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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-7340
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KELLWOOD COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 36-2472410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 KELLWOOD PARKWAY, P.O. BOX 14374, ST. LOUIS, MO 63178
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314)576-3100
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, par value $.01 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At June 29, 1998, Kellwood Company had 21,604,726 shares of Common Stock, par
value $.01, outstanding. While it is difficult to determine the number of
shares owned by nonaffiliates, the Company estimates that the aggregate
market value of the Common Stock on June 29, 1998 (based upon the closing
price of these shares on the New York Stock Exchange) held by nonaffiliates
was approximately $769,668,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareowners for fiscal year ended April 30, 1998 (Item 1 in
Part I; Items 5, 6, 7 and 8 in Part II, and Part IV).
Proxy Statement for Annual Meeting of Shareowners to be held on August 27,
1998 (Items 10, 11, 12 and 13 in Part III).
<PAGE> 2
PART I
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.
<TABLE>
<CAPTION>
Company Name Date of Acquisition
------------ -------------------
<S> <C>
* Cape Cod-Cricket Lane, Inc. March, 1985
* Parsons Place Apparel Company, Ltd. (Sag Harbor) June, 1986
* E Z Sportswear (Melrose) December, 1986
* En Chante, Inc. (E*N*C) December, 1986
* Robert Scott Ltd., Inc. (Robert Scott/David
Brooks) July, 1987
David Brooks Ltd., Inc.,
and Andrew Harvey Ltd.
* American Recreation Products, Inc. November, 1988
* Slumberjack, Inc. September, 1989
* Crowntuft Manufacturing Corp. October, 1989
* decorp INC. October, 1990
* California Ivy, Inc. (Ivy) July, 1992
* A. J. Brandon, Inc. December, 1992
* Goodman Knitting Co., Inc. July, 1993
* Halmode Apparel, Inc. September, 1994
* David Dart, Inc. November, 1994
and Force One, Inc.
</TABLE>
These companies are principally marketers of branded apparel except
for American Recreation Products, Inc. and Slumberjack, Inc. 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 $310 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. Kellwood's short-term borrowings related to these acquisitions
were subsequently replaced with long-term notes due insurance companies and
20 year senior unsecured debentures 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 1998, 1997 and 1996 was approximately $6,810,000,
$11,849,000 and $4,935,000, 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 8% of
total sales in fiscal year 1998, compared to 50% in fiscal year 1985.
(b) All of the Company's operations are in the apparel and related
soft goods industry.
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(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.
(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 $192,940,000 (10%) of the Company's sales
in the fiscal year ended April 30, 1998, were to Wal-Mart Stores, Inc.
(Wal-Mart). No other customer accounts for more than 10% of the Company's
revenues. Other information relating to Wal-Mart is set forth in the
Company's 1998 Annual Report to Shareowners, under the caption "Significant
Customers" in the Notes to Consolidated Financial Statements at page 26, which
information is incorporated herein by reference. The Company's management
believes that the relationship with Wal-Mart will continue into the
foreseeable future.
(viii) Approximately 17% 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 significant for this merchandise. In addition to these contracts,
the backlog for domestic operations totaled approximately $624 million as of
April 30, 1998 ($541 million - 1997). The backlog for Far East operations
totaled approximately $93 million ($83 million - 1997). 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 $359,000, $740,000 and $612,000 were spent on research and
development activities during fiscal years 1998, 1997 and 1996, respectively.
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(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 1998, there were approximately
18,400 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 1998 Annual Report to Shareowners at page
26 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. PROPERTIES
At April 30, 1998, the Company operated 33 production plants and
various distribution facilities. Domestic business operated 18 plants in 8
states, two plants in the Dominican Republic, two plants in Honduras, one
plant in El Salvador and one plant in Canada. These domestically managed
plants aggregated to approximately 3,134,000 square feet and were operating
at an estimated 95% of capacity at April 30, 1998. Seventeen 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 nine plants which aggregated to approximately 775,500
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; Atlanta, Georgia;
Dallas, Texas; and Los Angeles, California.
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF JULY 3, 1998
<CAPTION>
Name of Office and Employment During
Officer Age the Last Five Fiscal Years
- ------------------- --- ---------------------------------------------------------
<C> <C> <S>
William J. McKenna 71 Chairman since November 25, 1997; Chairman and Chief
Executive Officer (1994-1997); Chairman, President and
Chief Executive Officer (1991-1994)
Hal J. Upbin 59 President and Chief Executive Officer since November 25,
1997; President and Chief Operating Officer (1994-1997);
Executive Vice President Corporate Development (1992-
1994); Vice President Corporate Development (1990-1992);
President of American Recreation Products, Inc.
(subsidiary) (1988-1992) and Director since May 1, 1991
James C. Jacobsen 63 Vice Chairman since November 22, 1994; Executive Vice
President Administration (1989-1994)
Enoch Harding, Jr. 67 Executive Vice President Operations since April 3, 1995;
President of Kellwood Sportswear (1989-1995)
W. Lee Capps III 50 Vice President Corporate Development since May 28, 1998;
Director of Corporate Development (1996-1998); Chief
Financial Officer of American Recreation Products, Inc.
(Subsidiary) (1987-1996).
John R. Henderson 50 Vice President Merchandising since June 1, 1995;
Director of Merchandising (1993-1995); Executive Vice
President Marketing of Kellwood She Knows (1992-1993)
Lawrence E. Hummel 55 Vice President Controller since February 25, 1992;
Controller (1983-1992)
Roger D. Joseph 56 Vice President Treasurer since February 25, 1992;
Treasurer (1986-1992)
Leon M. McWhite 56 Vice President Human Resources since June 1, 1995; Vice
President (1994-1995); President of Kellwood
Lingerie/Activewear (1989-1994)
Thomas H. Pollihan 48 Vice President, Secretary and General Counsel since May
27, 1993; General Counsel and Secretary (1989-1993)
John A. Turnage 52 Vice President Manufacturing since August 28, 1997; Vice
President Manufacturing and Sourcing (1989-1997).
</TABLE>
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PART II
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
1998 Annual Report to Shareowners, at page 1 under the caption "Common Stock
Data," which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Company's
1998 Annual Report to Shareowners, at page 27 under the caption "Supplemental
Selected Financial Data," which information is incorporated herein by
reference.
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 1998 Annual Report to Shareowners, at pages 28 thru 30 under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which information is incorporated herein by
reference.
This item includes "forward-looking statements" within the meaning of
the Securities Act of 1933, and of the Securities Exchange Act of 1934, which
represent the Company's expectations or beliefs concerning future events.
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. Certain phases of
the Company's operations are subject to influences and factors outside its
control. 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 national and regional economic conditions,
inflation or deflation, the overall level of consumer spending, the level of
consumer debt, currency exchange fluctuations, other capital market
conditions, competitive pressures, the performance of the Company's products
within the prevailing retail environment, customer acceptance of both new
designs and newly introduced product lines, the timing and magnitude of
spending on and savings realized from our Vision 2000 initiative, stable
governments and business conditions in the nations where the Company's
products are manufactured, and financial difficulties encountered by
customers. 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 item, including without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are also forward-looking
statements. All forward-looking statements contained herein 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.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company is evaluating the effects these statements
will have on its financial reporting and disclosures. The statements will
have no effect on the Company's results of operations, financial position,
capital resources or liquidity. SFAS No. 130 will first be adopted in the
Company's fiscal 1999 first quarter interim financial report. SFAS No. 131
will require additional segment disclosures and will first be adopted in the
Company's fiscal 1999 Annual Report.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits." The Company is evaluating the effect this statement will have on
its financial reporting and disclosures. The statement will have no effect
on the Company's results of operations, financial position, capital resources
or liquidity. SFAS
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No. 132 will require revised disclosures and will first be adopted in the
Company's fiscal 1999 Annual Report.
In March 1998, the AICPA issued the "Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use" Statement of
Position (SOP). The Company is evaluating the effect this statement will
have on its future earnings or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon
of Price Waterhouse LLP dated May 28, 1998, appearing at pages 16 to 27 of
the Company's 1998 Annual Report to Shareowners, are incorporated herein by
reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
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 1998 Annual Meeting of
Shareowners, at pages 3 and 4 under the captions "Nominees for Election to
Serve Until 2000" and "Directors Continuing to Serve Until 1999," which
information is incorporated herein by reference.
(b) Reference is made to "Executive Officers of the Registrant as of
July 3, 1998" 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 1998 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 1998 Annual Meeting of Shareowners at page 16 under the caption
"Compliance with Section 16(a) of the Exchange Act," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareowners, at pages 8
through 15 under the captions "Compensation of Executive Officers,"
"Retirement Program," and "Other Officer Agreements," which information is
incorporated herein by reference.
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 1998 Annual Meeting of Shareowners, at pages 2 and 7
under the captions "Security Ownership of Certain Beneficial Owners" and
"Management
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Ownership of the Company's Stock," which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareowners, at page 14 under
the caption "Compensation Committee Interlocks and Insider Participation,"
which information is incorporated herein by reference.
PART IV
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 28, 1998, appearing at pages 16 to 27 of
the 1998 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 1998 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 1998 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,
1998, 1997 and 1996
Consolidated Balance Sheet, April 30, 1998 and 1997
Consolidated Statement of Cash Flows, Years Ended April
30, 1998, 1997 and 1996
Consolidated Statement of Shareowners' Equity, Years Ended
April 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(ii) Report of Independent Accountants on Financial Statement
Schedule:
Financial Statement Schedule for the Years Ended April 30,
1998, 1997 and 1996:
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.
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<TABLE>
<CAPTION>
S.E.C. EXHIBIT
REFERENCE NO. DESCRIPTION
- -------------- -----------
<C> <S>
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 through November 21, 1995,
incorporated herein by reference to Form 10-K for the
fiscal year ended April 30, 1996, SEC File No. 1-7340.
4.1 - Note Purchase Agreement dated December 29, 1986, with
exhibits, incorporated herein by reference to Form 10-Q
for the quarter ended January 31, 1987, SEC File No. 1-
7340.
4.2 - Indenture between the Registrant and Centerre Trust
Company of St. Louis, and the 9% Convertible
Subordinated Debentures due 1999, incorporated herein by
reference to Registration Statement on Form S-2,
Registration No. 2-93522, effective October 18, 1984.
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.
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 May 31, 1996 among Kellwood
Company, certain commercial lending institutions, and
The Bank of Nova Scotia, as Administrative Agent and
Syndication Agent, and Bank of America National Trust
and Savings Association, as documentation Agent,
incorporated herein by reference to Form 10-K for the
fiscal year ended April 30, 1996, SEC File No. 1-7340.
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<PAGE> 10
<CAPTION>
S.E.C. EXHIBIT
REFERENCE NO. DESCRIPTION
- -------------- -----------
<C> <S>
10.2<F*> - Employment Agreement dated December 9, 1992, between
Kellwood Company and William J. McKenna, effective
December 1, 1992, incorporated herein by reference to
the Form 10-Q for the quarter ended January 31, 1993,
SEC File No. 1-7340; Amendment dated May 28, 1993,
effective May 1, 1993, incorporated herein by reference
to Form 10-K for the fiscal year ended April 30, 1993,
SEC File No. 1-7340; Amendment dated November 26, 1996,
effective May 1, 1996, incorporated herein by reference
to the Form 10-Q for the quarter ended January 31, 1997,
SEC File No. 1-7340; and Amendment dated November 11,
1997, effective May 1, 1997 filed herewith.
10.3<F*> - 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.
10.4<F*> - 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<F*> - 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<F**> - 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<F*> - 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<F*> - Employment Agreement dated December 1, 1997, between
Kellwood Company and Hal J. Upbin, effective December 1,
1997, filed herewith.
13 - Portions of the Annual Report to Shareowners for the
fiscal year ended April 30, 1998, 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 15 of this
report.
23 - Consents of Independent Accountants, appearing at page 13
of this report.
24 - Powers of Attorney: Ms. Dickerson and Messrs. Bentele,
Bottum, Genovese, Hunter, Marcus and Wenzel; filed
herewith.
27 - Financial Data Schedule, filed herewith.
<FN>
<F*> Denotes management contract or compensatory plan.
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<F**> 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.
</TABLE>
(b) REPORTS ON FORM 8-K:
No reports were filed on Form 8-K during the three months ended April
30, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
KELLWOOD COMPANY
Dated: July 17, 1998 /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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ William J. McKenna Director, Chairman of the July 17, 1998
- ------------------------ Board
William J. McKenna
/s/ Hal J. Upbin Director, President and July 17, 1998
- ------------------------ Chief Executive Officer
Hal J. Upbin
/s/ James C. Jacobsen Director, Vice Chairman July 17, 1998
- ------------------------ (principal financial and
James C. Jacobsen accounting officer)
Raymond F. Bentele Director
/s/ Thomas H. Pollihan
Edward S. Bottum Director -------------------------
Thomas H. Pollihan
Kitty G. Dickerson Director Attorney-in-fact
July 17, 1998
Leonard A. Genovese Director
Jerry M. Hunter Director
James S. Marcus Director
Fred W. Wenzel Director
</TABLE>
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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 28, 1998 appearing at page 16 of the 1998 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.
PRICE WATERHOUSE LLP
St. Louis, Missouri
May 28, 1998
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 28, 1998 appearing at page 16 of the 1998 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 13 on this Form 10-K.
PricewaterhouseCoopers LLP
St. Louis, Missouri
July 14, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-36559) of Kellwood Company of our report dated
May 28, 1998 appearing at page 16 of the 1998 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 13 of this Form 10-K.
PricewaterhouseCoopers LLP
St. Louis, Missouri
July 14, 1998
-13-
<PAGE> 14
<TABLE>
KELLWOOD COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
- -------- -------- --------------------------- -------- --------
Additions
---------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of period expenses accounts Deductions of period
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998:
Allowance for
doubtful accounts $5,536 $3,524 -- $(1,973)<F(A)> $11,033
YEAR ENDED APRIL 30, 1997:
Allowance for
doubtful accounts 5,225 2,262 -- 1,951 <F(A)> 5,536
YEAR ENDED APRIL 30, 1996:
Allowance for
doubtful accounts 5,709 1,601 -- 2,085 <F(A)> 5,225
<FN>
<F(A)> Write-off bad debts (recoveries), net
</TABLE>
-14-
<PAGE> 15
<TABLE>
EXHIBIT INDEX
<CAPTION>
S.E.C. Exhibit
Reference No. Description
- -------------- -----------
<C> <S>
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 through November 21, 1995, incorporated herein by
reference to Form 10-K for the fiscal year ended April 30, 1996, SEC
File No. 1-7340.
4.1 - Note Purchase Agreement dated December 29, 1986, with exhibits,
incorporated herein by reference to Form 10-Q for the quarter ended
January 31, 1987, SEC File No. 1-7340.
4.2 - Indenture between the Registrant and Centerre Trust Company of St.
Louis, and the 9% Convertible Subordinated Debentures due 1999,
incorporated herein by reference to Registration Statement on Form S-
2, Registration No. 2-93522, effective October 18, 1984.
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.
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 May 31, 1996 among Kellwood Company,
certain commercial lending institutions, and The Bank of Nova Scotia,
as Administrative Agent and Syndication Agent, and Bank of America
National Trust and Savings Association, as documentation Agent,
incorporated herein by reference to Form 10-K for the fiscal year
ended April 30, 1996, SEC File No. 1-7340.
<PAGE> 16
<CAPTION>
S.E.C. Exhibit
Reference No. Description
- -------------- -----------
<C> <S>
10.2<F*> - Employment Agreement dated December 9, 1992, between Kellwood Company
and William J. McKenna, effective December 1, 1992, incorporated
herein by reference to the Form 10-Q for the quarter ended January
31, 1993, SEC File No. 1-7340; Amendment dated May 28, 1993,
effective May 1, 1993, incorporated herein by reference to Form 10-K
for the fiscal year ended April 30, 1993, SEC File No. 1-7340;
Amendment dated November 26, 1996, effective May 1, 1996,
incorporated herein by reference to the Form 10-Q for the quarter
ended January 31, 1997, SEC File No. 1-7340; and Amendment dated
November 11, 1997, effective May 1, 1997, filed herewith.
10.3<F*> - 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.
10.4<F*> - 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<F*> - 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<F**> - 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<F*> - 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<F*> - Employment Agreement dated December 1, 1997, between Kellwood Company
and Hal J. Upbin, effective December 1, 1997, filed herewith.
13 - Portions of the Annual Report to Shareowners for the fiscal year
ended April 30, 1998 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 15 of this report.
23 - Consents of Independent Accountants, appearing at page 13 of this
report.
24 - Powers of Attorney: Ms. Dickerson and Messrs. Bentele, Bottum,
Genovese, Hunter, Marcus and Wenzel; filed herewith.
27 - Financial Data Schedule, filed herewith.
<FN>
<F*> Denotes management contract or compensatory plan.
<PAGE> 17
<F**> 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.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
AMENDMENT
---------
OF
--
EMPLOYMENT AGREEMENT
--------------------
This Amendment Agreement made this 11th day of November, 1997, between
Kellwood Company (the "Corporation") and William J. McKenna (the
"Executive");
WHEREAS, the Corporation and Executive entered into an Employment Agreement
dated December 9, 1992 (the "Agreement"); and
WHEREAS, the Compensation Committee of this company effective May 1, 1997,
agreed to amend the Agreement to increase Executive's compensation to Nine
Hundred Thousand Dollars ($900,000) per annum; and
WHEREAS, the Compensation Committee of this company agreed to amend the
Agreement to extend its term for one more year until November 30, 1998; and
WHEREAS, the Corporation and Executive desire to amend the Agreement
accordingly.
NOW THEREFORE, in consideration of their mutual promises and undertakings,
the parties hereby amend the Agreement as follows:
1. By deleting from paragraph 1 all references to the title Chief
Executive Officer.
2. By deleting from paragraph 1 the words "November 30, 1997" and
inserting in their place "November 30, 1998".
3. By deleting from paragraph 2 the amended amount of "Eight Hundred Fifty
Thousand Dollars ($850,000)" and inserting in its place "Nine Hundred
Thousand Dollars ($900,000)". This change shall be effective as of May
1, 1997.
4. By deleting from paragraph 15 the words "November 30, 1997, and
inserting in their place "November 30, 1998."
IN WITNESS WHEREOF, the parties have executed this Amendment of Employment
Agreement the day and year first above written.
KELLWOOD COMPANY
Secretary
/s/ Thomas H. Pollihan By: /s/ James S. Marcus
- ---------------------------- --------------------------------------
James S. Marcus, Chairman,
Compensation Committee
EXECUTIVE
/s/ Leon M. McWhite /s/ William J. McKenna
- ---------------------------- ------------------------------------------
Witness William J. McKenna
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 1st day of December, 1997, between
KELLWOOD COMPANY, a Delaware corporation, hereinafter called (the
"Corporation"), and HAL J. UPBIN residing at 625 South Skinker Boulevard,
Clayton, Missouri 63105-2301, hereinafter called (the "Executive").
NOW, THEREFORE, IT IS AGREED:
1. Employment. (a) The Corporation hereby employs Executive
----------
in an executive capacity as President and Chief Executive Officer, for the
period (the "Employment Period") commencing as of December 1, 1997, and
ending on November 30, 1999. Executive hereby accepts such employment in St.
Louis, Missouri, and agrees to devote his full time and effort to the
services of the Corporation in such executive capacity, and as a Director,
with such other duties as may be reasonably assigned to him by the Board of
Directors of the Corporation, and to act in an executive capacity and/or as a
Director without additional compensation for any of its subsidiaries,
affiliated companies or others as the Board of Directors shall require. Any
outside directorships shall be agreed upon and approved in advance by the
Board of Directors.
(b) In the event Executive shall become disabled during the
Employment period, the Corporation shall continue to pay his salary at the
same rate and times as in effect on the date of disability. The Corporation
shall also continue to provide Executive with all benefits to which he is
entitled hereunder. If
-1-
<PAGE> 2
such disability continues for a continuous period of one year, the Board of
Directors of the Corporation, at its option, may thereafter terminate the
employment of Executive. For purposes of this Employment Agreement,
disability shall mean a mental or physical illness or condition which in the
reasonable judgment of the Board of Directors renders Executive incapable of
performing his duties as required hereunder.
2. Base Salary. During the Employment Period, the Corporation
-----------
shall pay to Executive for all services rendered by him to the Corporation in
any capacity a minimum annual salary at the rate of Six Hundred Thousand
Dollars ($600,000.00) to be paid in twelve equal monthly payments.
3. Other Compensation. During the Employment Period, the
------------------
Executive shall be entitled to participate in all compensation and benefit
programs (e.g., life, medical and disability insurance, retirement, vacation
and stock options) as the Corporation may from time to time offer or make
available to other officers employed by the Corporation and its subsidiaries.
The Corporation also shall provide Executive and his family medical and major
medical insurance coverage on the same basis as provided to other officers of
the Corporation. The Corporation shall also provide Executive the special
Retirement and Death Benefit he is now entitled to under that certain "Death
Benefit Agreement" dated June 2, 1994; as well as coverage under the
Corporation's Directors and Officers Liability Policy.
4. Expenses. The Corporation agrees to reimburse
--------
-2-
<PAGE> 3
Executive for all travel, entertainment and other expenses reasonably incurred
by Executive in rendering the services called for by this Agreement, provided
that Executive shall submit vouchered expenditures in reasonable detail to
the Corporation. Corporation shall issue credit cards to Executive on the
same basis as other officers of the Company for this purpose.
5. Vacation. Executive shall be entitled each year to a
--------
vacation of three weeks, during which time his salary shall be paid in full,
to be taken at such time or times that Executive may reasonably select.
6. Confidential Information. Executive agrees not to disclose
------------------------
or use at any time except in pursuit of the business of the Corporation, any
confidential information of the Corporation, whether Executive has such
information in his memory or embodied in writing or other physical form. For
purposes of this Agreement the phrase "confidential information" means all
information relating to the Corporation which (a) is known only to the
Corporation's employees including former employees of the Corporation or
employees of affiliated companies, or others in a confidential relationship
with the Corporation, and (b) relates to specific business matters, such as
operational procedures of the Corporation or customers or accounting
procedures of the Corporation.
7. NonCompete. Executive agrees that, while payments are
----------
being made to him hereunder, he will not, directly or indirectly, engage in
or have a substantial interest in any business (except for ownership of less
than 5% of the outstanding
-3-
<PAGE> 4
publicly traded stock of any class of any corporation) which at the time shall
be in whole or substantial part competitive with any part of the business
carried on by the Corporation or its subsidiaries now or at any time until the
end of the Employment Period, either for his own or family's benefit or with
any person, firm or corporation whatsoever other than the Corporation and its
subsidiaries. Executive further agrees that he will report to the Board of
Directors of the Corporation any substantial business dealings between himself
or his family and Corporation or any of its subsidiaries including dealings
between the Corporation and a company in which he or any of his family has a
substantial financial interest. Executive agrees to immediately terminate the
business dealing if the Board of Directors of the Corporation determines in
good faith that a conflict exists.
8. Corporation's Successor. In the event that the Corporation
-----------------------
shall at any time be liquidated or dissolved (either in whole or in
substantial part), be merged with or consolidated into any other corporation
or corporations, or in the event that all or substantially all of the assets
of the Corporation shall be sold or otherwise transferred to another
corporation, the provisions of this Agreement shall be binding upon and inure
to the benefit of the successor of the Corporation to which such assets shall
be sold or transferred (the "Corporation's Successor"). The term
"Corporation" wherever used in this Agreement shall include the Corporation's
Successor.
9. Severance. If at any time during the Employment
---------
-4-
<PAGE> 5
Period the Corporation terminates the Executive's employment without Cause,
then Executive shall, (a) be entitled to receive monthly base salary at the
annual rate then in effect for the balance of the Employment Period, and (b)
provided that Executive has been employed for at least the first three months
of the fiscal year, be entitled to receive a prorated portion of the year end
cash bonus Executive would have earned based on full fiscal year results with
said bonus payable at the normal time in June. Proration examples would be:
two months = 0%; six months = 50%; nine months = 75%; etc. If at any time
during the employment period, (a) this Agreement terminates as a result of
the death of the Executive, (b) this Agreement terminates as a result of the
Executive voluntarily quitting, (c) the Corporation terminates the Executive
for disability in accordance with paragraph 1(b), or (d) the Corporation
terminates the Executive for Cause in accordance with this paragraph, then
all of the Executive's rights under this Agreement which would accrue
following the date of that termination shall cease. For these purposes
"Cause" shall mean (i) the continued failure by the Executive to
substantially perform his duties with the Corporation (other than any such
failure resulting from his incapacity due to physical or mental illness -
which is addressed in paragraph 1(b)) after a written demand for substantial
performance is delivered to him by the Board of Directors of the Corporation,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed his duties or (ii) the
engaging by the Executive in
-5-
<PAGE> 6
misconduct which is demonstrably and materially injurious to the Corporation
monetarily or otherwise and the existence of Cause is determined in good faith
by the Corporation's Board of Directors.
10. Mitigation. Executive shall not be obligated to seek other
----------
employment in mitigation of the amounts payable under any provision of this
Agreement. However, should he commence other employment, any compensation
received from such employment and related to services he performs prior to
November 30, 1999, shall offset and reduce the Corporation's obligations to
make the payments under this Agreement.
11. Waiver. No waiver of any breach or failure to perform the
------
terms, covenants and conditions of this Agreement shall be binding upon the
parties hereto unless the same shall be in writing. Any such waiver shall be
for one time only and shall not be for any future breach of failure to
perform under the terms of this Agreement.
12. Inventions. Any and all inventions, designs and the like
----------
created by Executive during the term of this Agreement, which relate to or
are connected with the business then being conducted by the Corporation,
shall be the sole and exclusive property of the Corporation. The Corporation
shall have the right, at its sole cost and expense, to take out copyrights or
obtain letters patent on any such inventions, designs and the like, and such
copyrights and renewals thereof shall likewise be the sole and exclusive
property of the Corporation. Executive shall, at no cost or expense to him,
cooperate in effectuating the registration of any
-6-
<PAGE> 7
claim to copyright or patent or any other proceedings to afford protection
thereunder.
13. Notices. All notices, requests, offers, demands and other
-------
communications hereunder shall be in writing and shall be effectively given
or made when mailed by registered or certified mail, return receipt
requested, and when directed to the party at the address given herein, or to
such other address as either party may hereafter designate in writing.
If to Executive:
To Executive's current address as shown
on the Company's records
If to the Corporation:
Kellwood Company
600 Kellwood Parkway
P.O. Box 14374
St. Louis, MO 63178
Attention: Secretary
14. Choice of Law. The Agreement shall be construed in
-------------
accordance with and governed under the laws of the State of Missouri.
15. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto, their heirs, executors,
successors and assigns.
16. Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the parties hereto and may not be modified, amended,
altered or changed except in writing signed by the parties.
17. Partial Invalidity. If any provision or portion of this
------------------
Agreement shall, to the extent, be invalid or unenforceable,
-7-
<PAGE> 8
the remainder of this Agreement or the application of such portion or
provision in circumstances other than those to which it is held invalid or
unenforceable shall not be effected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted
by law.
IN WITNESS WHEREOF, the parties have executed this Agreement the
day and year first above written.
KELLWOOD COMPANY
/s/ Thomas H. Pollihan /s/ James S. Marcus
- -------------------------- ----------------------------------------
SECRETARY James S. Marcus
Chairman of the
Compensation and Stock
Option Committee
EXECUTIVE
/s/ Thomas H. Pollihan /s/ Hal J. Upbin
- -------------------------- ----------------------------------------
WITNESS Hal J. Upbin
-8-
<PAGE> 1
<TABLE>
Kellwood Company and Subsidiaries Exhibit 13
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
<CAPTION>
YEAR ENDED APRIL 30,
- -------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,781,582 $1,521,005 $1,466,036
========== ========== ==========
Net Earnings $ 42,747 $ 37,596 $ 28,024
========== ========== ==========
Per Share Data:
Net Earnings:
Basic $ 2.00 $ 1.78 $ 1.32
========== ========== ==========
Diluted $ 1.95 $ 1.75 $ 1.31
========== ========== ==========
Cash Dividends Declared $ .64 $ .60 $ .60
========== ========== ==========
</TABLE>
<TABLE>
COMMON STOCK DATA
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fiscal 1998 Fiscal 1997
- ------------------------------------------------------------------------------------------------------------------------
Stock Price Stock Price
-------------------------- Dividends -------------------- Dividends
High Low Paid High Low Paid
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter (July 31)...... $34 1/2 $23 7/8 $.16 $18 1/2 $16 $.15
Second Quarter (October 31).. 38 9/16 30 7/8 .16 18 1/4 15 3/4 .15
Third Quarter (January 31)... 36 26 5/16 .16 22 5/8 17 3/4 .15
Fourth Quarter (April 30).... 34 5/8 29 1/8 .16 27 1/8 22 1/4 .15
</TABLE>
Common stock of Kellwood Company is traded on the New York Stock Exchange,
ticker symbol KWD. At June 8, 1998, there were approximately 1,454
shareowners of record and 3,400 shareowners in the Dividend Reinvestment
Plan. The current annual dividend rate per year is $.64.
1
<PAGE> 2
REPORTS OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS
REPORT OF MANAGEMENT
- --------------------
The management of Kellwood Company is responsible for the fair
presentation of the financial statements and other financial information
included in this report. The financial statements have been prepared in
conformity with generally accepted accounting principles applying estimates
and management's best judgments as required to present fairly Kellwood
Company's financial position, results of operations and cash flows.
The accounting systems and internal accounting controls of Kellwood are
designed to provide reasonable assurance that the financial records are
reliable for preparing financial statements and maintaining accountability
for assets and that, in all material respects, assets are safeguarded against
loss from unauthorized use or disposition. Qualified personnel throughout
the organization maintain and monitor these internal accounting controls on
an ongoing basis, and internal auditors systematically review the adequacy
and effectiveness of the controls. Price Waterhouse LLP also studies and
evaluates internal controls for the purpose of establishing a basis for
reliance thereon relative to the scope of their audits of the financial
statements. It is management's opinion that the Company has an effective
system of internal accounting controls.
The Board of Directors, through its Audit Committee consisting solely of
non-management directors, meets periodically with management, the internal
auditors and Price Waterhouse LLP to discuss audit and financial reporting
matters. Both the internal auditors and Price Waterhouse LLP have direct
access to the Audit Committee.
/s/ William J. McKenna
William J. McKenna
Chairman
/s/ Hal J. Upbin
Hal J. Upbin
President and Chief Executive Officer
/s/ James C. Jacobsen
James C. Jacobsen
Vice Chairman
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
TO THE SHAREOWNERS AND BOARD OF DIRECTORS OF KELLWOOD COMPANY:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, of cash flows and of
shareowners' equity present fairly, in all material respects, the financial
position of Kellwood Company and its subsidiaries at April 30, 1998 and 1997,
and the results of their operations and their cash flows for each of the
three years in the period ended April 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Kellwood's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
St. Louis, Missouri
May 28, 1998
3
<PAGE> 4
<TABLE>
Kellwood Company and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in thousands except per share data)
<CAPTION>
YEAR ENDED APRIL 30,
- --------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,781,582 $1,521,005 $1,466,036
Costs and Expenses:
Cost of products sold 1,428,812 1,211,548 1,175,139
Selling, general and administrative
expenses 235,961 209,371 206,058
Amortization of intangible assets 15,160 15,373 15,467
Interest expense 28,874 21,566 22,937
Interest income and other, net (1,172) (1,679) (2,089)
---------- ---------- ----------
Earnings Before Income Taxes 73,947 64,826 48,524
Income Taxes 31,200 27,230 20,500
---------- ---------- ----------
Net Earnings $ 42,747 $ 37,596 $ 28,024
========== ========== ==========
Earnings Per Share:
Basic $ 2.00 $ 1.78 $ 1.32
========== ========== ==========
Diluted $ 1.95 $ 1.75 $ 1.31
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
<TABLE>
Kellwood Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands except per share data)
<CAPTION>
YEAR ENDED APRIL 30,
- ---------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including time deposits of $22,628
($18,039 in 1997) $ 31,752 $ 22,513
Receivables, net 320,104 271,629
Inventories 374,472 298,938
Prepaid taxes and expenses 32,655 28,444
---------- ---------
Total Current Assets 758,983 621,524
Property, Plant and Equipment 190,425 177,754
Less accumulated depreciation and amortization (124,479) (114,954)
---------- ---------
65,946 62,800
Intangible Assets, net 105,425 113,873
Other Assets 85,159 76,390
---------- ---------
$1,015,513 $ 874,587
========== =========
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 15,298 $ 15,409
Notes payable 141,736 159,129
Accounts payable 110,725 122,049
Accrued expenses 74,746 77,823
---------- ---------
Total Current Liabilities 342,505 374,410
Long-Term Debt 242,720 109,831
Deferred Income Taxes and Other 46,123 42,532
Shareowners' Equity:
Common stock, par value $.01 per share, authorized
50,000,000 shares; issued and outstanding 21,510,373
shares (21,121,487 in 1997) 109,657 99,077
Retained earnings 323,035 293,986
Cumulative translation adjustment (8,542) (8,280)
---------- ---------
424,150 384,783
Less treasury stock, at cost (39,985) (36,969)
---------- ---------
384,165 347,814
---------- ---------
$1,015,513 $ 874,587
========== =========
See notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
<TABLE>
Kellwood Company and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
YEAR ENDED APRIL 30,
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 42,747 $ 37,596 $ 28,024
Add (deduct) items not affecting operating
cash flows:
Depreciation and amortization 29,638 28,277 28,183
Increase in prepaid pension costs (7,860) (8,100) (7,597)
Deferred income taxes 342 (7,471) 794
Other 2,538 882 864
-------- -------- --------
67,405 51,184 50,268
Changes in noncash working capital components:
Receivables,net (48,475) (33,685) 4,937
Inventories (75,534) (32,061) (25,122)
Prepaid expenses (4,211) 465 362
Accounts payable and accrued expenses (14,401) 37,898 17,517
-------- -------- --------
Net cash provided by (used for)
operating activities (75,216) 23,801 47,962
-------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (18,403) (11,644) (16,411)
Proceeds from disposal of assets - - 2,750
Investment in subsidiaries (6,810) (11,849) (4,935)
Other investing activities 417 693 615
-------- -------- --------
Net cash (used for) investing activities (24,796) (22,800) (17,981)
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from (reduction of) notes payable (17,393) 30,364 4,498
Proceeds from issuance of long-term debt 148,327 - -
Reduction of long-term debt (15,549) (18,216) (9,428)
Stock transactions under incentive plans 7,564 2,771 1,610
Purchase of treasury stock - (5,780) -
Dividends paid (13,698) (12,670) (12,700)
-------- -------- --------
Net cash provided by (used for) financing
activities 109,251 (3,531) (16,020)
-------- -------- --------
Net increase (decrease) in cash and time deposits 9,239 (2,530) 13,961
Cash and time deposits - beginning of year 22,513 25,043 11,082
-------- -------- --------
Cash and time deposits - end of year $ 31,752 $ 22,513 $ 25,043
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
6
<PAGE> 7
<TABLE>
Kellwood Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(Dollars in thousands except per share data)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Treasury Cumulative
------------ Stock Retained Translation
Shares Amount Amount Earnings Adjustment
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1995........ 21,128,819 $ 93,400 $ (30,078) $253,736 $(8,861)
Net earnings................ 28,024
Cash dividends declared,
$.60 per share............. (12,700)
Shares issued under stock
plans...................... 112,782 1,127 752
Treasury stock acquired in
conjunction with incentive
plans...................... (17,894) (304)
Debentures converted........ 4,892 35
Currency translation
adjustment................. 61
---------- -------- --------- -------- -------
Balance, April 30, 1996........ 21,228,599 94,562 (29,630) 269,060 (8,800)
Net earnings................ 37,596
Cash dividends declared,
$.60 per share............. (12,670)
Shares issued under stock
plans...................... 268,494 4,330 495
Treasury stock acquired in
conjunction with incentive
plans...................... (80,514) (2,068)
Treasury stock acquired
under repurchase program (324,300) (5,766)
Debentures converted........ 29,208 185
Currency translation
adjustment................. 520
---------- -------- --------- -------- -------
Balance, April 30, 1997........ 21,121,487 99,077 (36,969) 293,986 (8,280)
Net earnings................ 42,747
Cash dividends declared,
$.64 per share............. (13,698)
Shares issued under stock
plans...................... 463,064 10,427 261
Treasury stock acquired in
conjunction with incentive
plans...................... (98,329) (3,277)
Debentures converted........ 24,151 153
Currency translation
adjustment................. (262)
---------- -------- --------- -------- -------
Balance, April 30, 1998....... 21,510,373 $109,657 $ (39,985) $323,035 $(8,542)
========== ======== ========= ======== =======
See notes to consolidated financial statements.
</TABLE>
7
<PAGE> 8
Kellwood Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
1. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. Substantially all foreign
subsidiaries are consolidated based upon a fiscal year ending March 31. All
significant intercompany accounts and transactions have been eliminated.
2. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates and
assumptions.
3. INVENTORIES AND REVENUE RECOGNITION:
Inventories are stated at the lower of cost or market. The first-in,
first-out (FIFO) method is used to determine the value of 40% of the domestic
inventories, and the last-in, first-out (LIFO) method is used to value the
remaining domestic inventories. Inventories of foreign subsidiaries are
valued using the specific identification method. Sales are recognized when
goods are shipped.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. A significant portion
of domestic manufacturing facilities and some machinery and equipment are
leased under long-term capital leases which are recorded at the beginning of
the lease term at the present value of the minimum lease payments.
Depreciation is computed generally on the declining balance method over
estimated useful lives of 15 to 20 years for buildings and of 3 to 10 years
for machinery and equipment. Leasehold improvements are amortized
principally on the straight-line basis over the shorter of their estimated
useful lives or the remaining lease term.
5. INTANGIBLE ASSETS:
The excess costs over net tangible assets of businesses acquired are
recorded as intangible assets. These intangibles are amortized using the
straight-line method over their estimated useful lives which range from 1 to
20 years.
6. IMPAIRMENT OF ASSETS:
The Company reviews long-lived assets, goodwill and other intangibles to
assess recoverability from future operations using expected undiscounted
future cash flows whenever events and circumstances indicate that the
carrying values may not be recoverable. Impairment losses are recognized in
operating results when expected undiscounted future cash flows are less than
the carrying value of the asset.
8
<PAGE> 9
7. INCOME TAXES:
Income taxes are based upon income for financial reporting purposes.
Deferred income taxes are recognized for the effect of temporary differences
between financial and tax reporting in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 109.
8. FOREIGN CURRENCY TRANSLATION:
Foreign currency financial statements are translated into United States
dollars using period-end rates of exchange for assets and liabilities and
monthly average rates of exchange for income and expenses. Adjustments
resulting from translation are accumulated in the Cumulative Translation
Adjustment component of Shareowners' Equity. Gains or losses from foreign
currency transactions are included in income in the period in which they
occur. The net foreign currency gains and losses recognized in 1998, 1997
and 1996 were not significant.
9. EARNINGS PER SHARE:
In the fiscal year ended April 30, 1998, the Company adopted SFAS No.
128, "Earnings per Share" which establishes standards for computing and
presenting earnings per share. Basic earnings per common share considers
only the weighted average of common shares outstanding while diluted earnings
per common share considers the dilutive effects of stock options, incentive
shares and convertible securities. Previously reported earnings per share
are the same as the amounts computed pursuant to SFAS No. 128. A
reconciliation of basic earnings per common share and diluted earnings per
common share follows (dollars and shares in thousands except per share
amounts):
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE COMPUTATION 1998 1997 1996
---- ---- ----
<C> <C> <C>
Numerator:
Net earnings $ 42,747 $ 37,596 $ 28,024
-------- -------- --------
Denominator:
Average common shares outstanding 21,408 21,131 21,170
Basic Earnings Per Share $ 2.00 $ 1.78 $ 1.32
-------- -------- --------
DILUTED EARNINGS PER SHARE COMPUTATION
Numerator:
Net earnings $ 42,747 $ 37,596 $ 28,024
Impact of assumed conversions:
debenture interest after-tax 37 39 44
-------- -------- --------
$ 42,784 $ 37,635 $ 28,068
-------- -------- --------
Denominator:
Average common shares outstanding 21,408 21,131 21,170
Impact of assumed debenture conversions 93 118 130
Impact of stock options 445 284 80
-------- -------- --------
21,946 21,533 21,380
-------- -------- --------
Diluted Earnings Per Share $ 1.95 $ 1.75 $ 1.31
-------- -------- --------
</TABLE>
9
<PAGE> 10
10. STOCK-BASED COMPENSATION:
Kellwood Company uses the intrinsic value method for measuring
stock-based compensation cost. Under this method, compensation cost is the
excess, if any, of the quoted market price of Kellwood's common stock at the
grant date over the amount the employee must pay for the stock. Kellwood's
policy is to grant stock options at fair market value at the date of grant.
11. NEW ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company is
evaluating the effects these statements will have on its financial reporting
and disclosures. The statements will have no effect on the Company's results
of operations, financial position, capital resources or liquidity. SFAS No.
130 will first be adopted in the Company's fiscal 1999 first quarter interim
financial report. SFAS No. 131 will require additional segment disclosures
and will first be adopted in the Company's fiscal 1999 Annual Report.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The allowance for doubtful accounts at April 30, 1998, was $11,033
($5,536 at April 30, 1997).
INVENTORIES:
Inventory valued under the LIFO method totaled $199,286 at April 30,
1998 ($144,801 at April 30, 1997). The remainder of the inventory was valued
using the FIFO and specific identification methods. If LIFO inventories had
been valued at current replacement costs, they would have totaled $209,529 at
April 30, 1998 ($153,564 at April 30, 1997).
<TABLE>
<CAPTION>
April 30,
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
Finished goods................................... $ 175,953 $ 127,630
Work in process.................................. 128,051 98,607
Raw materials.................................... 70,468 72,701
--------- ---------
$ 374,472 $ 298,938
========= =========
PROPERTY, PLANT AND EQUIPMENT:
<CAPTION>
April 30,
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
Land $ 3,528 $ 3,520
Buildings and improvements 84,269 80,005
Machinery and equipment 102,628 94,229
--------- ---------
190,425 177,754
Less accumulated depreciation
and amortization (124,479) (114,954)
--------- ---------
$ 65,946 $ 62,800
========= =========
</TABLE>
The amounts above include the cost and accumulated amortization of
assets under capital leases (primarily buildings) of $12,464 and $12,021,
respectively, at April 30, 1998, and $12,512 and $11,700, respectively, at
April 30, 1997.
10
<PAGE> 11
Certain machinery and equipment are leased under operating leases
having remaining terms ranging up to 6 years. Rent expense under all operating
leases for the year ended April 30, 1998 totaled $18,276 ($16,035 for 1997
and $15,969 for 1996).
The future minimum lease payments under capital and operating leases at
April 30, 1998, were as follows:
<TABLE>
<CAPTION>
---------------------------------
Capital Operating
---------------------------------
<S> <C> <C>
1999 $ 397 $ 17,908
2000 370 13,546
2001 585 11,058
2002 296 8,751
2003 296 6,646
Later years 338 16,939
--------- --------
Total minimum lease payments 2,282 $ 74,848
========
Less amount representing interest (440)
---------
Present value of net minimum lease payments $ 1,842
=========
</TABLE>
Minimum lease payments were not reduced for future minimum sublease
rentals of $1,032.
INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
Goodwill $ 116,301 $ 109,491
Other identifiable intangibles 81,106 81,446
--------- ---------
197,407 190,937
Less accumulated amortization (91,982) (77,064)
--------- ---------
$ 105,425 $ 113,873
========= =========
</TABLE>
Other identifiable intangible assets consist primarily of trademarks,
customer lists, contractor networks and agreements not to compete.
NOTES PAYABLE AND LONG-TERM DEBT:
1. NOTES PAYABLE:
The Company entered into a credit facility agreement on May 31, 1996, in
the amount of $300,000, which expires October 30, 1999. Under the agreement,
up to $200,000 can be utilized for short-term loans and up to $200,000 can be
utilized for letters of credit provided that the combined utilization does
not exceed $300,000. Each borrowing under the agreement bears interest at
one of several specified rates dependent upon several factors including the
Company's leverage ratio, senior debt rating and the applicable Eurodollar
margin. At April 30, 1998, outstanding short-term loans and letters of
credit under the agreement were $0 and $133,000 respectively. Covenants are
less restrictive than those currently existing for Kellwood's notes due
insurance companies.
11
<PAGE> 12
During the year ended April 30, 1998, the highest level of borrowings
under all lines was $275,554 ($220,821 for 1997). For the year, the average
daily short-term borrowings were $179,479 ($159,221 for 1997) and the
weighted average interest rate was 6.1% (5.8% for 1997).
2. LONG-TERM DEBT:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
7.625% Debentures due October 15, 2017 $ 148,371 $ -
Notes due insurance companies, 6.90% - 10.77% 107,323 122,355
Capital lease obligations, 4.9% - 10.2% 1,841 2,249
9% convertible subordinated debentures 483 636
--------- ---------
258,018 125,240
Less current maturities (15,298) (15,409)
--------- ---------
$ 242,720 $ 109,831
========= =========
</TABLE>
Aggregate maturities on long-term debt for the next five years are as
follows: 1999 - $15,298; 2000 - $16,256; 2001 - $10,532; 2002 - $15,272; 2003
- - $38,167.
The Company issued $150,000 of 20 year senior unsecured debentures in a
public debt offering on October 27, 1997. The debentures, due October 15,
2017, have a coupon rate of 7.625% payable semi-annually. Proceeds from the
sale of debentures were used to repay short-term bank borrowings.
Restrictive covenants of these debentures are less restrictive than the
covenants associated with the notes due insurance companies discussed below.
Notes payable to insurance companies are due in quarterly and semiannual
installments from June 1998 through September 2005. Restrictive covenants of
these notes include the maintenance of minimum working capital and certain
key ratios as well as a limitation on the payment of dividends and the
repurchase of Company stock. Under the most restrictive covenants, future
dividends and purchases of Company stock are limited to $65,743 plus 45% of
net earnings after April 30, 1998, excluding gains and losses on the disposal
of capital assets.
The 9% convertible subordinated debentures may be converted into common
stock by debenture holders at a rate of $6.33 per share at any time prior to
maturity on October 15, 1999, subject to certain restrictions. Also, subject
to certain restrictions, the debentures are redeemable, in whole or in part,
at the option of the Company at predetermined redemption prices.
ACCRUED EXPENSES:
<TABLE>
<CAPTION>
April 30,
---------------------------------
1998 1997
---------------------------------
<S> <C> <C>
Salaries and employee benefits $ 35,098 $ 32,284
Income taxes 7,380 13,814
Other accrued expenses 32,268 31,725
--------- ---------
$ 74,746 $ 77,823
========= =========
</TABLE>
12
<PAGE> 13
EMPLOYEE BENEFIT PLANS:
1. RETIREMENT PLANS AND POST RETIREMENT BENEFITS:
Various contributory and noncontributory retirement plans cover
substantially all domestic and certain foreign employees. Benefits under
pension plans are generally based on years of service and compensation.
Pension plans are funded in accordance with the applicable laws and
regulations plus such amounts, if any, as the actuarial consultants advise to
be appropriate. Company contributions under the contributory retirement plan
are determined based on formulas defined in the plan.
The total credit under all retirement plans was $(1,777), $(3,318), and
$(3,626) in 1998, 1997, and 1996, respectively. The total credits reflect
$(7,756), $(7,901), and $(7,240) for defined benefit plans.
The net credit for defined benefit plans included the following
components:
<TABLE>
<CAPTION>
Year ended April 30,
-----------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 2,085 $ 1,867 $ 1,790
Interest cost on projected benefit
obligation 4,456 4,244 4,052
Return on assets:
Actual return (20,641) (9,923) (23,968)
Deferred actuarial gain (loss) 10,065 (18) 14,957
--------- -------- --------
Assumed return (10,576) (9,941) (9,011)
Amortization of transition asset and
prior service costs (3,721) (4,071) (4,071)
--------- -------- --------
Net pension credit $ (7,756) $ (7,901) $ (7,240)
========= ======== ========
</TABLE>
The funded status of the defined benefit plans was as follows:
<TABLE>
<CAPTION>
-----------------------------
1998 1997
-----------------------------
<S> <C> <C>
Plan assets at fair value $ 158,373 $ 142,522
--------- ---------
Actuarial present value of benefit obligation:
Vested benefits 52,684 46,256
Non vested benefits 4,749 3,179
--------- ---------
Accumulated benefit obligation 57,433 49,435
Impact of future salary increases 5,179 4,915
--------- ---------
Projected benefit obligation 62,612 54,350
--------- ---------
Plan assets in excess of projected benefit obligation 95,761 88,172
Unamortized transition liability/(asset) 33 (3,496)
Unamortized prior service costs (95) (321)
Unrecognized actuarial gains (15,798) (14,195)
--------- ---------
Prepaid pension costs included in other assets $ 79,901 $ 70,160
========= =========
</TABLE>
The discount rate used in determining the projected benefit obligation
was 7.5% for 1998, 8.0% for 1997 and 8.0% for 1996. The rate of increase in
future compensation levels was 4.5% for 1998, 5.0% for 1997 and 5.0% for
1996. The assumed long-term rate of return on plan assets was 8.0% in each
year. The assets of the retirement plans consist primarily of marketable
13
<PAGE> 14
equity securities, U.S. Government obligations, corporate debt obligations
and short-term marketable debt securities.
The Company provides health care insurance benefits to certain employees
upon retirement. The annual costs of these benefits in 1998, 1997 and 1996
were not significant.
2. INCENTIVE COMPENSATION PLANS:
The amended Restricted Stock Compensation Plan of 1969 and the Corporate
Development Incentive Plan of 1986 provide for the granting of common stock
to key employees as performance and incentive bonuses. The shares granted
may not be transferred, sold, pledged or otherwise disposed of prior to the
lapse of certain restrictions. Under the plans, $2,129 was charged to
earnings in 1998 ($1,999 in 1997, and $112 in 1996). At April 30, 1998,
299,881 shares were available to be granted under these plans to qualified
employees.
Options to purchase common stock have been granted to key employees
under various plans at option prices not less than the fair market value on
the date of the grant. At April 30, 1998, 135 officers and other key
employees held options to purchase shares. The options expire 10 years after
grant on dates ranging from May 1998 to August 2007 and are exercisable in
cumulative installments only after stated intervals of time and are
conditional upon active employment, except for periods following disability
or retirement.
The Company uses the intrinsic value method in accounting for its stock
option plans. Had compensation cost for the Company's stock options been
recognized based upon the fair value on the grant date under the methodology
prescribed by SFAS 123, "Accounting for Stock-based Compensation," the
Company's net earnings and earnings per share for the years ended April 30,
1998,1997 and 1996 would have been impacted as indicated in the following
table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year ended April 30, 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reported net earnings $ 42,747 $ 37,596 $ 28,024
Pro forma net earnings $ 41,832 $ 37,078 $ 27,732
Reported diluted earnings per share $ 1.95 $1.75 $1.31
Pro forma diluted earnings per share $ 1.91 $1.73 $1.30
- ------------------------------------------------------------------------------------
</TABLE>
The fair value of options granted (which is recorded as expense over the
option vesting period in determining the pro forma impact), is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year ended April 30, 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life option 5 years 5 years 5 years
5.8% 6.3% 6.0%
Risk-free interest rate to 6.6% to 6.4% to 6.2%
Expected volatility of
Kellwood stock 36% 35% 35%
Expected dividend yield
on Kellwood stock 3.69% 3.69% 2.89%
- ------------------------------------------------------------------------------------
</TABLE>
The weighted-average grant date fair value of options granted was $4.88
to $11.36 for 1998, $4.77 to $4.83 for 1997 and $6.45 to $6.63 for 1996.
14
<PAGE> 15
The pro forma effect on net earnings for 1998, 1997 and 1996 is not
representative of the pro forma effect on net earnings in future years
because it does not take into consideration pro forma compensation related to
grants made prior to 1996.
Presented below is a summary of stock option plans' activity for the
years shown:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Wtd. Avg.
Options Exercise Price
------- --------------
<S> <C> <C>
Balance, May 1, 1995 1,262,638 $17.58
Granted 380,500 $20.32
Exercised (25,800) $12.93
Canceled (225) $10.75
---------
Balance, April 30, 1996 1,617,113 $18.30
Granted 408,000 $16.14
Exercised (210,573) $14.33
Canceled (88,415) $19.06
---------
Balance, April 30, 1997 1,726,125 $18.23
Granted 377,800 $26.40
Exercised (353,058) $17.19
Canceled (14,210) $21.32
---------
Balance, April 30, 1998 1,736,657 $20.19
=========
- ------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes options outstanding and exercisable at April 30,
1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Options Outstanding
- ---------------------------------------------------------------------------------------------------------------
Range of Wtd. Avg. Wtd. Avg.
Prices Number Remaining Life Exercise Price
------ ------ -------------- --------------
<S> <C> <C> <C>
$ 6.04 - 9.92 18,375 3 yrs. $ 7.34
$12.29 - 12.75 62,530 3 yrs. $12.38
$16.13 - 19.96 723,022 7 yrs. $17.85
$20.31 - 25.31 885,730 8 yrs. $22.19
$33.78 - 36.00 47,000 10yrs. $34.11
---------
$ 6.04 - 36.00 1,736,657 7 yrs. $20.19
=========
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Options Exercisable
- ---------------------------------------------------------------------------------------------------------------
Range of Wtd. Avg. Wtd. Avg.
Prices Number Remaining Life Exercise Price
------ ------ -------------- --------------
<S> <C> <C> <C>
$ 6.04 - 9.92 18,375 3 yrs. $ 7.34
$12.29 - 12.75 62,530 3 yrs. $12.38
$16.13 - 19.96 316,022 5 yrs. $18.98
$20.31 - 25.31 249,990 7 yrs. $20.45
-------
$ 6.04 - 25.31 646,917 6 yrs. $18.58
=======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
CAPITAL STOCK:
The reported outstanding shares of common stock have been reduced by treasury
stock totaling 3,575,572 shares at April 30, 1998 (3,499,326 at April 30,
1997, and 3,145,398 at April 30, 1996). On September 30, 1996, Kellwood
Company adopted a common stock repurchase program. The Company is authorized
to repurchase up to 10% of the approximately 21,000,000 shares of its common
stock outstanding at that date. As of April 30, 1998, approximately 324,000
shares have been repurchased under this program.
Authorized capital includes 500,000 shares of preferred stock, none of which
have been issued. Nonvoting share purchase rights, exercisable only upon
satisfaction of certain conditions, entitle the holder to purchase Series A
Junior Preferred Stock (160,000 shares reserved) or, under certain
conditions, common shares at prices specified in the rights agreement. None
of the rights were exercisable as of April 30, 1998.
INTEREST INCOME AND OTHER, NET:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Interest income $ 1,134 $ 1,066 $ 412
Other, net 38 613 1,677
-------- -------- --------
$ 1,172 $ 1,679 $ 2,089
======== ======== ========
</TABLE>
16
<PAGE> 17
INCOME TAXES:
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Current:
Domestic:
Federal $ 25,046 $ 28,144 $ 15,521
State 3,972 4,543 3,000
Foreign 2,658 2,015 795
-------- -------- --------
31,676 34,702 19,316
Deferred (primarily federal) (476) (7,472) 1,184
-------- -------- --------
$ 31,200 $ 27,230 $ 20,500
======== ======== ========
</TABLE>
Current income taxes are the amounts payable under the respective tax
regulations on each year's earnings and on foreign earnings remitted during
the year. Deferred income taxes included the following:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Employee related costs $ 2,483 $ 2,330 $ 2,635
Depreciation and amortization (2,569) (1,180) (2,022)
Allowance for asset valuations. 56 (9,130) 437
Other (446) 508 134
------- -------- --------
$ (476) $ (7,472) $ 1,184
======= ======== ========
</TABLE>
A reconciliation of the federal statutory income tax rate to the
effective tax rate (provision for taxes) was as follows:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Foreign tax differences (2.1) 1.4 (.8)
Amortization of intangible assets 4.0 4.3 5.7
State tax 3.6 3.5 4.0
Other 1.7 (2.2) (1.7)
---- ---- ----
42.2% 42.0% 42.2%
==== ==== ====
</TABLE>
17
<PAGE> 18
Deferred income tax liabilities and assets consisted of the following:
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Employee related costs $ 22,976 $ 20,494 $ 17,871
Depreciation and amortization 10,555 13,292 14,765
Allowance for asset valuations (17,163) (17,221) (8,091)
Other (1,557) (1,111) (1,620)
--------- --------- ---------
$ 14,811 $ 15,454 $ 22,925
========= ========= =========
Included in:
Prepaid taxes and expenses............. $ (24,779) $ (24,437) $ (15,166)
Deferred income taxes and other...... 39,590 39,891 38,091
--------- --------- ---------
$ 14,811 $ 15,454 $ 22,925
========= ========= =========
</TABLE>
Earnings before income taxes included $10,773 and $6,465 of Far East earnings
in 1998 and 1997 respectively. Earnings before income taxes included $802 of
Far East losses in 1996.
Federal income taxes are provided on earnings of foreign subsidiaries
except to the extent that such earnings are expected to be indefinitely
reinvested abroad. Undistributed foreign earnings considered to be
indefinitely reinvested abroad totaled $65,215 through April 30, 1998.
CASH FLOWS:
For purposes of the Consolidated Statement of Cash Flows, all highly
liquid short-term time deposits maintained under cash management activities
are considered cash equivalents. The effect of foreign currency exchange
rate fluctuations on cash and time deposits was not significant for the years
ended April 30, 1998, 1997 and 1996.
Interest paid in 1998 was $29,092 ($22,108 in 1997 and $22,853 in 1996)
and income taxes paid were $37,588 ($22,443 in 1997 and $22,386 in 1996).
SIGNIFICANT CUSTOMERS:
The Company has two customers whose sales represent 10% or more of
consolidated net sales in one or more of the fiscal years ended April 30,
1998, 1997 and 1996. Sales to one of these customers [Wal-Mart Stores, Inc.]
totalled $192,940 in 1998, $120,094 in 1997 and $119,888 in 1996.
Receivables included $51,271 due from this customer at April 30, 1998
($40,004 at April 30, 1997). Sales to the other of these customers [J. C.
Penney Company, Inc.] totalled $162,200 in 1998, $157,148 in 1997 and
$142,857 in 1996. Receivables included $24,761 due from this customer at
April 30, 1998 ($37,065 at April 30, 1997).
COMMITMENTS AND CONTINGENCIES:
There are various lawsuits and other legal proceedings against the
Company. Management and general counsel are of the opinion that the ultimate
disposition of such litigation will have no material adverse effect on the
Company's financial position or results of operations.
18
<PAGE> 19
SELECTED QUARTERLY DATA (UNAUDITED):
<TABLE>
<CAPTION>
------------------------------------------------------
First Second Third Fourth
------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1998:
Net sales.................... $ 400,604 $ 502,852 $ 373,680 $ 504,446
Gross profit................. 79,002 99,970 69,485 104,313
Net earnings................. 7,216 16,512 2,414 16,605
Earnings per share:
Basic................... .34 .77 .11 .78
Diluted............. .33 .75 .11 .76
Fiscal 1997:
Net sales.................... $ 327,435 $ 429,435 $ 315,791 $ 448,344
Gross profit................. 65,531 87,684 61,692 94,550
Net earnings................. 5,818 14,438 2,025 15,315
Earnings per share:
Basic................... .27 .68 .10 .73
Diluted............. .27 .67 .09 .72
</TABLE>
19
<PAGE> 20
INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION:
All operations are in the apparel and related soft goods industry. A
summary of operations by geographic area is presented below. Substantially all
Domestic and Far East sales are to U.S. customers. Sales and transfers between
geographic areas were not significant and intercompany accounts have been
eliminated.
<TABLE>
<CAPTION>
Year ended April 30,
-----------------------------------------------------
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Net sales to customers:
Domestic $ 1,608,298 $ 1,367,810 $ 1,316,656
Far East 173,284 153,195 149,380
----------- ----------- -----------
$ 1,781,582 $ 1,521,005 $ 1,466,036
=========== =========== ===========
Operating profit:
Domestic $ 125,893 $ 104,015 $ 91,271
Far East 13,652 9,286 654
----------- ----------- -----------
139,545 113,301 91,925
Interest expense (28,874) (21,566) (22,937)
General corporate expense and other (36,724) (26,909) (20,464)
----------- ----------- -----------
Earnings before income taxes $ 73,947 $ 64,826 $ 48,524
=========== =========== ===========
Assets at end of year:
Domestic $ 807,841 $ 684,504 $ 627,253
Far East 108,722 93,210 89,225
Corporate 98,950 96,873 80,210
----------- ----------- -----------
$ 1,015,513 $ 874,587 $ 796,688
=========== =========== ===========
Capital expenditures:
Domestic $ 14,305 $ 7,364 $ 13,477
Far East 3,314 4,051 2,296
Corporate 784 229 638
----------- ----------- -----------
$ 18,403 $ 11,644 $ 16,411
=========== =========== ===========
Depreciation and amortization:
Domestic $ 24,937 $ 23,767 $ 23,085
Far East 3,108 2,639 3,590
Corporate 1,593 1,871 1,508
----------- ----------- -----------
$ 29,638 $ 28,277 $ 28,183
=========== =========== ===========
</TABLE>
20
<PAGE> 21
Kellwood Company and Subsidiaries
SUPPLEMENTAL SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,781,582 $ 1,521,005 $ 1,466,036 $ 1,364,766 $ 1,203,086
Net earnings 42,747 37,596 28,024 11,096 35,614
Earnings per
share:
Basic 2.00 1.78 1.32 .53 1.71
Diluted 1.95 1.75 1.31 .52 1.68
Cash dividends
declared per
share .64 .60 .60 .60 .55
Working capital 416,478 247,114 238,068 236,922 262,406
Total assets 1,015,513 874,587 796,688 768,137 641,857
Long-term debt 242,720 109,831 125,443 144,793 153,014
Total debt 399,754 284,369 272,406 277,336 170,940
Shareowners'
equity 384,165 347,814 325,192 308,197 306,956
Equity per
share 17.86 16.47 15.32 14.59 14.64
NOTE: All per share data have been adjusted to reflect stock splits.
</TABLE>
21
<PAGE> 22
SUPPLEMENTAL DATA:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
Domestic operations include marketing-oriented branded businesses
offering apparel and camping soft goods, and manufacturing-oriented private
label units offering apparel products. Domestic operations produce goods in
the United States, the Caribbean, and Canada. Far East operations produce
high quality, competitively priced, private label cotton and cotton-blended
shirts and blouses in Hong Kong, China and Sri Lanka. In addition to the
Company's owned and leased plants, products are sourced through contracting
relationships with other manufacturers in various countries. The Company
sells its products through multiple channels of distribution, including
national retail chains, department stores, specialty stores, mass merchants,
mail order houses, sporting goods stores and other manufacturers.
RESULTS OF OPERATIONS
FISCAL 1998
Sales reached record levels for fiscal 1998, increasing 17.1% vs. the
prior year. Net earnings for the year increased 13.7% vs. the prior year.
Summarized comparative financial data for fiscal 1998 and 1997 are as follows
($ in millions; percentages are calculated based on actual data, but columns
may not add due to rounding):
<TABLE>
<CAPTION>
% of Net Sales
% --------------------
1998 1997 Change 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Sales $ 1,782 $ 1,521 17.1% 100.0% 100.0%
Cost of products sold 1,429 1,212 17.9% 80.2% 79.7%
S, G & A 236 209 12.7% 13.2% 13.8%
--- --- ----- ----- -----
Operating earnings 117 100 16.7% 6.6% 6.6%
Amort. of intangibles 15 15 -1.4% 0.9% 1.0%
Interest, net & other 28 20 39.3% 1.6% 1.3%
-- -- ----- ---- ----
Earnings before tax 74 65 14.1% 4.2% 4.3%
Income Taxes 31 27 14.6% 1.8% 1.8%
-- -- ----- ---- ----
Net Earnings $ 43 $ 38 13.7% 2.4% 2.5%
==== ==== ===== ==== ====
</TABLE>
Sales increased in every channel of distribution, and the increase was
broad-based across each of our three business portfolios:
<TABLE>
<CAPTION>
%
1998 1997 Change
------ ------ ------
<S> <C>
Branded $ 1,319 $ 1,104 19.5%
Private Label 289 264 9.5%
Far East 173 153 13.1%
--- --- -----
Total Net Sales $ 1,782 $ 1,521 17.1%
======= ======= =====
</TABLE>
22
<PAGE> 23
The business portfolios contributed 74% (Branded), 16% (Private Label),
and 10% (Far East) of sales, for fiscal 1998:
<TABLE>
<CAPTION>
1998 1997
As a % of total sales ---- ----
---------------------
<S> <C> <C>
Branded 74.0% 72.4%
Private Label 16.2% 17.4%
Far East 9.7% 10.1%
---- -----
100.0% 100.0%
------ ------
</TABLE>
Branded sales for the year were up 19.5% on the strength of
Popular-to-Moderate women's sportswear, including the Sag Harbor(R), Kathie
Lee(R) and Cricket Lane(R) labels. These gains were partially offset by a
drop in sales of Better-to-Bridge goods. The Branded operations continue to
contribute significantly to total company earnings.
Private Label sales for the fiscal year were up 9.5% vs. the prior year
due primarily to the strength of outerwear sales. Operating profits in the
Private Label businesses remain strong.
Far East sales for the fiscal year were up 13.1% vs. the prior year.
The major driver of this growth was the recently secured business with Polo
Ralph Lauren(R) which began shipping in the fourth quarter of fiscal 1997.
Due to the increased volumes and improved worker productivity, operating
profits for the Far East business have improved.
Cost of products sold as a percent of sales increased primarily because
the majority of the Company's sales growth came from businesses and programs
yielding gross margins below the company average.
Selling, General and Administrative expenses (S,G&A) increased $26.6
million or 12.7% to $236 million. Approximately $11.1 million of the
year-to-year increase was due to spending on the Vision 2000 initiative.
Except for the Vision 2000 program, S,G&A increased $15.5 million or 7.5% on a
17.1% increase in sales as follows:
<TABLE>
<CAPTION>
1998 1997 % Change
------ ----- --------
<S> <C> <C> <C>
S, G & A excluding
Vision 2000 $ 221.6 $ 206.1 7.5%
Vision 2000 programs 14.4 3.3
---- ---
Total S, G & A $ 236.0 $ 209.4 12.7%
======= ======= =====
</TABLE>
Operating earnings (defined as net sales less cost of products sold and
S,G&A) increased 16.7% vs. the prior year due to the increased volume,
partially offset by increased spending this year on the Vision 2000 program.
Last year's margins included the benefit of the $1.9 million (pretax)
sale of certain excess quota rights. Operating earnings as a percent of net
sales for fiscal 1997 would have been 6.5% without this income, which
compares to the current year's operating earnings margin of 6.6%.
The increase in interest expense is due primarily to the increase in
average debt and the higher interest rate that resulted from replacing short
term debt with the 20 year debentures (discussed further).
FISCAL 1997
Sales by Domestic branded operations increased by $35 million or 3% for
the year. The increase in branded sales was principally attributable to
growth in popular-to-moderately priced women's apparel as Kellwood continued
to gain market share in this segment with the leading retailers. In
addition, the Company's new and expanding marketing initiatives contributed
to increased
23
<PAGE> 24
Domestic branded sales. Sales from the branded portfolio accounted for 73% of
Kellwood's total volume for the year ended April 30, 1997, which is consistent
with the prior year. The Domestic branded operations have continued to
contribute significantly to total company earnings, and operating margins have
shown improvement as a result of more efficient overhead spending.
Sales by Domestic private label operations increased by $16 million or
7% for the year. Sales and operating profits for the Domestic private label
portfolio have increased during the year as a result of several successful
private label programs with key retailers and gains in efficiencies at
private label facilities.
Sales by Far East operations increased by $4 million or 3% for the year.
Far East operations have continued to gain market share in the better dress
shirt and sport shirt categories while improving customer mix. Operating
profits have also shown continued improvement as a result of the sale of the
Saipan plant in fiscal 1996 and continued movement of Far East resources and
operations to improve efficiencies.
The Company achieved a 34% increase in net earnings on a 4% increase in
sales for the year primarily due to increased operating efficiencies and
several marketing initiatives. The decrease in interest expense correlates
with a decrease in average outstanding debt for the year.
FISCAL 1996
In a difficult retail apparel climate, Kellwood was able to grow its
business by $101 million, or 7%, to $1.466 billion. Womenswear represents
82% of Kellwood's total apparel volume and grew at 11% in fiscal 1996. Of
greater significance was a 16% growth in sales to the Company's top 20
accounts. These accounts represent the retailers who dominate their
respective channels of distribution, and who are gaining market share as the
retail industry continues to consolidate. Kellwood's top 20 customers
represent 63% of sales.
Sales by Domestic branded operations increased 12% for the year. The
increase in branded sales is principally attributable to the acquisitions of
Halmode Apparel and David Dart. Sales from the branded portfolio accounted
for 73% of Kellwood's total volume for fiscal 1996. This compares to 70% in
fiscal 1995 and moves the Company closer to achieving its goal of 75% from
the branded sector. The Domestic branded operations, with their overall
higher margins, contributed significantly to total company earnings.
Sales by Domestic private label operations declined 3% for the year.
Adjusting fiscal 1995's volume for the Home Fashions division which was sold
in December, 1994, Domestic private label sales were up 4%. Operating
profits in the Domestic private label portfolio improved as a result of
several successful private label programs with key customers as well as from
the divestiture of the Home Fashions division.
Sales by Far East operations were down 3% for the year due primarily to
the shut down of the Saipan and Costa Rica facilities. Despite the decline in
volume, operating profits improved as production shifted from the closed
plant in Saipan to more efficient plants in Hong Kong, China and Sri Lanka.
In October 1995, the Company received $2.7 million in proceeds from the sale
of assets in Saipan. The costs of the divestiture have remained in line with
the provision established in fiscal 1995.
After adjusting fiscal 1995 for the $14 million shutdown provision, the
Company achieved a 12% increase in consolidated net earnings on a 7% increase
in sales for the year because of changes in sourcing, leveraging overhead
spending and efficient operation of the private label facilities. The
increase in interest expense correlates with the increase in average
outstanding debt.
24
<PAGE> 25
FINANCIAL CONDITION
- -------------------
On October 27, 1997 the Company completed a public debt offering
totaling $150 million. These debentures mature October 15, 2017 and carry a
7.625% coupon rate. They received investment grade ratings from Moody's and
S&P of Baa3/BBB.
The current ratio increased from 1.7 to 1 at April 30, 1997 to 2.2 to 1
at April 30, 1998, primarily due to the use of debt proceeds to retire
short-term notes payable. Accounts receivable increased 17.8% vs. April 30,
1997, which is slightly ahead of the 17.1% increase in sales. This increase
was due principally to the growth in the volume of business the Company does
with certain customers which have terms of sale in excess of the company
average. Inventory levels have increased faster than sales (up 25.3% vs. April
30, 1997) because of a shift to more offshore sourcing which results in higher
inventories.
Total debt represents 51% of capital at April 30, 1998 vs. 45% at April
30, 1997. The increased leverage is due to increased working capital
requirements to support the sales growth of 17.1% vs. the prior year.
In September 1996, the Board of Directors authorized the Company to
repurchase from time to time up to 10% of the outstanding shares of its
common stock (approximately 2 million shares) in the open market through
privately negotiated transactions at management's discretion and depending on
market conditions. As of April 30, 1998 the Company had purchased
approximately 324,000 shares at a total cost of $5.8 million. The most
recent share purchase under this authorization was in November 1996.
Kellwood maintains a $300 million credit facility agreement 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. At April 30, 1998, $167 million was
available for future use. Management believes that the combined operating,
cash and equity position of the Company will continue to provide the capital
flexibility necessary to fund future opportunities and to meet existing
obligations.
Year 2000 Compliance
- --------------------
In July 1996 the Company outsourced its Information Systems function to
EDS. Together, EDS and Kellwood employees have completed an assessment of all
known potential year 2000 impacts. The Company has developed, and is
continuing to develop, plans to make key operational and financial systems
compliant and to ensure uninterrupted functionality through the year 2000. As
part of the Vision 2000 initiative, several new information technologies have
been and are being installed to implement a Consistent Office Environment and
to replace several legacy systems with an Integrated Business System. These
new systems will be year 2000 compliant. The Company believes that all systems
necessary to manage the business effectively will be replaced, modified or
upgraded before the year 2000.
Key trading partners such as customers, suppliers, banks, shipping
companies and insurance companies have been contacted to ensure year 2000
compliance in all potentially impacted business relationships. The Company
does not have control over these third parties and, as a result, the Company
cannot currently determine to what extent future operating results may be
adversely affected by the failure of these third parties to successfully
address their year 2000 issues. However, the Company expects to develop
plans to attempt to minimize identified third party exposures.
Based on the Company's efforts to date, management believes that it is
unlikely that the year 2000 problem will have a material adverse effect on
the Company's results of operations in the future.
25
<PAGE> 26
The Company is incurring significant business process reengineering and
system replacement expenses as part of the Vision 2000 initiative. As a part
of this initiative, most of the Company's legacy software that is not
currently year 2000 compliant will be replaced with new systems that are year
2000 compliant. The Company believes that the additional cost it will incur
to modify other systems that are not currently year 2000 compliant will not
be significant to the Company's financial results.
OUTLOOK
- -------
Kellwood is into a period of solid internal growth led by the Branded
and Far East businesses. As the retail industry continues to consolidate,
Kellwood is increasingly becoming the vendor of choice for
popular-to-moderately priced women's sportswear, men's woven shirts and other
value priced categories of apparel. Additionally, the Company is benefiting
from the turnaround of certain restructured divisions.
The Private Label business experienced an exceptionally strong year in
outerwear. Due to the warm winter season across much of the U.S., the
Company's customers have had to carry over a considerable amount of
inventory. As a result, the Company expects fiscal 1999 sales of the Private
Label business to be down approximately 3% to 5% from fiscal 1998. Branded
and Far East sales in fiscal 1999 are expected to be up approximately 8% to
9%, and 6% to 7%, respectively, compared to fiscal 1998.
The Company is investing in its Vision 2000 initiative which will
further enhance the Company's competitive position and ability to continue to
gain market share and improve profitability in the future.
Interest expense in the first half of fiscal 1999 will be higher due to
the recent $150 million twenty-year public debt offering. Though management
believes that the rate on this debt (7.625%) is favorable, it is
approximately 1.5% higher than the Company was paying for short-term floating
rate debt.
26
<PAGE> 1
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The Company and its subsidiaries* as of July 3, 1998 are as follows:
<TABLE>
<CAPTION>
State (Country) of Percentage of Voting
Name of Company Incorporation Securities Owned
- --------------- ------------------ --------------------
<S> <C> <C>
Kellwood Company Delaware Parent
American Recreation Products, Inc. Delaware 100%
Kellwood Asia Limited Hong Kong 100%
Smart Shirts Limited Hong Kong 100%
South Asia Garment Limited Hong Kong 100%
KWD Holdings, Inc. Delaware 100%
Robert Scott & David Brooks
Outlet Stores, Inc. Delaware 100%
Tri-W Corporation North Carolina 100%
Halmode Apparel, Inc. Delaware 100%
<FN>
<F*> Some of the above subsidiaries also have subsidiaries which are not listed
because, in the aggregate, they are not considered to be significant.
</TABLE>
-15-
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a director of Kellwood Company (the "Company"), does
hereby constitute and appoint Thomas H. Pollihan or Donald J. Gramke his/her
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him/her and in his/her name, place and stead, to sign
the Company's Form 10-K Annual Report pursuant to Section 13 of the
Securities Exchange Act of 1934 as Amended for the fiscal year ended April
30, 1998, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto the attorney-in-fact full power and authority to
sign such document on behalf of the undersigned and to make such filing, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that the attorney-in-fact, or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: May 28, 1998
/s/ Raymond F. Bentele /s/ James C. Jacobsen
- ----------------------------- ------------------------------
Raymond F. Bentele James C. Jacobsen
/s/ Edward S. Bottum /s/ James S. Marcus
- ----------------------------- ------------------------------
Edward S. Bottum James S. Marcus
/s/ Kitty G. Dickerson /s/ William J. McKenna
- ----------------------------- ------------------------------
Kitty G. Dickerson William J. McKenna
/s/ Leonard A. Genovese /s/ Hal J. Upbin
- ----------------------------- ------------------------------
Leonard A. Genovese Hal J. Upbin
/s/ Jerry M. Hunter /s/ Fred W. Wenzel
- ----------------------------- ------------------------------
Jerry M. Hunter Fred W. Wenzel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Kellwood
Company and Subsidiaries Condensed Consolidated Balance Sheet at April 30,
1998, and from the Condensed Consolidated Statement of Earnings and Condensed
Statement of Cash Flows for the year ended April 30, 1998, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 31,752
<SECURITIES> 0
<RECEIVABLES> 331,137
<ALLOWANCES> 11,033
<INVENTORY> 374,472
<CURRENT-ASSETS> 758,983
<PP&E> 190,425
<DEPRECIATION> 124,479
<TOTAL-ASSETS> 1,015,513
<CURRENT-LIABILITIES> 342,505
<BONDS> 242,720
0
0
<COMMON> 109,657
<OTHER-SE> 274,508
<TOTAL-LIABILITY-AND-EQUITY> 1,015,513
<SALES> 1,781,582
<TOTAL-REVENUES> 1,781,582
<CGS> 1,428,812
<TOTAL-COSTS> 1,428,812
<OTHER-EXPENSES> 249,949
<LOSS-PROVISION> 3,524
<INTEREST-EXPENSE> 28,874
<INCOME-PRETAX> 73,947
<INCOME-TAX> 31,200
<INCOME-CONTINUING> 42,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,747
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.95
</TABLE>
