including the recorded amount of goodwill.
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 October
31 have historically been higher than for the other quarters of the fiscal
year. In recent years, the October quarter's results have represented
approximately 28% of the year's sales and 42% of net earnings before unusual
items and facilities realignment costs.
FACILITIES REALIGNMENT COSTS. The global market for piece goods and apparel
production has changed significantly in favor of sourcing piece goods and
finished product out of the Far East. At the same time, the downturn in the
economy and consumer confidence has resulted in a prolonged period of weak
consumer and retail demand which, in turn, has resulted in some excess
capacity in the Company's warehousing and distribution network. As a result,
management has analyzed its sourcing and distribution infrastructure along
with other structural issues and is implementing actions to align the
Company to reflect the new business environment. As a result of this
analysis, the Company decided to implement realignment actions, which will
impact fiscal 2002 earnings by approximately $15.0 before tax (approximately
$9.7 after tax, or $0.39 per share).
During the third quarter, the Company recorded pretax realignment and
related costs of $3.4 which included $0.3 recorded in cost of sales and $3.1
recorded as a provision for realignment. For the first nine months of 2002
the Company recorded pretax realignment and related costs of $13.0, which
included $2.6 recorded in cost of sales and $10.4 recorded as a provision
for realignment. The remaining expected cost of these actions, approximately
$2.0, will be expensed in the fourth quarter of 2002 as the related facility
closings are announced or as the expenses are incurred. These programs are
expected to be completed in 2003. These charges will provide for a reduction
of employment by approximately 1,900, primarily in Latin American production
and domestic warehousing functions.
10
SUMMARIZED FINANCIAL DATA for the quarter and nine months ended October 31,
2002 and 2001, including facilities realignment costs, are as follows
(percentages are calculated based on actual data; columns may not add due to
rounding):
Three months ended October 31, Nine months ended October 31,
----------------------------------- ------------------------------------
2002(1) 2001 Change 2002(1) 2001 Change
--------- --------- ------ --------- --------- ------
Net Sales $ 633 $ 601 5.3% $ 1,667 $ 1,812 -8.0%
Cost of products sold 495 484 2.3% 1,323 1,448 -8.6%
--------- --------- --------- --------- --------- ---------
Gross Profit 139 118 17.8% 345 364 -5.3%
S,G&A 94 85 10.6% 259 264 -1.9%
--------- --------- --------- --------- --------- ---------
Operating earnings 45 33 36.4% 86 100 -14.1%
Provision for realignment 3 - - 10 - nm
Amortization of intangibles 2 3 -23.4% 4 7 -44.9%
Interest expense 8 8 -7.7% 21 28 -22.7%
Interest (income) & other, net(2) (0) (1) nm (2) (2) -14.4%
--------- --------- --------- --------- --------- ---------
Earnings before tax 32 23 42.3% 52 67 -22.7%
Income taxes 11 9 28.1% 18 26 -30.4%
--------- --------- --------- --------- --------- ---------
Net earnings $ 21 $ 14 51.4% $ 34 $ 41 -17.9%
========= ========= ========= ========= ========= =========
Effective tax rate 35.1% 39.0% -3.9% 35.0% 38.9% -3.9%
Average diluted shares 25.8 22.9 12.6% 24.5 22.9 7.2%
--------- --------- --------- --------- --------- ---------
Diluted Earnings per Share $ .82 $ .61 34.5% $ 1.37 $ 1.79 -23.4%
--------- --------- --------- --------- --------- ---------
(1) - Impact of facilities realignment costs included in data above:
Cost of products sold $ .3 - - $ 2.6 - -
Provision for realignment 3.1 - - 10.4 - -
--------- --------- --------- --------- --------- ---------
Earnings before tax 3.4 - - 13.0 - -
Income taxes 1.2 - - 4.5 - -
--------- --------- --------- --------- --------- ---------
Net earnings $ 2.2 - - $ 8.5 - -
--------- --------- --------- --------- --------- ---------
Diluted Earnings per Share $ .08 $ .35
--------- ---------
(2) - Including LIFO credit of $3.4 in the three months ended April 30, 2001.
Three months ended October 31, Nine months ended October 31,
----------------------------------- ------------------------------------
As a percentage of net sales: 2002 2001 Change 2002 2001 Change
- ----------------------------- --------- --------- ------ --------- --------- ------
Net Sales 100.0% 100.0% - 100.0% 100.0% -
Cost of products sold 78.1% 80.4% -2.3% 79.3% 79.9% -0.6%
--------- --------- --------- --------- --------- ---------
Gross Profit 21.9% 19.6% 2.3% 20.7% 20.1% 0.6%
S,G&A 14.8% 14.1% 0.7% 15.5% 14.6% 1.0%
--------- --------- --------- --------- --------- ---------
Operating earnings 7.1% 5.4% 1.6% 5.1% 5.5% -0.4%
Provision for realignment 0.5% - 0.5% 0.6% - 0.6%
Amortization of intangibles 0.3% 0.4% -0.1% 0.2% 0.4% -0.2%
Interest expense 1.2% 1.4% -0.2% 1.3% 1.5% -0.2%
Interest (income) & other, net -0.1% -0.1% 0.1% -0.1% -0.1% 0.0%
--------- --------- --------- --------- --------- ---------
Earnings before tax 5.1% 3.8% 1.3% 3.1% 3.7% -0.6%
Income taxes 1.8% 1.5% 0.3% 1.1% 1.4% -0.3%
--------- --------- --------- --------- --------- ---------
Net earnings 3.3% 2.3% 1.0% 2.0% 2.3% -0.2%
========= ========= ========= ========= ========= =========
SALES. Sales for the third quarter were up 5% from the comparable period
last year due to the acquisition of Gerber. Excluding the acquisition, sales
for the quarter were down in essentially every channel of distribution
except the discount channel, reflecting the preference of the consumer for
value-priced apparel.
GROSS PROFIT for the third quarter was $139, up $21 from $118 last year.
Gross profit as a percentage of sales was 21.9%, up 2.3% from 19.6% last
year. Excluding the acquisition of Gerber and $0.3 of realignment cost
included in cost of sales, gross profit was $129.5, $11.8 or 10% higher than
last year on 2% lower sales. The gross margin rate improved due to lower
marketing allowances and inventory markdowns and lower cost sourcing.
11
Gross profit for the nine months as a percentage of sales increased 0.6% to
20.7% from 20.1% in the prior year. The year -to-year improvement is due to
lower marketing allowances and inventory markdowns and lower cost sourcing,
partially offset by facilities realignment costs included in cost of sales
of $2.6.
S,G&A EXPENSE for the third quarter was $93.9, or 14.8% of sales vs. 14.1%
of sales last year. Excluding Gerber, S,G&A expenses were $3 higher than last
year. The increase is primarily due to increases at Smart Shirts for the
growth in the business, increased customer claims, air freight due to the
dock strike, additional customer services and new business start-ups.
S,G&A expense for the nine months decreased $5 but increased as a percentage
of sales to 15.5% from 14.6% in the prior year due to the reduction in nine
months sales and a significant portion of S,G&A being fixed.
AMORTIZATION of intangible assets decreased $0.6 for the quarter ($3.2 for
the nine months) compared to the prior year as a result of the
implementation of FAS 142 and the related cessation of amortization of
goodwill. This decrease was partially offset by the amortization of
identified intangible assets related to Gerber. Identified intangible assets
are amortized over their estimated economic useful lives.
INTEREST EXPENSE for the third quarter was $7.6, down $0.6 from last year.
The Company had no bank borrowings during what is normally the seasonal peak
borrowing period of August, September and October 2002. Interest expense for
the nine months was $21.5, down $6.3 from last year due to the reduction in
bank borrowings.
OTHER INCOME in the nine months ended October 31, 2001 included $3.4 from
the change in accounting for certain inventories from the LIFO to the FIFO
method. The change was not considered material to require restatement of
prior years' income statements.
INCOME TAXES. The effective tax rate for the third quarter was 35.1%, down
from last year's 39.0%. The effective tax rate for the nine months was
35.0%, down from last year's 38.9%. The primary factors in this decline are
the cessation of the non-deductible goodwill amortization and foreign tax
differences associated with the Company's Smart Shirts overseas operations.
SEGMENT RESULTS
- ---------------
The Company and its subsidiaries are principally engaged in the apparel and
related soft goods industry. Sales by segment for the quarter and nine
months were as follows:
Three months ended October 31, Nine months ended October 31,
-------------------------------- --------------------------------
2002 2001 Change 2002 2001 Change
-------- -------- ------ -------- -------- ------
Women's Sportswear $ 394 $ 403 (2.3%) $ 1,022 $ 1,217 (16.0%)
Men's Sportswear 123 110 12.3% 310 267 16.0%
Other Soft Goods 116 88 31.7% 336 328 2.2%
-------- -------- -------- -------- -------- --------
Total Net Sales $ 633 $ 601 5.3% $ 1,667 $ 1,812 (8.0%)
======== ======== ======== ======== ======== ========
Earnings by segment for the quarter (excluding facilities realignment costs
in the current year) were as follows:
Three months ended October 31, as a percentage of net sales
-------------------------------- --------------------------------
2002 2001 Change 2002 2001 Change
-------- -------- ------ -------- -------- ------
Women's Sportswear $ 40.6 $ 27.4 47.9% 10.3% 6.8% 3.5%
Men's Sportswear 11.5 12.8 (10.6%) 9.3% 11.7% (2.4%)
Other Soft Goods 4.9 2.0 151.5% 4.2% 2.2% 2.0%
-------- -------- -------- -------- -------- --------
Segment Earnings $ 56.9 $ 42.2 34.9% 9.0% 7.0% 2.0%
======== ======== ======== ======== ======== ========
Earnings by segment for the nine months (excluding facilities realignment
costs in the current year) were as follows:
Nine months ended October 31, as a percentage of net sales
-------------------------------- --------------------------------
2002 2001 Change 2002 2001 Change
-------- -------- ------ -------- -------- ------
Women's Sportswear $ 85.0 $ 82.2 3.5% 8.3% 6.8% 1.6%
Men's Sportswear 23.2 25.3 (8.3%) 7.5% 9.5% (2.0%)
Other Soft Goods 12.7 19.5 (34.7%) 3.8% 5.9% (2.1%)
-------- -------- -------- -------- -------- --------
Segment Earnings $ 121.0 $ 127.0 (4.7%) 7.3% 7.0% 0.2%
======== ======== ======== ======== ======== ========
12
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
WOMEN'S SPORTSWEAR sales for the quarter were $394, down $9, or 2% from last
year. Sales for the nine months were $1,022, down $195, or 16% from last
year. The Women's Sportswear business was planned down from last year, and
through the first nine months actual results have exceeded plan. Segment
earnings increased to 10.3% of sales compared to 6.8% last year for the
third quarter and 8.3% of sales compared to 6.8% last year for the nine
months. Several factors contributed to the year-to-year drop in sales. The
dress category has been cyclically weak this year. The stores reduced their
dress open-to-buy by 25% for the Spring and Fall selling seasons. This
fashion trend hurt our volume this year. Sales of dresses in the third
quarter were down $11 or 12%. We saw this trend developing last year and
took the appropriate steps to reduce inventory commitments and overhead.
With fewer dresses on the selling floor, the retailers have cut back on the
number of vendors they use, and as a result we have been able to increase
market share. Finally, the sell through rates on the selling floor on fewer
units have been very good this year so we are hopeful that the stores will
plan some growth in dress open-to-buy next year. The second major reason for
the year-to-year drop in volume is lower sales to one of the Company's
department store customers due to the combination of a weak market and a
change in the customer's merchandising strategy. In order to provide the
department stores with product and brand differentiation, we recently
announced the licensing of the IZOD(R) brand. We will begin shipping the new
line to better department stores for Holiday 2003. Finally, we made the
decision to eliminate several Women's Sportswear brands that provided $4 of
volume in the third quarter of last year.
Women's Sportswear segment earnings for the third quarter, before the
facilities realignment provision, were $40.6 or 10.3% of net sales, up $13.2
from last year and improved as a percent of sales by 3.5 percentage points.
The improvement in earnings, despite a $9 or 2% drop in sales, came largely
from a three-percentage point improvement in gross margin and a $3 or 6%
reduction in S,G&A expense. The gross margin rate improved due to lower
marketing allowances and inventory markdowns and lower cost sourcing.
Facilities realignment costs reduced the gross profit and operating earnings
by $0.2.
MEN'S SPORTSWEAR sales in the third quarter were $123, up $14, or 12% from
last year. Excluding the sales of Auburn Hosiery, a division of Gerber,
sales of the ongoing segments were essentially flat. Sales for the nine
months were $310, up $43, or 16% from last year. Kellwood's Men's Sportswear
segment, which is largely private label, consists of three major businesses:
Smart Shirts, which principally manufactures and sells private label woven
shirts as well as the licensed brand, Nautica(R) dress shirts; Menswear
which manufactures and sells private label pants and jeans, and Slates(R)
sportswear (a brand licensed from Levi); and Gerber Hosiery.
Smart Shirts' sales in the third quarter increased by only $1 or 1% from
last year due to the timing of customer release dates which moved certain
deliveries from the third quarter and the West Coast dock strike that
resulted in $7 of volume moving out of the third quarter and into the fourth
quarter. Sales for the Menswear division in the third quarter were up $1.9
or 8% from last year. The year-to-year growth in a very weak market would
have been even greater were it not for deciding to withdraw from the
outerwear and rainwear businesses. The acquisition of Gerber Hosiery was on
June 25, 2002 and contributed $11 of sales in the third quarter.
Men's Sportswear segment earnings for the third quarter, before the
facilities realignment provision, were $11.5 or 9.3% of net sales, down $0.7
from last year and down, as a percent of sales, 2.4 percentage points. The
decrease in earnings resulted primarily from the use of airfreight and the
potential for increased customer claims resulting from the West Coast dock
strike, and costs associated with the start up and expansion of new
businesses.
OTHER SOFT GOODS sales in the third quarter were $116, up $28, or 32% from
the prior year primarily due to the acquisition of Gerber. Sales from the
two ongoing divisions of Other Soft Goods, Intimate Apparel and Recreation
Products were down $6 or 10.6%, and $1 or 2.4%, respectively, from last
year. Segment sales for the nine months were $336, up $8, or 2.2% from the
prior year. The year-to-year drop in Intimate Apparel sales was consistent
with the decline in the overall market. Segment earnings for the third
quarter, before the facilities realignment provision, were up $2.9 to 4.2%
of sales compared to 2.2% of sales in the prior year, largely due to the
acquisition of Gerber.
13
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 36.5% of capital at October 31, 2002 as compared to
43.5% at October 31, 2001. Two major items contributed to this improvement.
Working capital is down $153 from last year. Because of the improvements in
the Company's working capital usage, there have been no bank borrowings for
the last nine months. The second factor was the use of stock in the Gerber
acquisition, which strengthened the Company's equity position by $68.
WORKING CAPITAL
- ---------------
The CURRENT RATIO was 2.9 at October 31, 2002, down from 3.4 at October 31,
2001.
CASH AND TIME DEPOSITS were $183 at October 31, 2002 compared to $46 last
year. The increase in cash and time deposits resulted from the Company's
strong operating cash flow and working capital reductions.
ACCOUNTS RECEIVABLE were $345, or 53 days sales outstanding, as of October
31, 2002, compared to 60 days at October 31, 2001. Excluding the acquisition
of Gerber, receivables were $37 or 10% lower than last year on 2% lower
sales for the quarter.
INVENTORIES were $344 as of October 31, 2002, down $16 from the prior year.
Excluding the acquisition of Gerber, inventories were down $59 or 16% lower
than last year.
ACCOUNTS PAYABLE AND ACCRUALS increased by $96 to $298 at the end of the
third quarter in spite of the decline in sales and the associated lower
purchases of inventory. This reflects the Company's success in moving
contractors from letters of credit to open account.
FINANCING AND INVESTING ACTIVITIES
- ----------------------------------
Capital expenditures were $9.1 for the nine months compared to $13.0 in the
comparable period last year.
In April 2002 the Company entered into a transaction with Casual Male Retail
Group, Inc. (NASDAQ: CMRG). Pursuant to this transaction the Company
acquired an $11.0 Subordinated Note and signed a seven-year Sourcing
Agreement under which Kellwood will produce men's sportswear, activewear and
furnishings for the nationwide chain of Casual Male stores.
DEBT:
On April 30, 2002 the Company executed a $240 three-year committed,
unsecured bank credit facility with Bank of America as lead arranger and
other participating banks (the "2002 Facility"). The 2002 Facility can be
used for borrowings and/or letters of credit. Borrowings under the 2002
Facility bear interest at a spread of approximately 1.75% over LIBOR. At
October 31, 2002 there were no outstanding short term loans under the
agreement. Letters of credit outstanding were $107. In conjunction with the
execution of the 2002 Facility, the Company cancelled the prior existing
$350 bank credit facility. This credit facility had been scheduled to
terminate on August 31, 2002.
The Company maintains informal, uncommitted lines of credit with several
banks, which totaled $15 at October 31, 2002. There were no borrowings under
these uncommitted lines at October 31, 2002.
ACQUISITIONS:
In addition to the Gerber transaction described above, 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. 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
meet existing obligations and fund future opportunities.
14
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
OUTLOOK AS OF DECEMBER 6, 2002
- ------------------------------
MANAGEMENT'S OUTLOOK FOR KELLWOOD'S FOURTH QUARTER expects sales to be
approximately $540, versus $470 last year with approximately one half of the
growth coming from several new marketing initiatives, and one half from the
acquisition of Gerber.
Net earnings and earnings per share for the fourth quarter, before the
previously discussed facilities realignment charge, are forecasted to be
approximately $8 to $9, or $.30 to $.35 per share, versus a loss of ($3.1),
or ($.14) per diluted share last year. The impact of facilities realignment
costs on the fourth quarter is expected to be approximately $.04 per diluted
share.
OUTLOOK FOR THE TOTAL YEAR. For fiscal 2002, which ends January 2003, sales
are expected to be in the range of $2.2 billion. Net earnings and earnings
per share for fiscal 2002, before the provision for facilities realignment,
are expected to be in the range of $50 to $51, or $2.00 to $2.05 per share,
versus $37.7, or $1.65 per share reported in fiscal 2001 on a diluted basis.
Net earnings are expected to increase due to a 1.1% improvement in gross
margins, partially offset by a 0.7% increase in S,G&A, primarily as a result
of the Gerber acquisition. Additionally, interest expense had declined
significantly year over year due to improved working capital management. The
impact of reduced amortization of intangible assets resulting from the
implementation of FAS 142 will also increase earnings per share by
approximately $.24. The full-year impact on net earnings and earnings per
share from the previously announced business and facilities realignment
charge remains at $9.7, or $.39 per share.
STOCK OPTION ACCOUNTING
- -----------------------
The Company has decided to expense stock options effective in Fiscal 2003,
which begins February 1, 2003. Expensing of stock options is not expected to
impact earnings significantly, and the expensing will be implemented in
accordance with current Generally Accepted Accounting Principles.
RECENTLY ISSUED ACCOUNTING STANDARDS RELATED TO ACCOUNTING FOR GOODWILL
- -----------------------------------------------------------------------
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets.
FAS 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and establishes
specific criteria for recording intangible assets separate from goodwill. In
the first quarter of fiscal 2002, the Company's recorded goodwill and
intangibles were evaluated against the new criteria. As a result, certain
previously identified "assembled workforce" intangibles were subsumed into
goodwill.
FAS 142 requires the use of a nonamortization approach to account for
purchased goodwill and indefinite-lived intangibles. Under the
nonamortization approach, goodwill and indefinite-lived intangibles are not
amortized into results of operations, but instead will be reviewed for
impairment and written down and charged to results of operations only in the
period or periods in which their recorded values are determined to be more
than their fair value.
FAS 142 was adopted by the Company as of February 1, 2002. No impairment
resulted from the initial application of this Statement. The adoption of
these statements resulted in reduced annual amortization expense, as
amortization of goodwill is no longer recorded after February 1, 2002.
Additionally, future years' annual impairment reviews may result in periodic
write-downs.
Had FAS 142 been effective for 2001, application of the nonamortization
provisions of the Statement would have increased the company's reported
diluted earnings per share by approximately $.06 and $.18 for the quarter
and nine months ended October 31, 2001, respectively.
RECENTLY ISSUED ACCOUNTING STANDARDS RELATED TO ACCOUNTING FOR EXIT OR
- ----------------------------------------------------------------------
DISPOSAL ACTIVITIES
- -------------------
In June 2002, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.
FAS 146 provides direction for accounting and disclosure regarding specific
costs related to an exit or disposal activity. These include, but are not
limited to, costs to terminate a contract that is not a capital lease, costs
to consolidate facilities
15
or relocate employees, and certain termination benefits provided to
employees that are involuntarily terminated under the terms of a one-time
benefit arrangement. The Company is required to adopt FAS 146 for any
disposal activities initiated after December 31, 2002. The adoption of FAS
146 is not expected to have a material impact on its financial statements,
but it may change the period in which future restructuring provisions are
recorded.
MARKET RISK DISCLOSURES - INTEREST RATE RISK; FAIR VALUE DISCLOSURE
- -------------------------------------------------------------------
At October 31, 2002, the Company's debt portfolio was composed almost
entirely of fixed-rate debt; less than 1% of the outstanding debt was
variable-rate. Kellwood's strategy regarding management of its exposure to
interest rate fluctuations did not change significantly during the quarter.
Management does not expect any significant changes in its exposure to
interest rate fluctuations or in how such exposure is managed during fiscal
2002.
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 fixed rate long-term debt have a market
value of approximately $332 at October 31, 2002 which compares to their book
value of $306. With respect to the Company's fixed-rate debt outstanding at
October 31, 2002, a 10% increase in interest rates would have resulted in
approximately a $13 decrease in the market value of Kellwood's fixed-rate
debt; a 10% decrease in interest rates would have resulted in approximately
a $14 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.
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:
o changes in the retail environment. With the growing trend towards
retail trade consolidation, the Company is increasingly dependent
upon key retailers whose bargaining strength and share of the
Company's business is growing. Accordingly, the Company faces
greater pressure from these customers to provide more favorable
trade terms. The Company can be negatively affected by changes in
the policies or negotiating positions of its customers. The
inability of the Company to develop satisfactory programs and
systems to satisfy these customers could adversely affect operating
results in any reporting period;
o changes in the relative performance of the Company's business units
that could have an adverse impact on the business units' forecasted
cash flows, resulting in goodwill impairment charges;
o changes in trends in the market segments in which the Company
competes;
o the performance of the Company's products within the prevailing
retail environment;
o customer acceptance of both new designs and newly introduced
product lines;
o actions of competitors that may impact the Company's business;
o financial or operational difficulties encountered by customers or
suppliers;
o reoccurrence of the West Coast dock strike or other disruptions to
transportation systems used by the Company or its suppliers;
o continued satisfactory relationships with licensees and licensors
of trademarks and brands;
o the impact of economic changes, such as:
o the overall level of consumer spending for apparel,
o national and regional economic conditions,
o inflation or deflation,
16
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS - $ in MILLIONS (continued)
-----------------------------------------------------
o currency exchange fluctuations,
o changes in interest rates and other capital market conditions;
o stable governments and business conditions in the nations where the
Company's products are manufactured;
o the scope, nature or impact of acquisition activity; and
o 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 Quarterly 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.
CONTROLS AND PROCEDURES
- -----------------------
Our Chief Executive Officer and Chief Financial Officer have concluded,
based upon their evaluation within 90 days of the filing date of this
report, that our disclosure controls and procedures are effective for
gathering, analyzing and disclosing the information we are required to
disclose in our reports filed under the Securities Exchange Act of 1934.
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
date of the previously mentioned evaluation.
17
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
------------- -----------
99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
b) REPORTS ON FORM 8-K:
The following reports were filed on Form 8-K during the three
months ended October 31, 2002:
Current Report on Form 8-K dated August 29, 2002
Current Report on Form 8-K/A dated September 9, 2002
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 9, 2002 /s/ Thomas H. Pollihan
----------------------
Thomas H. Pollihan
Senior Vice President, Secretary and General Counsel
December 9, 2002 /s/ W. Lee Capps, III
----------------------
W. Lee Capps, III
Senior Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
December 9, 2002 /s/ Lawrence E. Hummel
----------------------
Lawrence E. Hummel
Vice President Controller
(Principal Accounting Officer)
18
CERTIFICATIONS
I, Hal J. Upbin, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ended October 31, 2002, of Kellwood Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 9, 2002
/s/ HAL J. UPBIN
--------------------------
Hal J. Upbin
Chairman, President and Chief Executive Officer
19
I, W. Lee Capps, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ended October 31, 2002, of Kellwood Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 9, 2002
/s/ W. LEE CAPPS, III
--------------------------
W. Lee Capps, III
Senior Vice President Finance and
Chief Financial Officer
20