ITEM 1. BUSINESS
(a) Kellwood Company and its subsidiaries (the "Company") manufacture and market apparel and related soft goods. Kellwood Company was founded in 1961 as the successor by merger of fifteen independent suppliers to Sears.
During the second half of the 1980's and the first half of the 1990's, the Company implemented a business strategy to expand its branded label products, broaden its customer base, increase its channels of distribution and further develop its global product sourcing capability. Since 1985, Kellwood has acquired the following 14 domestic companies.
These companies are principally marketers of branded apparel except for American Recreation Products, Inc. and Slumberjack which are manufacturers and marketers of branded camping soft goods and Crowntuft Manufacturing Corp. which is a vertically integrated manufacturer of chenille robes.
In addition to its domestic acquisitions, in the early 1980's, the Company acquired Smart Shirts Limited of Hong Kong, a leading shirt and blouse manufacturer in the Far East. Smart Shirts, since its acquisition, continued to diversify its manufacturing capabilities from its principal base of Hong Kong to the People's Republic of China, Sri Lanka, Saipan and Costa Rica. During fiscal year 1996, the Company shut down the facilities in Saipan and Costa Rica.
Kellwood has invested $291 million acquiring companies since the inception of the acquisition program that began in 1985. These investments were primarily financed by cash provided from operations and short-term borrowings. Except for recent acquisitions, Kellwood's short-term borrowings related to these acquisitions were subsequently replaced with long-term notes due insurance companies or repaid with cash repatriated from Kellwood's Far East operations, other cash provided by operations, or cash provided by the public sale of common stock. The total investment in subsidiaries during 1996, 1995 and 1994 was approximately $4,935,000, $55,218,000, and $28,324,000, respectively.
As a result of the above business strategy, the Company has redirected its focus from primarily the manufacturing of private label apparel and home fashions for Sears to a marketing- driven emphasis on branded apparel and related soft goods. The Company's acquisition strategy has further diversified its customer base and has broadened its channels of distribution. As a result of these efforts, sales to Sears declined to 7% of total sales in fiscal year 1996, compared to 50% in fiscal year 1985.
(b) All of the Company's operations are in the apparel and related soft goods industry.
(c) The Company manufactures and markets apparel and other soft goods products made from cloth or fabric or knitted from yarn. These products are manufactured primarily domestically and in the Far East.
(i) The Company's products include diversified lines of men's, women's and children's clothing, sleeping bags, and other soft goods. Products are mainly sold to retailers under either the Company's or customer's brands and labels.
(ii) The Company anticipates no significant change in products or new industry segments which would require a material investment. However, business acquisitions within the apparel and related soft goods industry are continually being considered, and it is anticipated that external and internal demands will generate increasing requirements for capital. The Company has negotiated a new credit facility agreement in the amount of $300 million, of which up to $200 million can be utilized for short-term loans and up to $200 million can be utilized for letters of credit. The new credit facility was effective May 31, 1996. The combined operating, cash and equity position of the Company should continue to provide the capital flexibility necessary to fund future opportunities as well as to meet existing obligations.
(iii) The Company purchases the majority of its raw materials directly from numerous textile mills and yarn producers and converters. The Company has not experienced difficulty in obtaining raw materials essential to its business.
(iv) The Company holds patents covering various aspects of its products, the machinery used to manufacture its products, and various manufacturing processes. The Company is a licensee of certain trade names and patented machines and processes. The expiration, or invalidation, of any of the patents or licenses would not, in the opinion of management, have a material effect upon the continuation of business.
(v) Although specific styles are seasonal, the Company's various product lines are manufactured and sold on a year-round basis. Products are primarily manufactured and sold prior to each of the principal retail selling seasons including spring, summer, fall and holiday.
(vi) Consistent with the seasonality of specific product offerings, the Company carries necessary levels of inventory to meet the anticipated delivery requirements of its customers.
(vii) Approximately $142,857,000 (10%) of the Company's sales in the fiscal year ended April 30, 1996, were to J. C. Penney Company, Inc. ("J. C. Penney"). No customer accounts for more than 10% of the Company's revenues. Other information relating to J. C. Penney is set forth in the Company's 1996 Annual Report to Shareowners, under the caption "Significant Customers" in the Notes to Consolidated Financial Statements, which information is incorporated herein by reference. The Company's management believes that the relationship with J. C. Penney will continue into the foreseeable future.
(viii) Approximately 20% of the Company's domestic sales are produced under contracts for distribution on a seasonal basis. It is normal for the merchandise manufactured under these contracts to be sold within 12 months after
production. Because of this, the Company does not believe backlog is important for this merchandise. In addition to these contracts, the backlog for domestic operations totalled approximately $390 million as of April 30, 1996 ($376 million - 1995). The backlog for Far East operations totalled approximately $75 million ($77 million - 1995). All of the Company's backlog is expected to be filled within 12 months.
(ix) Government contracts or subcontracts with the Company are not material.
(x) The Company has substantial competition from numerous manufacturers and marketers, but accurate statistics relative to the competitive position of the Company are not available.
(xi) The Company has a continuing program for the purpose of improving its products and production machinery. The Company is not engaged in any material customer-sponsored research and development programs. Approximately $612,000 and $525,000 were spent on research and development activities during fiscal years 1996 and 1995 respectively. The dollar amount spent in the research and development activities during fiscal 1994 was not material.
(xii) In the opinion of management, there will be no material effect on the Company resulting from compliance with any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.
(xiii) At the end of fiscal 1996, there were approximately 16,500 people employed by the Company. Substantially all of the work force is non-union, and the Company considers its relations with its employees to be satisfactory.
(d) Except for its Far East operations, the Company's foreign activities including foreign manufacturing operations and customers have not been material. The Company owns all of the outstanding shares of Smart Shirts Limited, a Hong Kong corporation engaged in apparel manufacturing, and other Far East companies under Smart Shirts' management. The sales, operating profit, and identifiable assets attributable to each geographic area are set forth in the Company's 1996 Annual Report to Shareowners, under the caption "Industry Segment and Geographic Area Information" in the Notes to Consolidated Financial Statements, which note is incorporated herein by reference. The risk attendant to the Company's Far East operations is slightly greater than that of domestic operations primarily due to quota allocations and political instability. Utilization of existing quota rights and diversification of Far East manufacturing capacity to various countries help to mitigate these risks.
ITEM 2.
ITEM 2. PROPERTIES
At April 30, 1996, the Company operated 30 production plants and various distribution facilities. Domestic business operated 18 plants in 8 states, two plants in the Dominican Republic, one plant in Honduras, one plant in El Salvador and one plant in Canada. These domestically managed plants aggregated to approximately 3,100,000 square feet and were operating at an estimated 91% of capacity at April 30, 1996. Sixteen of these domestically managed plants were primarily producing private label goods and seven were primarily producing branded goods. The Company's Far East subsidiaries operated seven plants which aggregated to approximately 650,000 square feet and were operating at an estimated 90% of capacity. Far East subsidiaries manage operations in Hong Kong, Sri Lanka and China.
In management's opinion, current facilities generally are well maintained and provide adequate production capacity for future operations. However, management continues to evaluate the need to reposition the Company's portfolio of businesses and facilities to meet the needs of the changing markets it serves and reflect the international business environment.
The Company's operating facilities are primarily leased under long-term capital leases with renewal options at decreasing rentals. Certain facilities are leased under operating leases that generally contain renewal options. The Company also leases its corporate space in St. Louis County, Missouri and major showrooms in New York City, New York; Dallas, Texas; and Los Angeles, California.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several routine lawsuits incidental to the Company's business. Management and general counsel are of the opinion that the ultimate disposition of such litigation should have no material adverse effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information required by this Item is set forth in the Company's 1996 Annual Report to Shareowners, at page 1 under the caption "Common Stock Data," which information is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Company's 1996 Annual Report to Shareowners, at page 28 under the caption "Supplemental Selected Financial Data," which information is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is set forth in the Company's 1996 Annual Report to Shareowners, at pages 29 and 30 under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of Price Waterhouse LLP dated May 30, 1996, appearing at pages 18 to 30 of the Company's 1996 Annual Report to Shareowners, are incorporated herein by reference.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by this Item regarding directors is set forth in the Company's Proxy Statement for the 1996 Annual Meeting of Shareowners, at pages 3 and 4 under the captions "Nominees for Election to Serve Until 1998" and "Directors Continuing to Serve Until 1997," which information is incorporated herein by reference.
(b) Reference is made to "Executive Officers of the Registrant as of June 24, 1996" in Part I after Item 4.
(c) The information called for with respect to the identification of certain significant employees is not applicable to the registrant.
(d) There are no family relationships between the directors and executive officers listed above. There are no arrangements nor understandings between any named officer and any other person pursuant to which such person was selected as an officer.
(e) Each of the officers named in Part I was elected to serve in the office indicated until the first meeting of the Board of Directors following the Annual Meeting of Shareowners in August 1996 and until his successor is elected and qualified.
(f) There are no legal proceedings involving directors, nominees for directors, or officers.
The information required by this Item regarding compliance with Section 16(a) of the Exchange Act is set forth in the Company's Proxy Statement for the
1996 Annual Meeting of Shareowners at page 14 under the caption "Compliance with Section 16(a) of the Exchange Act," which information is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's Proxy Statement for the 1996 Annual Meeting of Shareowners, at pages 7 through 14 under the captions "Compensation of Executive Officers," "Retirement Program," and "Other Officer Agreements," which information is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's Proxy Statement for the 1996 Annual Meeting of Shareowners, at pages 2 and 6 under the captions "Security Ownership of Certain Beneficial Owners" and "Management Ownership of the Company's Stock," which information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's Proxy Statement for the 1996 Annual Meeting of Shareowners, at page 12 under the caption "Compensation Committee Interlocks and Insider Participation," which information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The consolidated financial statements, together with the report thereon of Price Waterhouse LLP dated May 30, 1996, appearing at pages 18 to 30 of the 1996 Annual Report to Shareowners are incorporated by reference in this Form 10-K. With the exception of the aforementioned information and information incorporated in Items 1, 5, 6, 7 and 8, the 1996 Annual Report to Shareowners is not to be deemed filed as part of this Form 10-K. The following financial statement schedule should also be read in conjunction with the financial statements in such 1996 Annual Report to Shareowners. Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of 50% or less owned persons accounted for by the equity method which are not shown herein have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary.
(i) Financial Statements:
Report of Independent Accountants
Consolidated Statement of Earnings, Years Ended April 30, 1996, 1995 and 1994
Consolidated Balance Sheet, April 30, 1996 and 1995
Consolidated Statement of Cash Flows, Years Ended April 30, 1996, 1995 and 1994
Consolidated Statement of Shareowners' Equity, Years Ended April 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(ii) Report of Independent Accountants on Financial Statement Schedule:
Financial Statement Schedule for the Years Ended April 30, 1996, 1995 and 1994: Valuation and Qualifying Accounts (Schedule VIII)
Consent of Independent Accountants
(iii) Exhibits:
Exhibits filed as part of this report are listed below. Certain exhibits have been previously filed with the Commission and are incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended April 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: June 25, 1996 /s/ Thomas H. Pollihan -------------------------------- Thomas H. Pollihan Vice President, Secretary and General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following on behalf of Kellwood Company and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Kellwood Company
Our audits of the consolidated financial statements referred to in our report dated May 30, 1996 appearing at page 18 of the 1996 Annual Report to Shareowners of Kellwood Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10- K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
St. Louis, Missouri May 30, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 033-64847) of Kellwood Company of our report dated May 30, 1996 appearing at page 18 of the 1996 Annual Report to Shareowners which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears at page 12 on this Form 10-K.
/s/ PRICE WATERHOUSE LLP
St. Louis, Missouri June 25, 1996