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.
Beginning in 1985, 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 21 domestic companies or businesses. Following are those acquired since 1993:
Company Name Date of Acquisition - ------------------------------------------------------- ------------------- * Goodman Knitting Co., Inc................................ July 1993 * Halmode Apparel, Inc. ................................... September 1994 * David Dart, Inc. and Force One, Inc...................... November 1994 * Fritzi California (excluding real estate)................ December 1998 * Koret, Inc............................................... April 1999 * Biflex International, Inc. .............................. January 2000 * Academy Broadway......................................... August 2000 * Dorby Frocks, Ltd. ...................................... September 2000 * Romance Du Jour, Inc. ................................... September 2000 * Group B Clothing Co., Inc. .............................. December 2000
These companies are principally marketers of branded apparel except for Academy Broadway which is a manufacturer and marketer of branded camping soft goods.
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. Since its acquisition, Smart Shirts has diversified its manufacturing capabilities from its principal base of Hong Kong to the People's Republic of China, Sri Lanka, and Singapore.
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 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 6% of total sales in fiscal 2000, compared to 50% in fiscal 1985.
(b) The information required by this Item is set forth in the Company's 2000 Annual Report to Shareowners, at page 27 under the caption "Industry Segment and Geographic Area Information," which information is incorporated herein by reference.
(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 in the Far East, Central America, and domestically.
(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. Overall, it is anticipated that external and internal demands will generate decreasing requirements for capital investment. (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 Company is a licensee of certain trade names. The expiration, or invalidation, of any of the patents 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 $284 million (12%) of the Company's sales in FY 2000 were to J.C. Penney, Inc. No other customer accounts for more than 10% of the Company's revenues. Other information relating to J. C. Penney, Inc. is set forth on Page 26 of the Annual Report to Shareholders, incorporated herein by reference. The Company's management believes that the relationship with J. C. Penney will continue into the foreseeable future.
(viii) The Company does not believe that backlog is a meaningful and material indicator of sales that can be expected for any period. All of the Company's backlog is expected to be filled within 12 months, but there can be no assurance that the backlog at any point in time will translate into sales in any particular subsequent period.
(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 $1,437,000, $821,000 and $248,000 were spent on research and development activities during fiscal 2000, the Transition Period, and fiscal 1999, respectively.
(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 2000, there were approximately 25,000 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 Smart Shirts 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 Asian companies under Smart Shirts' management. The sales, operating profit, and net assets attributable to each segment are set forth in the Company's 2000 Annual Report to Shareowners at page 27 under the caption "Industry Segment and Geographic Area Information" in the Notes to Consolidated Financial Statements, which note is incorporated herein by reference. Smart Shirts operations is included in the "Men's Sportswear" Segment and comprises 74% of sales, 87% of operating earnings, and 82% of net assets of this segment. The risk attendant to the Company's Smart
Shirts operations is believed to be slightly greater than that of domestic operations primarily due to quota allocations and political instability. Utilization of existing quota rights and diversification of Smart Shirts manufacturing capacity to various countries help to mitigate these risks.
ITEM 2.
ITEM 2. PROPERTIES
At January 31, 2001, the Company operated 46 distribution or production facilities worldwide. As Kellwood's product sourcing continues to shift from products manufactured in the Company's domestic facilities to foreign-sourced product, warehousing and distribution facilities assume increasing importance.
WOMEN'S SPORTSWEAR ------------------
This segment operates 13 domestic warehousing and distribution centers totaling approximately 3.1 million square feet including: * The Kellwood Western Region Distribution Center in the Los Angeles area. This facility serves as the headquarters for four divisions in a multi-tiered 690,000 square foot facility; * A multi-tiered 880,000 square foot warehouse and distribution center in Trenton, Tennessee; * A 600,000 square foot warehouse and distribution center in Chico, California; * A 294,000 square foot facility in Brockton, Massachusetts; and * A 240,000 square foot facility in Roanoke, Virginia.
These facilities are generating new economies of scale in warehousing and distribution activities while eliminating the redundant costs of smaller, inefficient facilities.
MEN'S SPORTSWEAR ----------------
The Company's Smart Shirts subsidiaries operate 16 facilities which aggregate to approximately 1.1 million square feet and were operating at an estimated 90% of capacity at January 31, 2001. Smart Shirts' subsidiaries manage operations in Hong Kong, Sri Lanka, Singapore, Maldives, Indonesia, and the People's Republic of China.
Additionally, this segment operates 2 manufacturing facilities in El Salvador and shares warehousing with the women's business.
OTHER SOFT GOODS ----------------
This segment operates: * 6 domestic warehousing and distribution facilities which aggregate to approximately 480,000 square feet, and * 9 manufacturing facilities totaling approximately 650,000 square feet and were operating at an estimated 88% of capacity at January 31, 2001.
These manufacturing facilities are located in Latin America, the Philippines, the United States, and Canada.
In management's opinion, current facilities generally are well maintained and provide adequate 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 owned or 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 leases its corporate space in St. Louis County, Missouri and New York City, as well as showrooms in New York City.
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
No matters were submitted to a vote of security holders during the last quarter of the fiscal year covered by this report.
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 2000 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 2000 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 below and in the Company's 2000 Annual Report to Shareowners, at pages 29 through 36 under the caption "Management's Discussion and Analysis," 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 PricewaterhouseCoopers LLP dated March 7, 2001, appearing at pages 14 through 27 of the Company's 2000 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 2001 Annual Meeting of Shareowners, at pages 3 through 4 under the captions "Nominees for Election to Serve Until 2003" and "Directors Continuing to Serve Until 2002," which information is incorporated herein by reference.
(b) EXECUTIVE OFFICERS OF THE REGISTRANT AS OF APRIL 2, 2001
(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 neither 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 Item 10(b) above was elected to serve in the office indicated for a period of one year and until his successor is elected and qualified.
(f) There are no legal proceedings involving directors, nominees for directors, or officers.
(g) The information called for with respect to this item is not applicable to the registrant.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's Proxy Statement for the 2001 Annual Meeting of Shareowners, at pages 7 through 10 and 12 through 14 under the captions "Report of the Compensation and Stock Option Committee on Executive Compensation," "Compensation of Executive Officers" and "Retirement Program," 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 2001 Annual Meeting of Shareowners, at pages 2 and 11 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 2001 Annual Meeting of Shareowners, at page 9 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 PricewaterhouseCoopers LLP dated March 7, 2001, appearing at pages 14 through 27 of the 2000 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 2000 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 2000 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, Year Ended January 31, 2001; 9 Months Ended January 31, 2000; and Year Ended April 30, 1999
Consolidated Balance Sheet, January 31, 2001; and January 31,
Consolidated Statement of Cash Flows, Year Ended January 31, 2001; 9 Months Ended January 31, 2000; and Year Ended April 30, 1999
Consolidated Statement of Shareowners' Equity, Year Ended January 31, 2001; 9 Months Ended January 31, 2000; and Year Ended April 30, 1999.
Notes to Consolidated Financial Statements
(ii) Report of Independent Accountants on Financial Statement Schedule:
Financial Statement Schedule for the Year Ended January 31, 2001; 9 Months Ended January 31, 2000; and Year Ended April 30, 1999: 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.
S.E.C. EXHIBIT REFERENCE NO. DESCRIPTION - -------------- ------------
2.1 - Agreement and Plan of Merger, dated December 1, 1998, as amended among Kellwood Company and Koret, Inc., incorporated herein by reference to Form S-4 dated March 25, 1999, SEC File No. 333-74967.
3.1 - Restated Certificate of Incorporation of Kellwood Company, as amended, incorporated herein by reference to Form 10-Q for the quarter ended July 31, 1987, SEC File No. 1-7340.
3.2 - By-Laws, as amended December 1, 2000 and March 8, 2001, filed herewith.
4.3 - Note Agreement dated July 1, 1993, incorporated herein by reference to Form 10-Q for the quarter ended July 31, 1993, SEC File No. 1-7340.
4.4 - Rights to Acquire Series A Junior Preferred Stock, pursuant to a Rights Agreement between the registrant and Centerre Trust Company of St. Louis, Incorporated herein by reference to Registration Statement on Form 8-A, effective June 24, 1986 and Amendment dated August 21, 1990, incorporated herein by reference to Form 10-Q for the quarter ended October 31, 1990, and Amendment dated May 31, 1996 incorporated herein by reference to Form 8-A/A effective June 3, 1996, SEC File No. 1-7340, and Amendment dated November 21, 2000 filed herewith.
4.5 - Note Purchase Agreement dated December 1, 1987, with exhibits, incorporated herein by reference to Form 10-Q for the quarter ended January 31, 1988, SEC File No. 1-7340.
4.6 - Note Purchase Agreement dated December 15, 1989, with exhibits, incorporated herein by reference to the Form 10-Q for the quarter ended January 31, 1990, SEC File No. 1-7340.
4.7 - Credit Agreement dated as of August 31, 1999 among Kellwood Company, certain commercial lending institutions, and Bank of America, as Administrative Agent, The Chase Manhattan Bank as Syndication Agent, and The Bank of Nova Scotia, as documentation Agent, incorporated herein by reference to Form 8-K filed April 23, 2001, SEC File No. 1-7340.
10.3* - Form of Employment Agreement dated November 30, 1984, between Kellwood Company and executive officers, incorporated herein by reference to Form 10-K for the fiscal year ended April 30, 1985, SEC File No. 1-7340.
S.E.C. EXHIBIT REFERENCE NO. DESCRIPTION - -------------- ------------
10.4* - 1995 Stock Option Plan For Nonemployee Directors and 1995 Omnibus Incentive Stock Option Plan, incorporated herein by reference to Appendixes A & B to the Company's definitive Proxy Statement dated July 13, 1995, SEC File No. 1-7340.
10.5* - Executive Deferred Compensation Plan, adopted and effective as of January 1, 1997; and Executive Deferred Compensation Plan Amendment, adopted March 18, 1997, incorporated herein by reference to Form 10-K for the fiscal year ended April 30, 1997, SEC File No. 1-7340.
10.6** - Agreement for Services Between Kellwood Company and Electronic Data Systems Corporation, dated June 21, 1996; and Amendment Regarding Use of Kellwood Purchase Card by EDS Employees, dated April 29, 1997, incorporated herein by reference to Form 10-K for the fiscal year ended April 30, 1997, SEC File No. 1-7340.
10.7* - Corporate Development Incentive Plan of 1986 (As Amended), formerly the Key Executive Long-Term Incentive Plan of 1983, incorporated herein by reference to Form 10-K for the fiscal year ended April 30, 1994, SEC File No. 1-7340; and Amendment dated May 29, 1997, incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement dated July 17, 1997, SEC File No. 1-7340.
10.8* - Employment Agreement dated December 1, 1999, between Kellwood Company and Hal J. Upbin, incorporated herein by reference to Form 10-K for the Transition Period ended January 31, 2000, SEC File No. 1-7340.
13 - Portions of the Annual Report to Shareowners for the fiscal year ended January 31, 2001, which are incorporated by reference at Item 1 in Part I, Items 5, 6, 7 and 8 in Part II, and Part IV; filed herewith.
21 - Subsidiaries of the Company, appearing at page 13 of this report.
22 - Joint Proxy Statement/Prospectus dated March 25, 1999, incorporated herein by reference to Form S-4 dated March 25, 1999, SEC File No. 333-74967.
23 - Consents of Independent Accountants, appearing at page 11 of this report.
24 - Powers of Attorney: Ms. Dickerson and Page and Messrs. Bentele, Bloom, Bottum, Genovese, Granoff, Hunter, Jacobsen, Marcus, McKenna and Upbin; filed herewith.
[FN] * Denotes management contract or compensatory plan.
** Pursuant to the Securities Exchange Act of 1934, Rule 24b-2, confidential portions of Exhibit 10.6 have been deleted and filed separately with the Commission pursuant to a request for confidential treatment.
(b) REPORTS ON FORM 8-K:
On November 22, 2000, a Form 8-K was filed reporting a Press Release issued on November 21, 2000.
On December 7, 2000, a Form 8-K was filed reporting an amendment to the By-Laws of the Company and the issuance of a Press Release announcing the appointment of two directors.
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: April 20, 2001 /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
To the Board of Directors of Kellwood Company
Our audits of the consolidated financial statements referred to in our report dated March 7, 2001 which appears in the 2000 Annual Report to Shareholders 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)(2) 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.
PricewaterhouseCoopers LLP
St. Louis, Missouri March 7, 2001
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 March 7, 2001 relating to the financial statements which appear in the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 7, 2001 relating to the financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
St. Louis, Missouri April 23, 2001
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The Company and its subsidiaries* as of April 2, 2001 are as follows: