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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 May 1, 2004
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). YES X NO
--- ---
Number of shares of common stock, par value $.01, outstanding at May 1, 2004
(only one class): 27,488,954.
1
KELLWOOD COMPANY
----------------
INDEX
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Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Earnings 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
2
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------
(Amounts in thousands)
May 1, May 3, January 31,
2004 2003 2004
---------------- --------------- ----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 72,672 $ 94,419 $ 179,155
Receivables, net 388,317 380,251 321,455
Inventories 247,384 274,129 315,935
Prepaid taxes and expenses 70,506 41,759 66,328
Current assets of discontinued operations - 24,144 -
---------------- --------------- ----------------
Total current assets 778,879 814,702 882,873
Property, plant and equipment, net 97,388 97,824 96,798
Intangible assets, net 227,298 129,847 116,102
Goodwill 186,597 150,196 165,518
Other assets 28,568 37,673 30,783
Long-term assets of discontinued operations - 8,206 -
---------------- --------------- ----------------
Total assets $ 1,318,730 $ 1,238,448 $ 1,292,074
================ =============== ================
LIABILITIES AND SHAREOWNERS' EQUITY
- -----------------------------------
Current liabilities:
Notes payable and current
portion of long-term debt $ 18,153 $ 28,629 $ 2,743
Accounts payable 152,353 155,357 179,024
Accrued salaries and employee benefits 38,892 40,926 50,790
Accrued expenses 77,905 65,701 70,196
Current liabilities of discontinued operations 2,120 14,840 2,333
---------------- --------------- ----------------
Total current liabilities 289,423 305,453 305,086
Long-term debt 271,875 278,022 271,877
Deferred income taxes and other 73,435 59,444 71,729
Long-term liabilities of discontinued operations - 2,500 -
Shareowners' equity:
Common stock 267,426 228,945 247,684
Retained earnings 531,027 472,848 510,329
Accumulated other comprehensive income (11,581) (10,645) (11,621)
Less treasury stock, at cost (102,875) (98,119) (103,010)
---------------- --------------- ----------------
Total shareowners' equity 683,997 593,029 643,382
---------------- --------------- ----------------
Total liabilities and shareowners' equity $ 1,318,730 $ 1,238,448 $ 1,292,074
================ =============== ================
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
--------------------------------
May 1, May 3,
2004 2003
-------------- -------------
Net sales $ 686,103 $ 672,346
Costs and expenses:
Cost of products sold 531,538 536,043
Selling, general and
administrative expenses 106,908 94,078
Amortization of intangible assets 3,466 2,818
Interest expense, net 6,288 6,443
Other (income) and expense, net (180) 178
-------------- -------------
Earnings before income taxes 38,083 32,786
Income taxes 13,044 11,663
-------------- -------------
Net earnings from continuing operations 25,039 21,123
Net loss
from discontinued operations, net of tax - (295)
-------------- -------------
Net earnings $ 25,039 $ 20,828
============== =============
Weighted average shares outstanding:
Basic 27,090 26,174
============== =============
Diluted 27,832 26,554
============== =============
Earnings (loss) per share:
Basic:
Continuing operations $ .92 $ .81
Discontinued operations - (.01)
-------------- -------------
Net earnings $ .92 $ .80
============== =============
Diluted:
Continuing operations $ .90 $ .80
Discontinued operations - (.02)
-------------- -------------
Net earnings $ .90 $ .78
============== =============
Dividends paid per share $ .16 $ .16
============== =============
See notes to condensed consolidated financial statements.
4
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
----------------------------------------------------------
(Amounts in thousands)
Three months ended
----------------------------------
May 1, May 3,
2004 2003
-------------- -------------
OPERATING ACTIVITIES:
Net earnings $ 25,039 $ 20,828
Add/(deduct) items not affecting operating cash flows:
Depreciation and amortization 10,247 9,451
Deferred income taxes and other 2,674 4,280
Changes in working capital components:
Receivables, net (65,665) (40,614)
Inventories 68,697 86,954
Prepaid taxes and expenses (3,934) (615)
Accounts payable and accrued expenses (20,864) (59,492)
-------------- -------------
Net cash from operating activities 16,194 20,792
-------------- -------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,442) (4,705)
Acquisitions, net of cash acquired (143,473) (132,517)
Dispositions of fixed assets 692 1,629
-------------- -------------
Net cash from investing activities (147,223) (135,593)
-------------- -------------
FINANCING ACTIVITIES:
Proceeds from notes payable and short-term borrowings, net 15,657 1,408
Reduction of long-term debt - (303)
Dividends paid (4,341) (4,197)
Stock transactions under incentive plans 13,230 1,989
-------------- -------------
Net cash from financing activities 24,546 (1,103)
-------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (106,483) (115,904)
Cash and cash equivalents, beginning of period 179,155 210,323
-------------- -------------
Cash and cash equivalents, end of period $ 72,672 $ 94,419
============== =============
Supplemental cash flow information:
Interest paid $ 6,197 $ 7,593
============== =============
Income taxes paid (refunded), net $ (2,552) $ 10,925
============== =============
Significant non-cash investing and financing activities:
Issuance of stock for acquisitions $ - $ 11,891
============== =============
See notes to condensed consolidated financial statements.
5
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 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 condensed consolidated financial
statements presented. Such adjustments were normal and recurring in nature.
Accounting policies have been continued without significant change and are
described in the Summary of Significant Accounting Policies contained in the
Company's Annual Report to Shareowners for 2003 (the fiscal year ended
January 31, 2004). For additional information regarding the Company's
financial condition, refer to the footnotes accompanying the 2003 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.
NOTE 2. BUSINESS COMBINATIONS. On February 3, 2004 the Company completed the
acquisition of all of the membership interests of Phat Fashions, LLC and
Phat Licensing, LLC (together referred to as Phat). Phat is a licensor of
apparel for men, women and children, athletic shoes and accessories through
the Phat Farm and Baby Phat brands. The Company believes Phat will add
important labels to Kellwood's portfolio of brands. The total purchase price
for Phat was approximately $140,000 in cash. Included in this amount was the
exercise price for Phat's option to buyout the license from the menswear
licensee for $25,000, which the Company exercised in February 2004.
Additional cash purchase consideration will be due if Phat achieves certain
specified financial performance targets for 2004 through 2010. Such
consideration, if earned, would be accounted for as additional goodwill.
This additional cash purchase consideration is calculated based on a formula
applied to royalty revenue. A minimum level of royalty revenue must be
earned in order for this additional consideration to be paid. There is no
maximum amount of incremental purchase price.
In connection with the Phat acquisition, the Company is in the process of
determining the fair value of the tangible and intangible assets and
liabilities acquired. The following table summarizes the estimated fair
value of the assets acquired and liabilities assumed at the date of
acquisition and represents the preliminary purchase price allocation.
Cash $ 5,292
Other current assets 1,580
Property, plant & equipment 2,874
Intangible assets 114,662
Goodwill 21,290
-----------
Total assets acquired 145,698
===========
Current liabilities 5,156
-----------
Net assets acquired $ 140,542
===========
Intangible assets, which represent trademarks and customer relationships,
are being amortized over useful lives of 20 years.
On February 4, 2003 the Company completed the acquisition of substantially
all of the assets of Briggs New York Corp. (Briggs). The purchase price for
Briggs was $133,823 in cash and 0.5 million shares of Kellwood common stock
valued at $11,891. Additional cash purchase consideration will be due if
Briggs achieves certain specified financial performance targets through
2006. Such consideration, if earned, would be accounted for as additional
goodwill. This additional cash purchase consideration is calculated based on
a formula applied to annual operating results. A minimum level of
performance must be reached in order for this additional consideration to be
paid. At this minimum level of performance, additional consideration of
$2,000 would be paid for each of the four years after the acquisition. The
amount of consideration increases with increased levels of earnings. There
is no maximum amount of incremental purchase price. The additional
consideration paid to Briggs based on their 2003 performance was
approximately $8,200. This amount was accrued at January 31, 2004 and paid
out during the first quarter of 2004.
6
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
These acquisitions have been accounted for under the purchase method of
accounting. Accordingly, the results of the acquired companies have been
included in the consolidated financial statements from their respective
acquisition dates. Briggs is part of the Women's Sportswear segment, and
Phat is part of the Men's Sportswear segment.
NOTE 3. DISCONTINUED OPERATIONS. During the fourth quarter of 2003, the
Company decided to discontinue their True Beauty by Emme(R) (True Beauty)
operations. This included the termination of the related license agreement.
The agreement was originally entered into during the second quarter of 2002.
As such, the operations of True Beauty ceased in the fourth quarter of 2003
and have been accounted for as discontinued operations. Accordingly,
operating results and assets and liabilities of True Beauty are segregated
in the accompanying condensed consolidated statement of earnings and
condensed consolidated balance sheet, respectively. Prior to being
classified as discontinued, True Beauty was included in the Women's
Sportswear segment. In connection with the termination of the license
agreement, there were certain costs incurred including future minimum
royalties and other shutdown costs totaling approximately $2,800. The future
minimum royalties will be paid over the life of the license, which extends
through 2006. The other shutdown costs were paid in the fourth quarter of
2003.
On October 30, 2003 the Company finalized an agreement to sell their
domestic and European hosiery (Hosiery) operations for $7,500 plus
reimbursement of $2,800 for certain costs incurred by the Company in
connection with the closure of certain facilities. As such, the operations
of the Hosiery business are accounted for as discontinued operations, and
accordingly, operating results and assets and liabilities of the Hosiery
operations are segregated in the accompanying condensed consolidated
statement of earnings and condensed consolidated balance sheet,
respectively. Prior to being classified as discontinued, the Hosiery
operations were included in the Men's Sportswear segment. The Hosiery
operations were acquired in June 2002 as part of the Company's acquisition
of Gerber Childrenswear, Inc.
For the three months ended May 1, 2004, there was no operating activity for
the discontinued operations, and the only remaining item on the balance
sheet is an accrued liability, which totaled $2,120 as of May 1, 2004. This
accrual relates to the future minimum royalties that will be paid over the
life of the terminated True Beauty license agreement. For the three months
ended May 3, 2003, the operating results for the True Beauty and Hosiery
operations are as follows:
Three-months ended May 3, 2003
------------------------------------
Hosiery True Beauty Total
---------- ----------- ----------
Net sales $ 12,979 $ 3,898 $ 16,877
========== =========== ==========
Earnings (loss) before income taxes (920) 462 (458)
Income taxes (327) 164 (163)
---------- ----------- ----------
Net earnings (loss) $ (593) $ 298 $ (295)
========== =========== ==========
7
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Summarized assets and liabilities of the True Beauty and Hosiery operations
at May 3, 2003 are as follows:
May 3, 2003
-------------------------------------
Hosiery True Beauty Total
---------- ----------- ----------
Receivables, net $ 7,390 $ 2,516 $ 9,906
Inventories 12,816 204 13,020
Other current assets 1,218 - 1,218
---------- ----------- ----------
Current assets of discontinued operations $ 21,424 $ 2,720 $ 24,144
========== =========== ==========
Property, plant and equipment, net $ 6,606 $ - $ 6,606
Other assets 1,600 - 1,600
---------- ----------- ----------
Long-term assets of discontinued operations $ 8,206 $ - $ 8,206
========== =========== ==========
Accounts payable $ 4,921 $ 1,994 $ 6,915
Accrued liabilities 7,525 - 7,525
Current portion of long-term debt 400 - 400
---------- ----------- ----------
Current liabilities of discontinued operations $ 12,846 $ 1,994 $ 14,840
========== =========== ==========
Long-term debt $ 200 $ - $ 200
Other long-term liabilities 2,300 - 2,300
---------- ----------- ----------
Long-term liabilities of discontinued operations $ 2,500 $ - $ 2,500
========== =========== ==========
NOTE 4. INVENTORIES. Inventories consist of the following:
May 1, May 3, January 31,
2004 2003 2004
------------- ------------- --------------
Inventories:
Finished goods $ 183,894 $ 202,145 $ 240,856
Work in process 30,085 29,376 36,407
Raw materials 33,405 42,608 38,672
------------- ------------- --------------
Total Inventories $ 247,384 $ 274,129 $ 315,935
============= ============= ==============
Net of obsolescence reserves of $ 31,052 $ 35,114 $ 29,949
============= ============= ==============
NOTE 5. FACILITIES REALIGNMENT COSTS. In connection with the Gerber
acquisition, the Company made the decision to implement certain realignment
actions within the acquired operations. These realignments include the
closing of one warehouse operation, the closing of four manufacturing
facilities and the downsizing of two domestic manufacturing facilities and
were anticipated to result in a reduction of employment by approximately
1,350, primarily production and warehouse personnel. The estimated costs of
these actions were accrued in the opening balance sheet. Through May 1,
2004, the Company has closed the warehouse operation and two of the four
manufacturing plants and completed the downsizing of the two domestic
manufacturing facilities, resulting in a reduction of employment of
approximately 520. The Company decided that it would not close the third of
the four manufacturing facilities that was originally planned to be closed.
The last of the four manufacturing facilities is one of the two facilities
in Ireland that made up the European Hosiery operations. This facility was
not closed as part of the acquisition implementation but instead is part of
the discontinuance of the European Hosiery operations discussed in Note 3.
As a result of the changes in plans for the third and fourth manufacturing
facilities, the accruals of $3,331 for severance related to those closings
were reversed to the opening balance sheet in fiscal 2003. Detail for the
Gerber realignment costs, and the related accruals, through May 1, 2004 are
as follows:
Amount
Originally Amount Discontinued Accrual at
Provided Utilized Reversals Operations May 1, 2004
----------- ----------- -------------- ------------- -----------------
Employee severance $ 4,789 $ 1,422 $ 3,331 $ - $ 36
Vacant facilities costs 2,874 1,586 - 395 893
----------- ----------- -------------- ------------- -----------------
Total realignment $ 7,663 $ 3,008 $ 3,331 $ 395 $ 929
=========== =========== ============== ============= =================
The Company expects the remaining Gerber realignment actions to be completed
by the second quarter of 2004.
8
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 6. GOODWILL AND INTANGIBLE ASSETS
Changes in goodwill and intangible assets since the beginning of 2004 are as
follows:
Goodwill Intangibles
----------- -------------
Balance as of January 31, 2004 $ 165,518 $ 116,102
Additions:
Acquisition of Phat 21,290 114,662
Contingent purchase price - Briggs (211) -
Amortization expense - (3,466)
----------- -------------
Balance as of May 1, 2004 $ 186,597 $ 227,298
=========== =============
NOTE 7. DEBT. On April 30, 2002 the Company executed a $240,000 3-year
committed, unsecured bank credit facility (the 2002 Facility). On January
31, 2003 this credit facility was increased to $280,000. The 2002 Facility
can be used for borrowings and/or letters of credit. Borrowings under the
2002 Facility bear interest at approximately 1.00% over LIBOR. At May 1,
2004, there was $15,000 in outstanding short-term loans. Letters of credit
outstanding under the agreement were $79,110. In addition to this facility,
the Company has $6,350 in outstanding letters of credit used by its foreign
subsidiaries.
The Company also maintains informal uncommitted lines of credit with two
banks, which totaled $20,000 at May 1, 2004. There were no borrowings under
these uncommitted lines at May 1, 2004.
NOTE 8. 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
---------------------------------
May 1, May 3,
2004 2003
--------------- --------------
Net earnings $ 25,039 $ 20,828
Other comprehensive income:
Currency translation adjustment (334) (499)
Unrecognized gain/(loss) on derivatives 374 55
--------------- --------------
Total comprehensive income $ 25,079 $ 20,384
=============== ==============
NOTE 9. RETIREMENT BENEFITS.
The net periodic benefit cost related to the Company's defined benefit
pension plans for the three months ended May 1, 2004 and May 3, 2003 were
$263 and $216, respectively. The Company previously disclosed in its
financial statements for the year ended January 31, 2004 that it expected to
contribute $1,200 to its pension plan in 2004. As of May 1, 2004, $302 of
contributions have been made. The Company presently anticipates contributing
an additional $730 to fund its pension plan in 2004 for a total of $1,032.
9
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 10. STOCK OPTION PLANS. On March 4, 2004 the Company granted stock
options to certain officers and other key employees for 593,800 shares of
common stock at an exercise price of $42.37, which was equal to the market
value of the shares on the grant date. The increase in common stock to
$267,426 at May 1, 2004 from $247,684 at January 31, 2004 was primarily a
result of exercised stock options and employee stock compensation.
The Company accounts for the stock-based employee compensation plans under
the recognition and measurement principles of Accounting Principles Board
(APB) Opinion 25, Accounting for Stock Issued to Employees, and related
interpretations. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. The following table
illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS No. 123.
Three months ended
----------------------------------
May 1, May 3,
2004 2003
--------------- --------------
Net earnings from continuing operations as reported $ 25,039 $ 21,123
Stock-based employee compensation expense
determined under fair value-based method for
all stock option awards, net of tax effect (844) (669)
--------------- --------------
Pro-forma net earnings from continuing operations $ 24,195 $ 20,454
=============== ==============
Earnings per share from continuing operations:
Basic, as reported $ .92 $ .81
Basic, pro-forma $ .89 $ .78
Diluted, as reported $ .90 $ .80
Diluted, pro-forma $ .87 $ .77
NOTE 11. EARNINGS PER SHARE. The following is a reconciliation between basic
and diluted earnings per share:
Three months ended
---------------------------------
May 1, May 3,
2004 2003
--------------- ---------------
Numerators:
Net earnings from continuing operations $ 25,039 $ 21,123
Net earnings from discontinued operations - (295)
--------------- ---------------
Net earnings $ 25,039 $ 20,828
=============== ===============
Denominators (000's):
Average shares outstanding - Basic 27,090 26,174
Impact of stock options 742 380
--------------- ---------------
Average shares outstanding - Diluted 27,832 26,554
=============== ===============
Continuing operations $ .92 $ .81
Discontinued operations - (.01)
--------------- ---------------
Basic earnings per share $ .92 $ .80
=============== ===============
Continuing operations $ .90 $ .80
Discontinued operations - (.02)
--------------- ---------------
Diluted earnings per share $ .90 $ .78
=============== ===============
10
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
NOTE 12. REPORTABLE SEGMENTS. The Company and its subsidiaries are
principally engaged in the apparel and related soft goods industries. The
Company's operations are managed in a number of business units that are
organized around individual product lines and brands. These business units
are aggregated into three major consumer market product groupings along with
General Corporate, which represent the Company's reportable segments. These
segments are:
o 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. A
partial list of such brands are Sag Harbor(R), Koret(R), Jax(R),
David Dart(R), David Meister(TM), Dorby(TM), My Michelle(R), Briggs
New York(R), Northern Isles(R) and David Brooks(R). Calvin Klein(R),
XOXO(R), IZOD(R), Liz Claiborne(R) and Bill Burns(R) are produced
under licensing agreements.
o MEN'S SPORTSWEAR designs, manufactures and sells men's woven and
knit shirts, pants and jeans 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 tops, Nautica(R),
Claiborne(R) and Dockers(R) dress shirts and Phat(R), Def Jam
University(TM) and Run Athletics(TM) sportswear.
o OTHER SOFT GOODS designs, merchandises and sells intimate apparel,
infant apparel, and recreation products (tents, sleeping bags,
backpacks and related products). The business is primarily branded
goods including Kelty(R) and Sierra Design(R) for recreation
products, Gerber(R) for infant apparel and Oscar de la Renta(R) for
intimate apparel.
o GENERAL CORPORATE includes the following expenses at the corporate
level that are not allocated to the above segments:
- Corporate general and administrative expenses
- Amortization of intangible assets
Management evaluates the performance of its operating segments separately to
individually monitor the different factors affecting financial performance.
Segment earnings for the three major consumer market product segments
includes substantially all of the segment's costs of production (on a FIFO
basis), distribution and administration.
Segment net assets measures net working capital, net fixed assets and other
noncurrent assets and liabilities of each segment. Goodwill and net
intangibles are included in the three major consumer market product
segment's net assets, however the related amortization expense is included
in amortization of intangibles at the corporate level and is not allocated
to those segments. Certain corporate assets, including capitalized software,
and debt and cash balances are accounted for at the corporate level and are
not allocated to the three major consumer market product segments. Capital
expenditures exclude the cost of long-lived assets included in acquisitions
accounted for under purchase accounting.
11
KELLWOOD COMPANY AND SUBSIDIARIES
---------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
----------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Sales, segment earnings, and net assets by segment for the three month
periods ended May 1, 2004 and May 3, 2003 are as follows:
Three months ended
--------------------------------
May 1, May 3,
2004 2003
------------- --------------
Net sales:
Women's Sportswear $ 437,977 $ 411,926
Men's Sportswear 128,157 117,214
Other Soft Goods 119,969 143,206
------------- --------------
Kellwood net sales $ 686,103 $ 672,346
============= ==============
Segment earnings:
Women's Sportswear $ 42,250 $ 35,501
Men's Sportswear 10,681 8,485
Other Soft Goods 7,281 10,611
General Corporate (12,555) (12,372)
------------- --------------
Total segments 47,657 42,225
Amortization of intangible assets 3,466 2,818
Interest expense, net 6,288 6,443
Other (income) and expense, net (180) 178
------------- --------------
Earnings before income taxes $ 38,083 $ 32,786
============= ==============
Net assets at quarter-end:
Women's Sportswear $ 307,580 $ 303,978
Men's Sportswear 327,535 169,003
Other Soft Goods 135,472 166,590
General Corporate (84,470) (61,552)
------------- --------------
Continuing Operations 686,117 578,019
Discontinued Operations (2,120) 15,010
------------- --------------
Kellwood total $ 683,997 $ 593,029
============= ==============
NOTE 13. NEW ACCOUNTING STANDARDS. In December 2003 the Financial Accounting
Standards Board (FASB) issued SFAS No. 132 (revised 2003), Employer's
Disclosures about Pensions and Other Postretirement Benefits, an amendment
of FASB Statements No. 87, 88 and 106. This statement requires additional
disclosures related to pension plans and other postretirement benefit plans.
This statement was adopted by the Company in 2003. The required interim
disclosures are included in Note 9.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
(Dollars in Millions, except per share data)
The following discussion is focused on significant changes in financial
condition and results of operations in the condensed consolidated balance
sheet as of May 1, 2004 and May 3, 2003, and in the condensed consolidated
statement of earnings for the three-month period ended May 1, 2004 and May
3, 2003. The amounts and disclosures included in management's discussion and
analysis of financial condition and results of operations, unless otherwise
indicated, are presented on a continuing operations basis. This discussion
should be read in conjunction with the audited consolidated financial
statements and accompanying notes included in the 2003 Annual Report to
Shareowners.
OPERATING RESULTS
- -----------------
The apparel industry has experienced deflation for many years. As a result,
the Company's sales growth has come from acquisitions and investment in new
brands and initiatives. Earnings growth has come from increased sales and
control over costs.
Sales for the first quarter were $686.1, up $13.8, or 2.0%, from $672.3 for
the first quarter of 2003. Sales increases were primarily driven by the
acquisition of Phat Fashions, LLC and Phat Licensing, LLC (together referred
to as Phat) on February 3, 2004 of $9.4 and growth in the base business of
$4.4 as a result of key new marketing initiatives put in place during the
last nine months of 2003, which included the following new brands:
o Calvin Klein(R) for women's sportswear
o Liz Claiborne(R) for women's suits and dresses
o IZOD(R) for women's sportswear
o XOXO(R) for junior's sportswear and dresses
o Lucy Pereda(TM) sportswear
o Def Jam University(TM) for women's and men's sportswear
The favorable impact on sales during the first quarter of 2004 from the
above brands was substantially offset by the elimination of certain brands
and programs from the Company's broad and diversified portfolio due to
volume levels, pricing and/or margins that are no longer acceptable.
The Company's gross margin percentage increased to 22.5% in the first
quarter of 2004 from 20.3% in the first quarter of 2003 primarily due to
higher margin branded business replacing lower margin private label business
along with sourcing and other operating efficiency improvements.
During the first quarter of 2004, the Company invested $11.9 in additional
SG&A spending over 2003 on key new marketing initiatives, which included the
new brands listed above. SG&A as a percent of sales increased in the first
quarter of 2004 to 15.6% from 14.0% in the first quarter of 2003 due
principally to the key new marketing initiatives.
Many of the Company's new brands were obtained through licensing agreements,
which commit the Company to minimum guaranteed royalties during the term of
the license. The investments made in these key new marketing initiatives are
expected to more favorably impact sales and net earnings in the second half
of 2004 as they move through the product development cycle.
Net earnings from continuing operations for the first quarter were $25.0, or
$.90 per diluted share compared to $21.1, or $.80 per diluted share last
year.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
SUMMARIZED FINANCIAL DATA for the three-month period ended May 1, 2004 and
May 3, 2003, are as follows (percentages are calculated based on actual
data, but columns may not add due to rounding):
Amounts % of Sales
------------------------------------- --------------------------------------
May 1, May 3, May 1, May 3,
Three months ended 2004 2003 Change 2004 2003 Change
------------ ------------ ------ ------------ ------------- ------
Net sales $ 686.1 $ 672.3 2.0% 100.0% 100.0%
Cost of products sold 531.5 536.0 (0.8%) 77.5% 79.7% (2.2%)
------------ ------------ -------- ------------ ------------- -------
Gross profit 154.6 136.3 13.4% 22.5% 20.3% 2.2%
SG&A 106.9 94.1 13.6% 15.6% 14.0% 1.6%
------------ ------------ -------- ------------ ------------- -------
Operating earnings before
amortization (1) 47.7 42.2 12.9% 7.0% 6.3% 0.7%
Amortization of intangibles 3.5 2.8 23.0% 0.5% 0.4% 0.1%
------------ ------------ -------- ------------ ------------- -------
Operating earnings 44.2 39.4 12.1% 6.4% 5.9% 0.6%
Interest expense, net 6.3 6.4 (2.4%) 0.9% 1.0% 0.0%
Other (income) and
expense, net (0.2) 0.2 NM 0.0% 0.0% (0.1%)
------------ ------------ -------- ------------ ------------- -------
Earnings before taxes 38.1 32.8 16.2% 5.6% 4.9% 0.7%
Income taxes 13.0 11.7 11.8% 1.9% 1.7% 0.2%
------------ ------------ -------- ------------ ------------- -------
Net earnings from
continuing operations $ 25.0 $ 21.1 18.5% 3.6% 3.1% 0.5%
=========== ============ ======== ============ ============= =======
Effective tax rate 34.25% 35.6%
Average diluted shares 27.8 26.6 4.8%
----------- ------------ --------
Diluted earnings per share $ .90 $ .80 13.1%
----------- ------------ --------
NM - Not meaningful
(1) Operating earnings before amortization differs from operating earnings
in that it excludes the amortization of intangibles. Operating earnings
before amortization should not be considered as an alternative to operating
earnings. Operating earnings before amortization is the primary measure used
by management to evaluate the Company's performance as well as the
performance of the Company's business units and segments. Management
believes the comparison of operating earnings before amortization between
periods is useful in showing the interaction of changes in gross profit and
SG&A without inclusion of the amortization of intangibles, the change in
which is explained elsewhere. The subtotal of operating earnings before
amortization may not be comparable to any similarly titled measure used by
another company.
SEASONALITY: Kellwood's businesses are seasonal. The Company generally sells
its products prior to the principal retail selling seasons: spring, summer,
fall, and holiday. Sales and earnings for the first and third quarter have
historically been higher than the second and fourth quarters of the fiscal
year.
SALES for the first quarter of 2004 were $686.1, increasing $13.8 or 2.0%
versus last year. The increase in sales was primarily driven by the
acquisition of Phat (approximately $9.4) and several key new marketing
initiatives offset by discontinued brands and programs and sales declines to
existing customers in the Women's and Other Soft Goods segments.
GROSS PROFIT for the first quarter of 2004 was $154.6 or 22.5% of sales.
This increased $18.3 or 2.2% of sales versus $136.3 or 20.3% of sales
reported last year.
The improvement in the Company's gross margin rate for the three months
ended May 1, 2004, resulted from higher priced branded business replacing
lower margin business along with sourcing and other operating efficiency
improvements.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
SG&A EXPENSE for the first quarter of 2004 increased $12.8 or 1.6% as a
percent of sales compared to the first quarter of 2003 due to additional
spending related to key new marketing initiatives ($11.9) and the
acquisition of Phat ($6.4) partially offset by decreases in SG&A related to
the base business.
AMORTIZATION of intangible assets increased $0.7 to $3.5 for the first
quarter of 2004 from $2.8 for the first quarter of 2003. The increase was
due to the amortizable intangible assets acquired in the Phat acquisition.
INCOME TAXES. The Company's effective tax rate for the first quarter of 2004
decreased to 34.25% from 35.6% in the first quarter of 2003. This rate is
consistent with the effective tax rate used in 2003 and the planned
effective tax rate for 2004.
WEIGHTED AVERAGE DILUTED SHARES outstanding increased to 27.8 million in the
first quarter of 2004 from 26.6 million in the first quarter of 2003. This
increase was due to the increased price of Kellwood common stock, which
drove higher option exercises and increased the dilutive effect of
unexercised options.
DISCONTINUED OPERATIONS. On October 30, 2003 the Company finalized an
agreement to sell their Hosiery operations. As such, the operations of the
Hosiery business are accounted for as discontinued operations, and
accordingly, operating results and assets and liabilities of the Hosiery
operations are segregated in the accompanying condensed consolidated
statement of earnings and condensed consolidated balance sheet. The sale of
the entire Hosiery operations closed in November 2003. Prior to being
classified as discontinued, the Hosiery operations were included in the
Men's Sportswear segment. See financial statement Note 3.
During the fourth quarter of 2003, the Company decided to discontinue their
True Beauty by Emme(R) (True Beauty) operations. This included the
termination of the related license agreement. As such, the operations of
True Beauty ceased in the fourth quarter of 2003 and have been accounted for
as discontinued operations. Accordingly, operating results and assets and
liabilities of True Beauty are segregated in the accompanying condensed
consolidated statement of earnings and condensed consolidated balance sheet,
respectively. Prior to being classified as discontinued, True Beauty was
included in the Women's Sportswear segment. See financial statement Note 3.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
SEGMENT RESULTS
- ---------------
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:
o Women's Sportswear,
o Men's Sportswear,
o Other Soft Goods, and
o General Corporate.
Sales and segment earnings by segment were as follows (amounts are presented
based on actual data, therefore columns may not add due to rounding):
Three months ended
-------------------------------------
May 1, May 3,
Net sales 2004 2003 Change
- --------- ------------ ------------ --------
Women's Sportswear $ 438.0 $ 411.9 6.3%
Men's Sportswear 128.2 117.2 9.3%
Other Soft Goods 120.0 143.2 (16.2%)
----------- ------------ --------
Total net sales $ 686.1 $ 672.3 2.0%
=========== ============ ========
Three months ended - amounts Three months ended - percentages
------------------------------------- ------------------------------------
May 1, May 3, May 1, May 3,
Segment earnings 2004 2003 Change 2004 2003 Change
- ---------------- ------------ ------------ -------- ----------- ---------- -------
Women's Sportswear $ 42.3 $ 35.5 19.0% 9.6% 8.6% 1.0%
Men's Sportswear 10.7 8.5 25.9% 8.3% 7.2% 1.1%
Other Soft Goods 7.3 10.6 (31.4%) 6.1% 7.4% (1.3%)
General Corporate (12.6) (12.4) 1.5% NM NM NM
----------- ------------ -------- ----------- ---------- -------
Segment earnings $ 47.7 $ 42.2 12.9% 7.0% 6.3% 0.7%
=========== ============ ======== =========== ========== =======
NM - Not meaningful
WOMEN'S SPORTSWEAR. Sales for the first quarter of 2004 were $438.0
increasing $26.1 or 6.3% versus last year. The increase in sales was
primarily due to sales of $52.6 from key new marketing initiatives launched
in 2003 including Calvin Klein(R), IZOD(R), XOXO(R) and Lucy Pereda(TM)
sportswear, and Liz Claiborne(R) suits and dresses, partially offset by the
planned elimination of certain low margin business.
Segment earnings for the first quarter of 2004 were $42.3, up $6.8 from last
year. The primary reason for the increase in segment earnings was a 1.7
percentage point improvement in gross margin as a percent of sales related
to key new marketing initiatives, improved sourcing and less markdown
pressure partially offset by a $6.2 increase in SG&A expense as a result of
spending on key new marketing initiatives.
MEN'S SPORTSWEAR. Sales for the first quarter of 2004 were $128.2,
increasing $11.0 or 9.3% versus last year. The acquisition of Phat provided
$9.4 of sales, and increases in base business sales were $1.6.
Segment earnings for the first quarter of 2003 were $10.7, up $2.2 from last
year. The increase in earnings was due to the acquisition of Phat ($1.8) and
gross margin improvement resulting from sourcing and operating efficiency
partially offset by increased costs incurred from the launching of Run
Athletics(TM), a new urban sportswear brand.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
OTHER SOFT GOODS. The Other Soft Goods segment is composed of three product
categories: Intimate Apparel, Gerber Apparel and American Recreation
Products. Sales for the first quarter of 2004 were $120.0, decreasing $23.2
or 16.2% versus the first quarter of 2003. The decrease was primarily due to
a decrease in Intimate Apparel sales resulting from sourcing and logistical
execution difficulties. These issues are being addressed and should be
resolved by the second half of the year. Sales of Gerber Apparel and
American Recreation Products were also down due to competitive and market
conditions.
Segment earnings for the first quarter of 2004 were $7.3, down $3.3 from
last year. The decrease was primarily driven by the difficulties at Intimate
Apparel as described above.
GENERAL CORPORATE expense for the first quarter of 2004 was $12.6,
relatively consistent with the first quarter of 2003 at $12.4.
FINANCIAL CONDITION
- -------------------
Cash flow from operations continues to be the Company's primary source of
funds to finance operating needs, capital expenditures, debt service and
acquisitions. The Company 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 (defined as
total debt divided by the sum of total debt and total shareholders' equity,
or total capital). As of May 1, 2004, the Company's debt-to-capital ratio
was 29.8% down 4.3% and 0.1% from May 3, 2003 and January 31, 2004,
respectively. This is particularly notable in light of the fact that during
the first quarter of 2004 the Company absorbed the $140 acquisition of Phat.
NET CASH PROVIDED BY OPERATING ACTIVITIES decreased to $16.2 for the three
months ended May 1, 2004 from $20.8 for the three months ended May 3, 2003.
This $4.6 decrease was primarily driven by the change in working capital as
discussed below partially offset by higher net earnings.
Working Capital
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 and accrued expenses. The Company's working
capital is significantly influenced by sales patterns, which are highly
seasonal. Inventories, accounts payable and accrued expenses are highly
dependent upon sales levels and order lead times. Receivable levels are
driven by recent months' sales and customer payment experience. The working
capital fluctuations from January 31, 2004 to May 1, 2004 are primarily a
result of seasonality of the Company's businesses.
Accounts receivable increased $8.0 to $388.3 at May 1, 2004 from $380.3 at
May 3, 2003 primarily due to the acquisition of Phat ($3.0) and the timing
of sales. Days sales outstanding were 51.3 days as of May 1, 2004 compared
to 52.4 days at May 3, 2003.
Inventories decreased $26.7 to $247.4 at May 1, 2004 from $274.1 at May 3,
2003. Days supply now stands at 56.4 days compared to 68.0 days at May 3,
2003. The decrease in inventory levels relates primarily to various
initiatives and company wide efforts surrounding inventory management.
Accounts payable and accrued expenses increased $7.2 to $269.2 at May 1,
2004 from $262.0 at May 3, 2003 as a result of timing of inventory receipts
and related payments.
NET CASH USED IN INVESTING ACTIVITIES increased to $147.2 for the three
months ended May 1, 2004 from $135.6 for the three months ended May 3, 2003.
The net cash used in investing activities primarily relates to acquisitions
as discussed below.
On February 3, 2004 the Company completed the acquisition of all of the
membership interests of Phat. On February 4, 2003 the Company completed the
acquisition of substantially all of the assets of Briggs New York Corp.
(Briggs). These acquisitions have been accounted for under the purchase
method of accounting, and accordingly, the results of the acquired companies
have been included in the consolidated financial statements from their
respective acquisition dates (see financial statement Note 2).
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
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 current cash, cash generated from operations and availability
under credit facilities will continue to provide the capital flexibility
necessary to fund future opportunities and to meet existing obligations.
NET CASH PROVIDED BY FINANCING ACTIVITIES increased to $24.5 for the three
months ended May 1, 2004 from ($1.1) for the three months ended May 3, 2003.
The $25.6 increase was primarily driven by proceeds from notes payable,
short-term borrowings and the increased stock transactions under incentive
plans.
On April 30, 2002 the Company executed a $240 3-year committed, unsecured
bank credit facility. On January 31, 2003 this credit facility was increased
to $280. This facility can be used for borrowings and/or letters of credit.
Borrowings under this facility bear interest at approximately 1.00% over
LIBOR. At May 1, 2004, there were $15.0 in outstanding short-term loans.
Letters of credit outstanding under the agreement were $79.1. In addition to
this facility, the Company has $6.4 in outstanding letters of credit used by
its foreign subsidiaries.
The current credit facility is set to expire in May 2005. The Company has
begun the process of replacing the existing facility.
As a result of the above, the Company's cash and cash equivalents decreased
$21.7 to $72.7 at May 1, 2004 from $94.4 at May 3, 2003. This decrease was
primarily due to the acquisition of Phat on February 3, 2004 partially
offset by positive cash flow from operating, financing and investing
activities.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
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 the economic effects of the uncertainty through 2004 and early 2005
caused by the elimination of quota and the uncertainty as to the
effect of safeguards, if any, put in place on Chinese imports into
the U.S.;
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 the economic impact of uncontrollable factors, such as terrorism
and war;
o disruptions to transportation systems or shipping lanes used by the
Company or its suppliers;
o continued satisfactory relationships with licensees and licensors
of trademarks and brands;
o ability to generate sufficient sales and profitability related to
licensing agreements that contain significant minimum royalty
payments;
o the impact of economic changes such as:
- the overall level of consumer spending for apparel,
- national and regional economic conditions,
- inflation or deflation,
- changes in oil prices, including their impact on fabric
prices and/or transportation costs;
- currency exchange fluctuations,
- 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 health or other issues that could affect the free-flow of people
and goods between nations where the Company's products are
manufactured;
o the scope, nature or impact of acquisition activity and the ability
to effectively integrate acquired operations; 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.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (continued)
-------------------------------------
(Dollars in Millions, except per share data)
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 Form 10-Q are forward-looking.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
At May 1, 2004, the Company's debt portfolio was composed of approximately
1% variable-rate debt and 99% fixed-rate debt. 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 2004.
Based on quoted market prices obtained through independent pricing sources
for the same or similar types of borrowing arrangements, the Company's
long-term debt has a market value that approximates its book value at May 1,
2004. With respect to the Company's fixed-rate debt outstanding at May 1,
2004, a 10% increase in interest rates would have resulted in approximately
a $11.4 decrease in the market value of Kellwood's fixed-rate debt; a 10%
decrease in interest rates would have resulted in approximately a $12.2
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.
In addition, the Company does not believe that foreign currency risk,
commodity price or inflation risk are material to the Company's business or
its consolidated financial position, results of operations or cash flows.
ITEM 4. CONTROLS AND PROCEDURES
- -------------------------------
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by
this report, that the Company's disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) are effective to ensure that information required to be disclosed
in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules
and forms. There were no changes in the Company's internal control over
financial reporting during the quarter ended May 1, 2004 that have
materially affected, or are reasonably like to materially affect, the
Company's internal controls over financial reporting.
20
PART II. OTHER INFORMATION
- ---------------------------
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
- -------------------------------------------------------------------
In September 2000 the Board of Directors authorized the Company to
repurchase up to an additional ten percent of the outstanding shares of its
Common Stock (up to approximately 2.27 million shares) in the open market or
through privately negotiated transactions at management's discretion and
depending on market conditions. No shares were repurchased under this plan.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
At the June 3, 2004 Annual Meeting of Shareowners, four members were elected
to serve two-year terms. The tabulation was as follows:
Directors Shares Voted For Shares Withheld
- ---------------------- ---------------- ---------------
Martin Bloom 22,740,299 3,004,506
Martin J. Granoff 16,717,203 9,027,602
Robert C. Skinner, Jr. 16,668,694 9,076,111
Hal J. Upbin 17,540,825 8,203,980
Other directors whose term of office continued after the meeting are as
follows: Kitty G. Dickerson, Ph.D.
Jerry M Hunter
Larry R. Katzen
Janice E. Page
The shareholders rejected a proposal that requested the Board of Directors
prepare a report on contract compliance with Kellwood's Code of Conduct. The
tabulation was as follows:
Shares Voted For Shares Against Shares Abstaining Broker Non-Votes
- ---------------- -------------- ----------------- ----------------
1,993,811 20,806,556 939,800 2,004,638
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
a) EXHIBITS:
S.E.C. Exhibit
Reference No. Description
------------- -----------
3.2 By-Laws, as amended June 3, 2004, filed herewith.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
32 Certification 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 May 1, 2004:
None
21
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 7, 2004 /s/ W. Lee Capps, III
--------------------------------------------------
W. Lee Capps, III
Executive Vice President Finance and Chief
Financial Officer (Principal Financial Officer)
June 7, 2004 /s/ Lawrence E. Hummel
--------------------------------------------------
Lawrence E. Hummel
Vice President Finance (Principal Accounting
Officer)
22