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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 DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No. 0-13365
OshKosh B'Gosh, Inc.
A DELAWARE Corporation IRS EMPLOYER IDENTIFICATION NO
39-0519915
112 Otter Avenue
Oshkosh, Wisconsin 54901
Telephone number: (414) 231-8800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01 per share
Class B Common Stock, Par Value $.01 per share
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 definite proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of March 15, 1996, there were outstanding 11,189,387 shares
of Class A Common Stock and 1,266,413 shares of Class B Common
Stock, of which 9,239,201 shares and 226,039 shares,
respectively, were held by non-affiliates of the registrant.
Based upon the closing sales prices as of March 15, 1996, the
aggregate market value of the Class A Common Stock and Class B
Common Stock held by non-affiliates was $143,207,615.50 and
$4,337,123.31, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
OshKosh B'Gosh, Inc definitive Proxy Statement for its annual
meeting to be held on May 3, 1996 (or such later date as the
directors may determine), incorporated into Part III.
INDEX
PART I PAGE
Item 1. Business 1
(a) General Development of Business 1
(b) Financial Information About Industry Segments2
(c) Narrative Description of Business 2
Products 2
Raw Materials, Manufacturing and Sourcing 3
Trademarks 4
Seasonality 5
Working Capital 5
Sales and Marketing 5
Backlog 6
Competitive Conditions 6
Environmental Matters 7
Employees 7
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders8
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Item 8. Financial Statements and Supplementary Data 16
Item 9. Disagreements on Accounting and Financial
Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial Owners 33
and Management
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 33
PART I
ITEM 1. BUSINESS
(a) General Development of Business
OshKosh B'Gosh, Inc. (together with its subsidiaries, the
"Company") was founded in 1895 and was incorporated in the
state of Delaware in 1929. The Company designs, manufactures,
sources and sells apparel for the children's wear, youth wear,
and men's wear markets. While its heritage is in the men's
workwear market, the Company is currently best known for its
line of high quality children's wear. The children's wear and
youth wear business represented approximately 92% of
consolidated Company revenues for 1995. The success of the
children's wear business can be attributed to the Company's
core themes: quality, durability, style, trust and Americana.
These themes have propelled the Company to the position of
market leader in the branded children's wear industry. The
Company also leverages the economic value of the OshKosh
B'Gosh name via both domestic and international licensing
agreements.
The Company's long-term strategy is to provide high
quality, high value clothing for the entire family. Toward
this end the Company continues to expand its business lines
and avenues for marketing its products. In 1990, the Company
acquired Essex Outfitters, Inc. ("Essex"), a vertically
integrated children's and youth wear retailer marketed under
the Boston Trader label through a licensing agreement with
Boston Trader Ltd. In 1994, the Company merged the operations
of Essex into OshKosh B'Gosh, Inc. and created a new brand
name, Genuine Kids , for the line of children's and youth wear
formerly marketed under the Boston Trader label. The Genuine
Kids line of apparel is sourced from third party
manufacturers, primarily offshore, and sold primarily through
a chain of 92 domestic retail stores.
OshKosh B'Gosh International Sales, Inc. was created in
1985 for the sale of OshKosh B'Gosh products to foreign
distributors. In 1990, the Company formed OshKosh B'Gosh
Europe, S.A. in conjunction with a joint venture with Poron
Diffusion, S.A. to provide further access to European markets.
In 1992 the Company acquired Poron's 49% interest in OshKosh
B'Gosh Europe, S.A. During 1993 OshKosh B'Gosh made moves to
strategically position itself for international expansion.
OshKosh B'Gosh/Asia Pacific Ltd. was created in Hong Kong to
oversee licensees and distributors in the Pacific Rim, to
assist international licensees with the sourcing of product,
and to expand the Company's presence in that region. OshKosh
B'Gosh U.K. Ltd. and OshKosh B'Gosh Deutschland GmbH,
incorporated in the United Kingdom and Germany respectively,
were established to increase sales emphasis in those
countries.
The Company's chain of 80 domestic OshKosh B'Gosh factory
outlet stores sells irregular and first quality OshKosh B'Gosh
merchandise throughout the United States. In 1994, the
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Company opened an OshKosh B'Gosh showcase store in New York
City bringing total domestic stores to 81. In addition,
Oshkosh B'Gosh Europe opened showcase stores in London and
Paris during 1994. The showcase stores are designed to
reinforce awareness and demand for OshKosh B'Gosh as a global
brand. In 1993, the Company distributed its first children's
wear mail order catalog. Due to low sales volume the decision
was made to discontinue the catalog sales as of December 31,
1995.
The Company has been expanding its utilization of off-
shore sourcing as a cost-effective means to produce its
products and to this end leased a production facility in
Honduras in 1990 through its wholly owned subsidiary
Manufacturera International Apparel S.A. As a part of the
Company's ongoing review of its internal manufacturing
capacity, operational effectiveness, and alternative sourcing
opportunities, during 1995 the Company decided to close two of
its operating facilities and downsize an operating facility.
For the last nine years the Company has licensed its name
for use on footwear. In 1995, the Company began sourcing
footwear itself and distributed its first footwear line in the
fall of 1995.
(b) Financial Information About Industry Segments
The Company is engaged in only one line of business,
namely, the apparel industry.
(c) Narrative Description of Business
Products
The Company designs, manufactures, sources and markets a
broad range of children's clothing as well as lines of youth
wear and men's casual and work wear clothing under the
OshKosh, OshKosh B'Gosh, Baby B'Gosh , Genuine Kids or
OshKosh Men's Wear labels. The products are distributed
primarily through better quality department and specialty
stores, 173 Company owned domestic stores, direct mail
catalogs and foreign retailers. The children's wear and youth
wear business, which is the largest segment of the business,
accounted for approximately 92% of 1995 sales compared to
approximately 94% of such sales in both 1994 and 1993.
The children's wear and youth wear business is targeted
to reach the middle to upper middle segment of the sportswear
market. Children's wear is in size ranges from newborn/infant
to girls 6X and boys 7. Youth wear is in size ranges girls 7
to 16 and boys 8 to 16.
The Company's children's wear and youth wear business
includes a broad range of product categories organized
primarily in a collection format whereby the products in that
collection share a primary design theme which is carried out
through fabric design, screenprint, embroidery, and trim
applications. The Company also offers basic denim products
2
with multiple wash treatments. The product offerings for each
season will typically consist of a variety of clothing items
including bib overalls, pants, jeans, shorts, and shortalls
(overalls with short pant legs), shirts, blouses and knit
tops, skirts, jumpers, sweaters, dresses, playwear and fleece.
The men's wear line is the original business that started
the Company in 1895. The current line comprises the
traditional bib overalls, several styles of waistband-work,
carpenter, and painters-pants, five pocket jeans, work shirts
and flannel shirts as well as coats and jackets. The line is
designed with a full array of sizes up to and including size
60 inch waists and 5x size shirts.
Most products are designed by an in-house staff. Product
design requires long lead times, with products generally being
designed a year in advance of the time they actually reach the
retail market. In general, the Company's products are
traditional in nature and not intended to be "designer" items.
In designing new products and styles, the Company attempts to
incorporate current trends and consumer preferences in its
traditional product offerings.
In selecting fabrics and prints for its products, the
Company seeks, where possible, to obtain exclusive rights to
the fabric design from its suppliers in order to provide the
Company with some protection from imitation by competitors for
a limited period of time.
Raw Materials, Manufacturing, and Sourcing
All raw materials used in the manufacture of Company
products are purchased from unaffiliated suppliers. The
Company procures and purchases its raw materials directly for
its owned manufacturing facilities and may also procure and
retain ownership of fabric relating to garments cut and
assembled by contract manufacturers. In other circumstances,
fabric is procured by the contract manufacturer directly but
in accordance with the Company's specifications. In 1995,
approximately 74% of the Company's direct expenditures for raw
materials (fabric) were from its five largest suppliers, with
the largest such supplier accounting for approximately 24% of
total raw material expenditures. Fabric and various non-
fabric items, such as thread, zippers, rivets, buckles and
snaps are purchased from a variety of independent suppliers.
The fabric and accessory market in which OshKosh B'Gosh
purchases its raw materials is composed of a substantial
number of suppliers with similar products and capabilities,
and is characterized by a high degree of competition. As is
customary in its industry, the Company has no long-term
contracts with its suppliers. To date, the Company has
experienced little difficulty in satisfying its requirements
for raw materials, considers its sources of supply to be
adequate, and believes that it would be able to obtain
sufficient raw materials should any one of its product
suppliers become unavailable.
3
Production administration is primarily coordinated from
the Company's headquarters facility in Oshkosh with most
production taking place in its one Wisconsin, six Tennessee,
and four Kentucky plants. Overseas labor is also accessed
through a leased sewing plant in Honduras, where cut apparel
pieces are received from the United States and are reimported
by OshKosh B'Gosh as finished goods. In addition, product is
produced by contractors in 16 countries and imported into the
United States.
The majority of the product engineering and sample
making, allocation of production among plants and independent
suppliers, material purchases and invoice payments is done
through the Company's Oshkosh headquarters. All designs and
specifications utilized by independent manufacturers are
provided by the Company. While no long-term, formal
arrangements exist with these manufacturers, the Company
considers these relationships to be satisfactory. The Company
believes it could obtain adequate alternative production
capacity if any of its independent manufacturers become
unavailable.
Because higher quality apparel manufacturing is generally
labor intensive (sewing, pressing, finishing and quality
control), the Company has continually sought to upgrade its
manufacturing and distribution facilities. Economies are
therefore realized by technical advances in areas like
computer-assisted design, computer-controlled fabric cutting,
computer evaluation and matching of fabric colors, automated
sewing processes, and computer-assisted inventory control and
shipping. In order to realize economies of operation within
the domestic production facilities, cutting operations are
located in two of the Company's eleven plants, with all
product washing, pressing and finishing done in one facility
in Tennessee and all screenprint and embroidery done in one
facility in Kentucky. Quality control inspections of both
semi-finished and finished products are required at each
plant, including those of independent manufacturers, to assure
compliance.
Customer orders for fashion products are booked from
three to six months in advance of shipping. Because most
Company production of styled products is scheduled to fill
orders already booked, the Company believes that it is better
able to plan its production and delivery schedules than would
be the case if production were in advance of actual orders.
In order to secure necessary fabrics on a timely basis and to
obtain manufacturing capacity from independent suppliers, the
Company must make substantial advance commitments, sometimes
as much as five to seven months prior to receipt of customer
orders. Inventory levels therefore depend on Company judgment
of market demand.
Trademarks
The Company utilizes the OshKosh , OshKosh B'Gosh , Baby
B'Gosh or Genuine Kids trademarks on most of its products,
either alone or in conjunction with a white triangular
4
background. In addition, "The Genuine Article " is
embroidered on the small OshKosh B'Gosh patch to signify
apparel that is classic in design and all-but-indestructible
in quality construction. The Company currently uses
approximately 24 registered and 22 unregistered trademarks in
the United States and has registered trademarks in 84 other
countries. These trademarks and universal awareness of the
OshKosh B'Gosh name are significant in marketing the products.
Seasonality
Products are designed and marketed primarily for three
principal selling seasons:
RETAIL SALES SEASON PRIMARY BOOKING PERIOD SHIPPING PERIOD
Spring/Summer August-September January-April
Fall/Back-to-School January-February May-August
Winter/Holiday April-May September-December
The Company's business is increasingly seasonal, with
highest sales and income in the third quarter which is the
Company's peak wholesale shipping period and a major retail
selling season at its retail outlet stores. The Company's
second quarter sales and income are the lowest because of both
relatively low domestic wholesale unit shipments and
relatively modest retail outlet store sales during this
period. The Company anticipates this seasonality trend to
continue to impact 1996 quarterly sales and income.
Working Capital
Working capital needs are affected primarily by inventory
levels, outstanding accounts receivable and trades payable.
The Company maintains a credit agreement with a number of
banks which provides a $60 million revolving credit facility
and a $40 million revocable demand line of credit for cash
borrowings, issuance of commercial paper and letters of
credit. The agreement expires in June 1997. There were no
outstanding borrowings against these credit arrangements at
December 31, 1995. Letters of credit of approximately $19
million were outstanding at December 31, 1995.
Inventory levels are affected by order backlog and
anticipated sales. Accounts receivable are affected by
payment terms offered. It is general practice in the apparel
industry to offer payment terms of ten to sixty days from date
of shipment. The Company offers net 30 days terms only.
The Company believes that its working capital
requirements and financing resources are comparable with those
of other major, financially sound apparel manufacturers.
Sales and Marketing
Company products are sold primarily through better
quality department and specialty stores, although sales are
also made through direct mail catalog companies, foreign
5
retailers and other outlets, including 172 Company operated
domestic retail and factory outlet stores and one retail
showcase store. No one customer accounted for more than 10%
of the Company's 1995 sales. The Company's largest ten and
largest 100 customers accounted for approximately 42% and 62%
of 1995 sales, respectively. In 1995, the Company's products
were sold to approximately 3,200 wholesale customers
(approximately 9,600 stores) throughout the United States, and
a sizeable number of international accounts.
Product sales to better quality department and specialty
stores are primarily by an employee sales force with the
balance of sales made through manufacturer's representatives
or to in-house accounts. In addition to the central sales
office in Oshkosh, the Company maintains regional sales
offices and product showrooms in Dallas and New York. Most
members of the Company's sales force are assigned to defined
geographic territories, with some assigned to specific large
national accounts. In sparsely populated areas and new
markets, manufacturer's representatives represent the Company
on a non-exclusive basis.
Direct advertising in consumer and trade publications is
the primary method of advertising used. The Company also
offers a cooperative advertising program, paying half of its
customers' advertising expenditures for their products,
generally up to two percent of the higher of the customer's
prior or current year's gross purchases from the Company.
Backlog
The dollar amount of backlog of orders believed to be
firm as of the end of the Company's fiscal year and as of the
preceding fiscal year end is not material for an understanding
of the business of the Company taken as a whole.
Competitive Conditions
The apparel industry is highly competitive and consists
of a number of domestic and foreign companies. Some
competitors have assets and sales greater than those of the
Company. In addition, the Company competes with a number of
firms that produce and distribute only a limited number of
products similar to those sold by the Company or sell only in
certain geographic areas being supplied by the Company.
A characteristic of the apparel industry is the
requirement that a marketer recognize fashion trends and
adequately provide products to meet such trends. Competition
within the apparel industry is generally in terms of quality,
price, service, style and, with respect to branded product
lines, consumer recognition and preference. The Company
believes that it competes primarily on the basis of quality,
style, and consumer recognition and to a lesser extent on the
basis of service and price. The Company is focusing attention
on the issue of price and service and has taken and will
continue to take steps to reduce costs, become more
6
competitive in the eyes of value conscious consumers and
deliver the service expected by its customers.
The Company's share of the overall children's wear market
is quite small. This is due to the diverse structure of the
market where there is no truly dominant producer of children's
garments across all size ranges and garment types. In the
Company's primary channel of distribution, department and
specialty stores, it holds the largest share of the branded
children's wear market.
Environmental Matters
The Company's compliance with Federal, State, and local
environmental laws and regulations had no material effect upon
its capital expenditures, earnings, or competitive position.
The Company does not anticipate any material capital
expenditures for environmental control in either the current
or succeeding fiscal years.
Employees
At December 31, 1995, the Company employed approximately
6,500 persons. Approximately 41% of the Company's personnel
are covered by collective bargaining agreements with the
United Garment Workers of America.
The Company considers its relations with its personnel to
be good.
ITEM 2. PROPERTIES
The Company's principal executive and administrative
offices are located in Oshkosh, Wisconsin. Its principal
office, manufacturing and distribution operations are
conducted at the following locations:
Approximate
Floor Area in Principal
Location Square Feet Use
Albany, KY 20,000 Manufacturing
Byrdstown, TN 32,000 Manufacturing
Celina, TN 100,000 Manufacturing
Celina, TN 90,000
Laundering/Pressing
Columbia, KY 78,000 Manufacturing
Columbia, KY 23,000 Manufacturing
Dallas, TX (1) 1,995 Sales
Offices/Showroom
Gainesboro, TN 61,000 Manufacturing
Gainesboro, TN 29,000 Warehousing
Jamestown, TN 43,000 Manufacturing
Liberty, KY 218,000 Manufacturing/
Warehousing
Liberty, KY (2) 32,000 Warehousing
7
New York City, NY (3) 18,255 Sales
Offices/Showrooms
Oshkosh, WI 99,000 Exec. & Operating
Co. Offices
Oshkosh, WI 88,000 Manufacturing
Oshkosh, WI 128,000 Distribution/
Warehousing
Red Boiling Springs,TN 41,000 Manufacturing
White House, TN 284,000 Distribution/
Warehousing
All properties are owned by the Registrant with the exception
of:
(1) Lease expiration date - 1998 , (2) Lease expiration date -
1999, (3) Lease expiration date - 2007.
The Company believes that its properties are well
maintained and its manufacturing equipment is in good
operating condition and sufficient for current production.
Substantially all of the Company's retail stores occupy
leased premises. For information regarding the terms of the
leases and rental payments thereunder, refer to the "Leases"
note to the consolidated financial statements on page 26 of
this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not parties to any
material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Quarterly Common Stock Data
1995 1994
Stock Price Dividends Stock Price Dividends
High Low Per Share High Low Per Share
Class A Common Stock
1st $15 $13-1/2 $ 0.07 $21-3/4 $14-1/2 $ 0.1025
2nd 16-3/4 14 0.07 15 12-1/4 0.1025
3rd 18 15-1/2 0.07 15-1/2 13-1/2 0.1025
4th 17-1/2 11-1/2 0.07 15-1/4 13 0.07
Class B Common Stock
1st $15 $13-1/2 $ 0.06 $22 $16-3/4 $ 0.09
2nd 16-1/2 14-1/4 0.06 17 13-3/4 0.09
3rd 18 16-1/4 0.06 15-1/2 14 0.09
4th 18-3/4 17-1/4 0.06 15-1/4 13-1/2 0.06
The Company's Class A common stock and Class B common
stock trade on the Over-The-Counter market and are quoted on
NASDAQ under the symbols GOSHA and GOSHB, respectively. The
table reflects the "last" price quotation on the NASDAQ
National Market System and does not reflect mark-ups, mark-
downs, or commissions and may not represent actual
transactions.
The Company has paid cash dividends on its common stock
each year since 1936. The Company's Certificate of
Incorporation requires that when any dividend (other than a
dividend payable solely in shares of the Company's stock) is
paid on the Company's Class B Common Stock, a dividend equal
to 115% of such amount per share must concurrently be paid on
each outstanding share of Class A Common Stock. Company
management currently expects that quarterly dividends
comparable to dividends paid in 1995 will continue.
As of February 16, 1996, there were 1,721 Class A common
stock shareholders of record and 176 Class B common stock
shareholders of record.
9
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights
(Dollars in thousands, except per share
amounts)
Year Ended December 31,
1995 1994 1993 1992 1991
Financial Results
Net Sales $ 432,266 $ 363,363 $ 340,186 $346,206 $ 365,173
Net Income 10,947 7,039 4,523 15,135* 23,576
Return on Sales 2.5% 1.9% 1.3% 4.4% 6.5%
Financial Condition
Working Capital $ 95,414 $ 101,946 $ 111,794 $111,075 $ 106,803
Total Assets 208,579 217,211 229,131 226,195 214,963
Shareholders' Equity 150,078 158,814 171,998 175,153 167,380
Data per Common Share
Net Income $ .85 $ .50 $ .31 $ 1.04* $ 1.62
Cash Dividends Declared
Class A .28 .3775 .5125 .5125 .5125
Class B .24 .33 .45 .45 .45
Shareholders' Equity 12.05 11.76 11.79 12.01 11.48
* After a charge of $601 or $.04 per share to reflect
cummulative effect of change in accounting for nonpension
postretirement benefits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The following table sets forth, for the periods indicated,
selected Company income statement data expressed as a
percentage of net sales and the percentage change in dollar
amounts compared to the previous years.
As a Percentage of Net Sales Percentage Change in
For the Years Ended Dollar Amounts
December 31, from Fiscal Year
1995 1994 1993 1995 to 1994 1994 to 1993
Net sales 100.0% 100.0% 100.0% 19.0% 6.8%
Cost of products sold 68.2% 71.4% 72.0% 13.6% 5.9%
Gross profit 31.8% 28.6% 28.0% 32.3% 9.1%
Selling, general, and
administrative expenses 27.6% 26.1% 23.1% 25.6% 21.0%
Restructuring & plant
closings 0.6% --- 3.2% --- -100.0%
Operating income 3.6% 2.5% 1.7% 73.0% 51.0%
Other income - net 1.1% 1.1% 1.0% 17.2% 19.0%
Income before income taxes 4.7% 3.6% 2.7% 55.8% 39.5%
Income taxes 2.2% 1.7% 1.4% 56.1% 24.1%
Net income 2.5% 1.9% 1.3% 55.5% 55.6%
10
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
Net sales in 1995 were $432.3 million, an increase of $68.9
million (19%) over 1994 sales of $363.4 million. The
Company's 1995 domestic wholesale business of approximately
$255 million was 9% more than 1994 sales of approximately $234
million, with a corresponding increase in unit shipments of
approximately 11.7%. The average unit selling price during
1995 was down slightly due primarily to product mix (i.e.,
consumer preference towards garments with lighter weight
fabrics). The increase in domestic wholesale unit shipments
was the result of a number of factors. Improved product
design during 1994 contributed to better "sell-thrus" and
margins for a majority of our wholesale customers, and
resulted in significantly higher spring 1995 (shipped
primarily during the Company's first quarter) and fall back-
to-school (shipped primarily during the Company's third
quarter) children's fashion shipments. In addition, Company
initiatives undertaken during 1994, and continuing during
1995, resulted in significantly improved shipping performance
to customers on spring and fall back-to-school orders.
Difficulties experienced by the Company in coordinating the
transition of its sourcing strategy (which calls for
increasing sourcing of its product from offshore contractors)
resulted in the inability of the Company to make timely
deliveries on certain holiday orders to customers. This
resulted in a slowdown in the rate of unit shipment growth
during the fourth quarter of 1995. Company management is
implementing adjustments to its sourcing plan and anticipates
improved shipping performance in 1996.
With a relatively weak apparel market in general, the Company
does not anticipate the unit shipment growth experienced
during 1995 to continue in 1996. The Company's preliminary
outlook for 1996 indicates that unit shipments of domestic
wholesale products will be generally flat as compared with
1995.
Company retail sales at its OshKosh B'Gosh branded outlet
stores and Genuine Kids stores were approximately $138.4
million for 1995, a 39.2% increase over 1994 retail sales of
approximately $99.4 million. This retail sales increase was
primarily driven by the opening of an additional 35 retail
stores during 1995. In addition, the Company's comparable
store sales for 1995 were up approximately 3.6%. At year end,
the Company operated 81 OshKosh B'Gosh branded stores and 92
Genuine Kids stores. Current Company plans for 1996 call for
the opening of approximately 14 new retail stores and the
closing of 8 to 10 unprofitable stores. Accordingly, the
Company anticipates a slowdown in its retail sales growth for
1996 as compared to 1995 and 1994.
The Company's gross profit margin as a percent of sales
increased to 31.8% in 1995 compared with 28.6% in 1994. This
gross profit margin improvement was due to the impact of the
Company's increased retail sales at higher gross margins
relative to its domestic wholesale business, as well as
11
improvement in the wholesale business gross profit margin.
The Company's restructuring and plant closing initiatives over
the past two years, including redirection to a higher volume
of product sourced offshore, improved internal manufacturing
efficiencies, as well as more focused attention to product
design, have also contributed to the Company's increased gross
profit margin experienced during 1995. With the anticipated
growth of the Company's retail business during 1996, along
with the continuing effects of its internal manufacturing
capacity reduction initiatives, the Company anticipates
further improvement in its gross profit margins during 1996.
Selling, general, and administrative expenses for 1995
(excluding the $2.7 million charge for plant closures recorded
during the third quarter) increased $24.3 million over 1994.
As a percent of net sales, these costs increased to 27.6% as
compared to 26.1% in 1994. The primary reason for the
increase in the Company's selling, general, and administrative
expenses is the Company's expansion of its retail business.
In addition, the Company's expansion of its international
operations have added to these costs.
During the third quarter of 1995, the Company recorded a
pretax charge for plant closings of $2.7 million. This plant
closing charge (net of income tax benefit) reduced net income
by $1.6 million ($.13 per share) in 1995. As a part of the
Company's ongoing review of its manufacturing capacity,
operational effectiveness, and alternative sourcing
opportunities, the Company decided to close its Hermitage
Springs and McEwen, Tennessee facilities and downsize its
Oshkosh, Wisconsin sewing facility.
During the fourth quarter of 1995, the Company substantially
completed its downsizing of the Oshkosh sewing facility. The
Hermitage Springs and McEwen facilities were closed in
January, 1996. The Hermitage Springs facility was also sold
in early 1996.
The $2.7 million pretax charge for plant closings included
approximately $1.9 million of severance and related costs
pertaining to workforce reductions, as well as $750,000 for
facility closings and the write-down of the related assets.
The Company anticipates that the plant closings (net of income
tax benefit) will require cash expenditures of approximately
$1.1 million. Of this amount, $375,000 was expended in the
fourth quarter of 1995. The Company believes that these plant
closings, along with its other restructuring initiatives
carried out over the past two years, will result in reduced
cost of products and improved gross profit margins.
During 1993, the Company recorded a pretax restructuring
charge of $10.8 million. The restructuring charge including
approximately $3.3 million for facility closings, write-down
of the related assets, and severance costs pertaining to
workforce reductions. The restructuring charge also reflected
the Company's decision to market its Trader Kids line of
children's apparel under the new name of Genuine Kids and the
resulting costs of the Company's decision not to renew its
Boston Trader license arrangement beyond 1994, as well as
12
expenses to consolidate its retail operations. Accordingly,
the restructuring charge included approximately $7.5 million
for write-off of unamortized trademark rights and expenses
related to consolidating the Company s retail operations.
During 1994, the Company implemented its restructuring plan.
The Company closed its McKenzie, Tennessee facility and
reached satisfactory agreements with all affected workforce
concerning severance arrangements. The Company began to
market a portion of its children's wear line under the Genuine
Kids label, discontinuing the Trader Kids line of children's
apparel. The Company also successfully consolidated the
operations of its retail business into its Oshkosh office.
During 1995, the Company finalized its 1993 restructuring plan
by closing its Marrowbone, Kentucky and Dover, Tennessee
facilities. The Dover facility has been sold, and the Company
reached satisfactory agreements with the workforce concerning
severance arrangements.
There were no material changes in cost to fully implement the
Company's 1993 restructuring plan. The Company's cash
expenditures (net of income tax benefit) to carry out this
restructuring plan were approximately $4.4 million.
Interest expense for 1995 was $1.8 million compared to $1.0
million in 1994. This increase is the result of additional
Company borrowings to finance the Company's stock repurchase
program.
The Company licenses the use of its trade names to selected
licensees in the U.S. and in foreign countries. The Company's
net royalty income was $4.4 million in 1995, a $1.0 million
increase over 1994 net royalty income of $3.4 million. Net
royalty income from domestic licensees was approximately $2.3
million in 1995 as compared to $2.4 million in 1994. Net
royalty income from foreign licensees was approximately $2.1
million in 1995 as compared to $1.0 million in 1994. The
increase in royalty income from foreign licensees is the
result of both the addition of new licensees during 1994 and
1995 as well as the increased royalties from existing
licensees.
The Company's effective tax rate for 1995 was 45.8% compared
to 45.7% in 1994. The relatively high effective tax rates for
both years result primarily from the Company's foreign
operating losses (principally in Europe), which provide no tax
benefit. Company management believes that the $11.4 million
deferred tax asset at December 31, 1995 can be fully realized
through reversals of existing taxable, temporary differences,
and the Company's history of substantial taxable income which
allows the opportunity for carrybacks of current or future
losses.
Net income per share of $.85 in 1995 was a 70% increase over
1994 net income per share of $.50. While the Company's
domestic wholesale and retail operations demonstrated progress
during 1995, its European subsidiaries continued to struggle.
The Company incurred a loss from its European subsidiaries of
13
approximately $4.6 million in 1995 as compared to an
approximate $1.7 million loss in 1994. Management is
currently instituting a number of changes including
elimination of independent European design and sourcing
functions. Beginning with the fall 1996 product line, the
European subsidiaries will function primarily as distributors
of U.S. designed and sourced products. Management believes
that these changes will serve to improve European operating
results primarily during the second half of 1996. Management
is also evaluating alternative product sales and marketing
options for Europe.
In March, 1995, the Financial Accounting Standards Board
issued its Statement No. 121 entitled "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". This standard requires impairment losses to
be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement No. 121 also addresses
the accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement No. 121 during
1996. The effect of applying this new standard has not yet
been fully determined.
Year Ended December 31, 1994 Compared to Year Ended December
31, 1993
Net sales in 1994 were $363.4 million, an increase of $23.2
million (6.8%) over 1993 sales of $340.2 million. The
Company's 1994 domestic wholesale business of approximately
$234 million was 9% less than 1993 sales of approximately $257
million, with a corresponding decline in unit shipments of
approximately 6.7%. The decrease in domestic wholesale unit
shipments related primarily to the effects of the competitive
environment in the children's wear business combined with the
effects of prior years' poor shipping performance and
perceived weakness in product design.
Company retail sales at its OshKosh B'Gosh branded outlet
stores and Genuine Kids stores were approximately $99.4
million for 1994, a 52.5% increase over 1993 retail sales of
approximately $65.2 million. This retail sales increase was
primarily driven by the opening of an additional 46 retail
stores during 1994. In addition, the Company's comparable
store sales for 1994 were up approximately 3.6%. At December
31, 1994, the Company operated 61 OshKosh B'Gosh branded
stores and 77 Genuine Kids stores.
The Company's gross profit margin as a percent of sales
improved to 28.6% in 1994 compared with 28.0% in 1993. This
gross profit margin improvement was due primarily to the
impact of the Company's increased retail sales at higher gross
margins relative to its domestic wholesale business. The
favorable impact of the Company's retail gross margins was
offset in part by the domestic wholesale gross margin, which
was down in 1994 primarily as a result of the adverse impact
14
of reduced unit volume on our manufacturing operations and
slightly lower pricing to wholesale customers.
Selling, general, and administrative expenses for 1994
increased $16.5 million over 1993. As a percent of net sales,
selling, general, and administrative expenses were 26.1% in
1994, up from 23.1% in 1993. The primary reason for the
increased selling, general, and administrative expenses is the
Company's aggressive expansion of its retail business. In
addition, the Company's increasing focus on its international
operations resulted in an increase in 1994's selling, general,
and administrative expenses of approximately $2.7 million.
Also, the Company's catalog division, initiated in the second
half of 1993, added approximately $1.6 million to selling,
general, and administrative expenses in 1994.
During the fourth quarter of 1993, the Company recorded a
pretax restructuring charge of $10.8 million. Restructuring
costs (net of income tax benefit) reduced net income by $7.1
million ($.49 per share) in 1993.
The Company's effective tax rate for 1994 was 45.7% compared
to 51.3% in 1993. The relatively high effective tax rates for
both years result primarily from the Company's foreign
operating losses, which provide no tax benefit. In addition,
the high 1993 effective tax rate was the result of
substantially lower U.S. income before income taxes in 1993
(which resulted in part from the restructuring charge).
Seasonality
The Company's business is increasingly seasonal, with highest
sales and income in the third quarter, which is the Company's
peak wholsesale shipping period and a major retail selling
season at its retail outlet stores. The Company's second
quarter sales and income are the lowest both because of
relatively low domestic wholesale unit shipments and
relatively modest retail outlet store sales during this
period. The Company anticipates this seasonality trend to
continue to impact 1996 quarterly sales and income.
Financial Position, Capital Resources, and Liquidity
The Company's financial strength is demonstrated by its
balance sheet. At December 31, 1995 and 1994, the Company did
not have any outstanding long-term debt.
At December 31, 1995, the Company's cash and cash equivalents
were $2.4 million compared to $10.5 million at the end of 1994
and $17.9 million at the end of 1993. The decrease in cash
and cash equivalents is primarily due to the Company s stock
repurchase program which was completed in 1995. Net working
capital at the end of 1995 was $95.4 million, compared to
$101.9 million at 1994 year end and $111.8 million at 1993
year end. Cash provided by operations was approximately $19.5
million in 1995, compared to $22.1 million in 1994, and $21.6
million in 1993.
15
Accounts receivable at December 31, 1995 were $24.7 million
compared to $23.9 million at December 31, 1994. Inventories
at the end of 1995 were $95.7 million, up $1.8 million from
1994. Management believes that year end 1995 inventory levels
are generally appropriate for anticipated 1996 business
activity.
Capital expenditures were approximately $9.7 million in 1995
and $9.9 million in 1994. Capital expenditures for 1996 are
currently budgeted at approximately $10 million.
The Company's stock repurchase program announced in 1994 was
completed in 1995. A total of 2,150,000 shares of Class A
common stock were acquired under the repurchase program,
requiring a cash outlay of approximately $16.8 million in 1995
and $15.0 million in 1994.
The Company has a credit agreement with participating banks.
This arrangement provides a $60 million revolving credit
facility and a $40 million revocable demand line of credit for
cash borrowings, issuance of commercial paper, and letters of
credit. The agreement expires in June, 1997. The Company
believes that these credit facilities, along with cash
generated from operations, will be sufficient to finance the
Company's seasonal working capital needs as well as its
capital expenditures, remaining plant closing costs, and
business development needs.
Dividends on the Company's Class A and Class B common stock
totaled $.28 per share and $.24 per share, respectively, in
1995 compared to $.3775 per share and $.33 per share on the
Company's Class A and Class B common stock, respectively, in
1994. The dividend payout rate was 33% of net income in 1995
and 75% in 1994.
Inflation
The effects of inflation on the Company's operating results
and financial condition were not significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Financial Statements:
Reports of Independent Auditors 17
Consolidated Balance Sheets - December 31, 1995 and 1994 18
Consolidated Statements of Income - years ended
December 31, 1995, 1994, and 1993 19
Consolidated Statements of Changes in Shareholders' Equity -
years ended December 31, 1995, 1994, and 1993 20
Consolidated Statements of Cash Flows - years ended
December 31, 1995, 1994, and 1993 21
Notes to Consolidated Financial Statements 22
16
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
OshKosh B'Gosh, Inc. and Subsidiaries
We have audited the accompanying consolidated balance
sheets of OshKosh B'Gosh, Inc. and subsidiaries (the Company)
as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December
31, 1995. Our audits also included the financial statement
schedule listed in the Index at Item 14. These financial
statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards 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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We beleive that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1995 and
1994, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
/S/ ERNST & YOUNG LLP
Milwaukee, Wisconsin ERNST & YOUNG LLP
February 2, 1996
17
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 2,418$ 10,514
Accounts receivable, less allowances of
$3,970 in 1995 and $3,700 in 1994 24,691 23,857
Inventories 95,743 93,916
Prepaid expenses and other current assets 3,127 2,510
Deferred income taxes 11,400 11,510
Total current assets 137,379 142,307
Property, plant, and equipment, net 65,011 69,829
Other assets 6,189 5,075
Total assets $208,579 $217,211
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 13,910$ 9,436
Accrued liabilities 28,055 30,925
Total current liabilities 41,965 40,361
Deferred income taxes 2,700 2,869
Employee benefit plan liabilities 13,836 15,167
Commitments - -
Shareholders' equity
Preferred stock, par value $.01 per share:
Authorized - 1,000,000 shares;
Issued and outstanding - None - -
Common stock, par value $.01 per share:
Class A, authorized - 30,000,000 shares;
Issued and outstanding - 11,189,387 shares
in 1995, 12,233,787 shares in 1994 112 122
Class B, authorized - 3,750,000 shares;
Issued and outstanding - 1,266,413 shares
in 1995, 1,267,713 shares in 1994 13 13
Retained earnings 149,720 158,933
Cumulative foreign currency
translation adjustments 233 (254)
Total shareholders' equity 150,078 158,814
Total liabilities and shareholders' equity $208,579 $217,211
See notes to consolidated financial statements.
18
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars and shares in thousands, except per share amounts)
Year Ended December 31,
1995 1994 1993
Net sales $432,266 $363,363 $340,186
Cost of products sold 294,770 259,416 244,926
Gross profit 137,496 103,947 95,260
Selling, general, and
administrative expenses 119,295 94,988 78,492
Restructuring and plant closings 2,700 - 10,836
Operating income 15,501 8,959 5,932
Other income (expense):
Interest expense (1,772) (1,034) (626)
Interest income 1,383 1,048 1,114
Royalty income, net of expenses4,443 3,442 3,417
Miscellaneous 633 543 (545)
Other income - net 4,687 3,999 3,360
Income before income taxes 20,188 12,958 9,292
Income taxes 9,241 5,919 4,769
Net income $ 10,947 $ 7,039 $ 4,523
Weighted average common
shares outstanding 12,865 14,144 14,586
Net income per common share $.85 $.50 $.31
See notes to consolidated financial statements.
19
OSHKOSH B'GOSH,INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Dollars and shares in thousands, except per share amounts)
Cumulative
Foreign
Common Stock Additional Currency
Class A Class B Paid-In Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustments
Balance - December 31, 1992 12,777 $128 1,809 $18 $2,971 $172,036 $ -
Net income - - - - - 4,523 -
Dividends
- Class A ($.5125 per share) - - - - - (6,667) -
- Class B ($.45 per share) - - - - - (710) -
Foreign currency translation
adjustments - - - - - - (301)
Conversions of common shares 504 5 (504) (5) - - -
Balance - December 31, 1993 13,281 133 1,305 13 2,971 169,182 (301)
Net income - - - - - 7,039 -
Dividends
- Class A ($.3775 per share) - - - - - (4,886) -
- Class B ($.33 per share) - - - - - (425) -
Foreign currency translation
adjustments - - - - - - 47
Conversions of common shares 37 - (37) - - - -
Repurchase of common shares (1,084) (11) - - (2,971) (11,977) -
Balance - December 31, 1994 12,234 122 1,268 13 - 158,933 (254)
Net income - - - - - 10,947 -
Dividends
- Class A ($.28 per share) - - - - - (3,260) -
- Class B ($.24 per share) - - - - - (304) -
Foreign currency translation
adjustments - - - - - - 487
Conversions of common shares 2 - (2) - - - -
Repurchase of common
shares,net (1,046) (10) - - - (16,596) -
Balance - December 31, 1995 11,190 $112 1,266 $13 $ - $149,720 $233
See notes to consolidated financial statements.
20
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
1995 1994 1993
Cash flows from operating activities
Net income $10,947 $ 7,039 $ 4,523
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 10,591 9,972 8,425
Amortization 765 720 808
(Gain) loss on disposal of assets 79 (185) 63
Provision for deferred income taxes (59) (965) (5,537)
Pension expense, net
of contributions (1,331) 979 1,852
Restructuring - - 10,836
Changes in operating assets and liabilities:
Accounts receivable (834) (4,380) 4,948
Inventories (1,827) 6,083 (7,247)
Prepaid expenses and other
current assets (617) 1,300 (1,624)
Accounts payable 4,474 (284) (1,376)
Accrued liabilities (2,716) 1,863 5,940
Net cash provided by
operating activities 19,472 22,142 21,611
Cash flows from investing activities
Additions to property, plant,
and equipment (9,728) (9,914) (8,990)
Proceeds from disposal of assets 3,722 1,425 1,159
Additions to other assets (1,392) (186) (1,783)
Net cash used in investing activities (7,398) (8,675) (9,614)
Cash flows from financing activities
Payments of long-term debt - (536) (7,896)
Dividends paid (3,564) (5,311) (7,377)
Repurchase of common shares, net (16,606)(14,959) -
Net cash used in financing activities(20,170)(20,806)(15,273)
Net decrease in cash and
cash equivalents (8,096) (7,339) (3,276)
Cash and cash equivalents at
beginning of year 10,514 17,853 21,129
Cash and cash equivalents at
end of year $ 2,418 $10,514 $17,853
Supplementary disclosures
Cash paid for interest $ 1,547 $ 638 $ 1,030
Cash paid for income taxes $ 8,544 $ 3,937 $12,194
See notes to consolidated financial statements.
21
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. Significant accounting policies
Business - OshKosh B'Gosh, Inc. and its wholly-owned
subsidiaries (the Company) are engaged primarily in the
design, manufacture, and marketing of apparel to wholesale
customers and through Company owned retail stores. The
Company provides credit, in the normal course of business,
to department and specialty stores which are not
concentrated in any geographic region. The Company performs
ongoing credit evaluations of its customers and maintains
allowances for potential credit losses.
Principles of consolidation - The consolidated financial
statements include the accounts of all wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash equivalents - Cash equivalents consist of highly liquid
debt instruments such as money market accounts and
commercial paper with original maturities of three months or
less. The Company's policy is to invest cash in
conservative instruments as part of its cash management
program and to evaluate the credit exposure of any
investment. Cash and cash equivalents are stated at cost,
which approximates market value.
Inventories - Inventories are stated at the lower of cost or
market. Inventories stated on the last-in, first-out (LIFO)
basis represent 95.3% of total 1995 and 95.7% of total 1994
inventories. Remaining inventories are valued using the
first-in, first-out (FIFO) method.
Property, plant, and equipment - Property, plant, and
equipment are carried at cost. Depreciation and
amortization for financial reporting purposes is calculated
using the straight-line method based on the following useful
lives:
Years
Land improvements 10 to 15
Buildings 10 to 40
Leasehold improvements 5 to 10
Machinery and equipment 5 to 10
Foreign currency translation - The functional currency for
certain foreign subsidiaries is the local currency.
Accordingly, assets and liabilities are translated at year
end exchange rates, and income statement items are
translated at average exchange rates prevailing during the
year. Such translation adjustments are recorded as a
separate component of shareholders' equity.
22
Revenue recognition - Revenue within wholesale operations is
recognized at the time merchandise is shipped to customers.
Retail store revenues are recognized at the time of sale.
Use of estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Deferred rent - Many of the Company's retail operating
leases contain predetermined fixed increases of the minimum
rental rate during the initial lease term. The Company
recognizes the related rental expense for these leases on a
straight-line basis and records the difference between the
amount charged to expense and the rent paid as deferred
rent.
Advertising - Advertising costs are expensed as incurred and
totaled $12,213, $9,858, and $11,209 in 1995, 1994, and
1993, respectively.
Income per common share - Income per common share amounts
are computed by dividing income by the weighted average
number of shares of common stock outstanding. The dilutive
effect of stock options on net income per share is
immaterial.
Recent accounting pronouncements - In March, 1995, the FASB
issued Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be
disposed of. The Company will adopt Statement 121 in the
first quarter of 1996. The effect of applying this new
standard has not yet been fully determined.
Note 2. Restructuring and Plant Closings
During the third quarter of 1995, the Company recorded a
pretax charge for plant closings of $2,700. This plant
closing charge (net of income tax benefit) reduced net
income by $1,600 ($.13 per share) in 1995. As a part of the
Company's ongoing review of its manufacturing capacity,
operational effectiveness, and alternative sourcing
opportunities, the Company decided to close its Hermitage
Springs and McEwen, Tennessee facilities and downsize its
Oshkosh, Wisconsin sewing facility.
During the fourth quarter of 1995, the Company substantially
completed its downsizing of the Oshkosh sewing facility.
23
The Hermitage Springs and McEwen facilities were closed in
January, 1996. The Hermitage Springs facility was also sold
in early 1996.
The $2,700 pretax charge for plant closings included
approximately $1,900 of severance and related costs
pertaining to workforce reductions as well as $750 for
facility closings and the write-down of the related assets.
The Company anticipates that the plant closings (net of
income tax benefit) will require cash expenditures of
approximately $1,100. Of this amount, $375 was expended in
the fourth quarter of 1995.
During 1993, the Company recorded a pretax restructuring
charge of $10,836. The restructuring charge included
approximately $3,300 for facility closings, write-downs of
the related assets, and severance costs pertaining to work
force reductions. The restructuring charge also reflected
the Company's decision to market its Trader Kids line of
children's apparel under the new name Genuine Kids and the
resulting costs of the Company's decision not to renew its
Boston Trader license arrangement beyond 1994, as well as
expenses to consolidate its retail operations. Accordingly,
the restructuring charge included approximately $7,500 for
write-off of unamortized trademark rights and expenses
related to consolidating the Company's retail operations.
Restructuring costs (net of income tax benefit) reduced net
income by $7,100 ($.49 per share) in 1993.
During 1994, the Company implemented its restructuring plan.
The Company closed its McKenzie, Tennessee facility and
reached satisfactory agreements with all affected workforce
concerning severance arrangements. The Company began to
market a portion of its children's wear line under the
Genuine Kids label, discontinuing the Trader Kids line of
childrens' apparel. The Company also successfully
consolidated the operations of its retail business into its
Oshkosh office.
During 1995, the Company finalized its restructuring plan by
closing its Marrowbone, Kentucky and Dover, Tennessee
facilities. The Dover facility has been sold, and the
Company reached satisfactory agreements with the workforce
concerning severance arrangements.
There were no material changes in cost to fully implement
the Company s 1993 restructuring plan. The Company s cash
expenditures (net of income tax benefit) to carry out this
restructuring plan were approximately $4,400.
24
Note 3. Inventories
A summary of inventories follows:
December 31,
1995 1994
Finished goods $70,837 $75,187
Work in process 15,462 10,803
Raw materials 9,444 7,926
Total $95,743 $93,916
The replacement cost of inventory exceeds the above LIFO
costs by $16,158 and $16,122 at December 31, 1995 and 1994,
respectively.
Note 4. Property, plant, and equipment
A summary of property, plant, and equipment follows:
December 31,
1995 1994
Land and improvements $ 4,123$ 4,139
Buildings 35,478 37,442
Leasehold improvements 11,964 7,862
Machinery and equipment 64,759 70,498
Construction in progress 33 9
Total 116,357 119,950
Less: accumulated depreciation
and amortization 51,346 50,121
Property, plant, and
equipment, net $ 65,011$ 69,829
Note 5. Lines of Credit
The Company maintains a credit agreement with a number of
banks which provides a $60,000 revolving credit facility and
a $40,000 revocable demand line of credit for cash
borrowings, issuance of commercial paper, and letters of
credit.
All borrowing and commercial paper issues under this
agreement are supported by the revolving credit facility
which expires in June, 1997.
Under the terms of the agreement, interest rates are
determined at the time of borrowing and are based on London
Interbank Offered Rates plus .625% or the prime rate.
Commitment fees of .125% are required on the revolving
credit facility. The Company is required to maintain
certain financial ratios in connection with this agreement.
25
There were no outstanding borrowings against these credit
arrangements at December 31, 1995. Letters of credit of
approximately $19,000 were outstanding at December 31, 1995,
with $81,000 of the unused credit facilities available for
borrowing.
Note 6. Accrued liabilities
A summary of accrued liabilities follows:
December 31,
1995 1994
Compensation $ 5,893$ 8,491
Worker's compensation 10,400 10,800
Income taxes 2,288 1,729
Restructuring costs 334 2,381
Other 9,140 7,524
Total $28,055 $30,925
Note 7. Leases
The Company leases certain property and equipment including
retail sales facilities and regional sales offices under
operating leases. Certain leases provide the Company with
renewal options. Leases for retail sales facilities provide
for minimum rentals plus contingent rentals based on sales
volume.
Minimum future rental payments under noncancellable
operating leases are as follows:
Year ending
December 31,
1996 $13,208
1997 12,344
1998 11,053
1999 9,591
2000 6,756
Thereafter 14,469
Total minimum lease payments$67,421
Total rent expense charged to operations for all operating
leases is as follows:
Year Ended December 31,
1995 1994 1993
Minimum rentals $15,760 $11,139 $7,718
Contingent rentals 279 196 167
Total rent expense $16,039 $11,335 $7,885
26
Note 8. Income taxes
Income tax expense (credit) is comprised of the following:
Year Ended December 31,
1995 1994 1993
Current:
Federal $7,440 $5,653 $ 8,571
State and local 1,860 1,231 1,735
9,300 6,884 10,306
Deferred (59) (965) (5,537)
Total $9,241 $5,919 $ 4,769
Deferred tax assets and liabilities relate to temporary
differences between the financial reporting and income tax
basis of Company assets and liabilities, and include the
following components:
December 31,
1995 1994
[Assets (Liabilities)]
Current deferred taxes
Accounts receivable allowances $ 1,398 $ 1,402
Inventory valuation 3,778 2,835
Accrued liabilities 5,685 5,994
Restructuring costs 134 834
Other 405 445
Total net current deferred tax assets$11,400 $11,510
Non-current deferred taxes
Depreciation $(7,881) $(8,497)
Deferred employee benefits 4,734 5,234
Trademark 447 394
Foreign loss carryforwards 3,971 2,418
Valuation allowance (3,971) (2,418)
Total net non-current deferred
tax liabilities $(2,700) $(2,869)
The valuation allowance in each year relates to foreign loss
carryforwards for which utilization is uncertain. The
majority of the foreign loss carryforward is in France.
This French loss carryforward expires beginning in 1999.
For financial reporting purposes, income before income taxes
includes the following components:
Year Ended December 31,
1995 1994 1993
Pretax income (loss):
United States $24,513 $14,319 $11,704
Foreign (4,325) (1,361) (2,412)
Total $20,188 $12,958 $ 9,292
27
A reconciliation of the federal statutory income tax rate to
the effective tax rates reflected in the consolidated
statements of income follows:
Year Ended December 31,
1995 1994 1993
Federal statutory tax rate 35.0% 35.0% 35.0%
Differences resulting from:
State and local income taxes, net
of federal income tax benefit 4.7 4.5 4.1
Foreign losses with no
tax benefit 7.5 3.7 9.1
Other (1.4) 2.5 3.1
Total 45.8% 45.7% 51.3%
Note 9. Retirement plans
The Company has defined contribution and defined benefit
pension plans covering substantially all employees. Charges
to operations by the Company for these pension plans totaled
$4,002, $4,309, and $4,621 for 1995, 1994 and 1993,
respectively.
Defined benefit pension plans - The Company sponsors several
qualified defined benefit pension plans covering certain
hourly and salaried employees. In addition, the Company
maintains a supplemental unfunded salaried pension plan to
provide those benefits otherwise due employees under the
salaried plan's benefit formulas, but which are in excess of
benefits permitted by the Internal Revenue Service.
The benefits provided are based primarily on years of
service and average compensation. The pension plans' assets
are comprised primarily of listed securities, bonds,
treasury securities, commingled equity and fixed income
investment funds and cash equivalents.
The Company's funding policy for qualified plans is to
contribute amounts which are actuarially determined to
provide the plans with sufficient assets to meet future
benefit payment requirements consistent with the funding
requirements of federal laws and regulations.
The actuarial computations utilized the following
assumptions.
December 31,
1995 1994 1993
Discount rate 7.0% 7.5% 7.0%
Expected long-term rate
of return on assets 8.0% 8.0% 7.0%
28
Rates of increase in
compensation levels 0-4.5% 0-4.5% 0-4.5%
Net periodic pension cost was comprised of:
Year Ended December 31,
1995 1994 1993
Service cost - benefits
earned during the period $1,923 $2,212 $2,318
Interest cost on projected
benefit obligations 1,947 1,888 1,808
Actual return on plan assets (4,818) (1,118) (1,708)
Net amortization and deferral 3,982 552 1,259
Net periodic pension cost $3,034 $3,534 $3,677
In conjunction with the plant closings discussed in Note 2,
the Company curtailed its defined benefit plans for the
affected plants. A curtailment cost of approximately $389
is included in the plant closing cost of $2,700.
The following table sets forth the funded status of the
Company's defined benefit plans and the amount recognized in
the Company's consolidated balance sheets. The funded
status of plans with assets exceeding the accumulated
benefit obligation (ABO) is segregated by column, from that
of plans with the ABO exceeding assets.
December 31,
1995 1994
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
ABO Assets ABO Assets
Actuarial present value of
benefit obligations:
Vested benefits $11,957 $ 8,293 $ 9,365 $ 6,599
Nonvested benefits 740 211 916 313
Total accumulated benefit
obligation $12,697 $ 8,504 $10,281 $ 6,912
Projected benefit
obligation $22,791 $ 8,864 $19,334 $ 7,244
Plan net assets at
fair value 18,184 5,761 12,451 2,980
Projected benefit
obligation in excess of
plan net assets (4,607) (3,103) (6,883) (4,264)
Unamortized transition
asset (1,245) (58) (1,382) (20)
Unrecognized prior service
cost 2,264 2,447 2,586 3,022
Unrecognized net
(gain)loss (2,012) (100) (604) (679)
Adjustment to recognize
minimum liability - (2,000) - (2,000)
Accrued pension liability
at December 31 $(5,600) $(2,814) $(6,283) $(3,941)
29
Defined contribution plan - The Company maintains a defined
contribution retirement plan covering certain salaried
employees. Annual contributions are discretionary and are
determined by the Company's Executive Committee. Charges to
operations by the Company for contributions under this plan
totaled $923, $531 and $565 for 1995, 1994 and 1993,
respectively.
The Company also has a supplemental retirement program for
designated employees. Annual provisions to this unfunded
plan are discretionary and are determined by the Company's
Executive Committee. Charges to operations by the Company
for additions to this plan totaled $45, $244 and $379 for
1995, 1994 and 1993, respectively.
Deferred employee benefit plans - The Company has deferred
compensation and supplemental retirement arrangements with
certain key officers.
Postretirement health and life insurance plan - The Company
sponsors an unfunded defined benefit postretirement health
insurance plan that covers eligible salaried employees.
Life insurance benefits are provided under the plan to
qualifying retired employees. The postretirement health
insurance plan is offered, on a shared cost basis, only to
employees electing early retirement. This coverage ceases
when the employee reaches age 65 and becomes eligible for
Medicare. Retiree contributions are adjusted periodically.
The following table sets forth the funded status of the plan
and the postretirement benefit cost recognized in the
Company's consolidated balance sheets:
December 31,
1995 1994
Accumulated postretirement benefit obligation:
Retirees $ 189 $ 159
Fully eligible active plan participants 157 169
Other active plan participants 404 523
Total 750 851
Plan assets - -
Unrecognized net gain 630 497
Accrued postretirement benefit cost $1,380 $1,348
30
Net periodic postretirement benefit cost was comprised of:
Year Ended December 31,
1995 1994 1993
Service cost - benefits attributed
to employee service during
the year $ 42 $ 67 $ 98
Interest cost on accumulated
postretirement benefit obligation 48 53 61
Net amortization and deferral (34) (38) (18)
Net periodic postretirement
benefit cost $ 56 $ 82 $141
The discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1995, 1994 and
1993. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation
was 12%, declining gradually to 6% by 2012 and then
declining further to an ultimate rate of 4% by 2022.
The health care cost trend rate assumption has a significant
impact on the amounts reported. Increasing the assumed
health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation
at December 31, 1995 by approximately $58 and the aggregate
of the service and interest cost components of net periodic
postretirement benefit cost for 1995 by approximately $3.
Note 10. Common stock
In May, 1993, shareholders of the Company approved a stock
conversion plan whereby shares of Class B common stock may
be converted to an equal number of Class A common shares.
The Company's common stock authorization provides that
dividends be paid on both the Class A and Class B common
stock at any time that dividends are paid on either.
Whenever dividends (other than dividends of Company stock)
are paid on the common stock, each share of Class A common
stock is entitled to receive 115% of the dividend paid on
each share of Class B common stock.
The Class A common stock shareholders are entitled to
receive a liquidation preference of $3.75 per share before
any payment or distribution to holders of the Class B
common stock. Thereafter, holders of the Class B common
stock are entitled to receive $3.75 per share before any
further payment or distribution to holders of the Class A
common stock. Thereafter, holders of the Class A common
stock and Class B common stock share on a pro-rata basis in
all payments or distributions upon liquidation, dissolution,
or winding up of the Company.
31
The Class A common stock shareholders have the right to
elect or remove, as a class, 25% of the entire board of
directors of the Company. Class B common stock shareholders
are entitled to elect or remove, as a class, the other 75%
of the directors (subject to any rights granted to any
series of preferred stock) and are entitled to one vote per
share on all matters (including an increase or decrease in
the unissued authorized capital stock of any class)
presented to the shareholders for vote.
In February, 1995, the Company initiated stock option plans
for certain employees and directors. A total of 1,470,000
shares have been authorized for these option programs. As
of December 31, 1995, 155,800 options have been granted to
purchase Company Class A common stock at the fair market
value at date of grant issuance, primarily $14.50 per share.
Rights to exercise these options vest over a four year
period. At December 31, 1995, no options have vested.
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in
accounting for its employee stock options. Under APB 25,
since the exercise price of the Company s employee stock
options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by
reference to the definitive Proxy Statement of OshKosh B'Gosh,
Inc. for its annual meeting to be held on May 3, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference to the definitive Proxy Statement of OshKosh B'Gosh,
Inc. for its annual meeting to be held on May 3, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by
reference to the definitive Proxy Statement of OshKosh B'Gosh,
Inc. for its annual meeting to be held on May 3, 1996.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by
reference to the definitive Proxy Statement of OshKosh B'Gosh,
Inc. for its annual meeting to be held on May 3, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
Financial statements for OshKosh B'Gosh, Inc. listed
in the Index to Financial Statements and Supplementary
Data on page 16 are filed as part of this Annual
Report.
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts F-1
Schedules not included have been omitted because they
are not applicable or the required information is
included in the consolidated financial statements and
notes thereto.
(3) Index to Exhibits
(b) Reports on Form 8-K
A Form 8-K covering Item 5. Other Events - an updated
description of capital stock - was filed on October
25, 1995.
33
(c) Exhibits
3.1 Certificate of Incorporation of OshKosh B'Gosh, Inc.,
as restated, May 7, 1993, previously filed as Exhibit
99.3 to the Registrant's Current Report on Form 8-K
dated October 25, 1995, Commission File Number 000-
13365, is incorporated herein by reference.
3.2 By-laws of OshKosh B'Gosh, Inc., as amended through
March 31, 1995, previously filed as Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, Commission File Number
000-13365, is incorporated herein by reference.
*10.1 Employment Agreement dated July 7, 1980, between
OshKosh B'Gosh, Inc. and Charles F. Hyde as extended
by "Request For Later Retirement" dated April 15, 1986
and accepted by Board of Directors' resolution on May
2, 1986, previously filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986, Commission File Number
0-13365, is incorporated herein by reference.
*10.2 Employment Agreement dated July 7, 1980, between
OshKosh B'Gosh, Inc. and Thomas R. Wyman, previously
filed as Exhibit 10.2 to the Registrant's Registration
Statement No. 2-96586 on Form S-1, is incorporated
herein by reference.
*10.3 OshKosh B'Gosh, Inc. Profit Sharing Plan, as amended
on February 19, 1996
*10.4 OshKosh B'Gosh, Inc. Restated Excess Benefit Plan as
amended, previously filed as Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992, Commission File Number
0-13365, is incorporated herein by reference.
*10.5 OshKosh B'Gosh, Inc. Executive Deferred Compensation
Plan as amended, previously filed as Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, Commission File
Number 0-13365, is incorporated herein by reference.
*10.6 OshKosh B'Gosh, Inc. Officers Medical and Dental
Reimbursement Plan, as amended previously filed as
Exhibit 10.18 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,1994,
Commission File Number 000-13365, is incorporated
herein by reference.
10.7 Acknowledgement and Guaranty Agreement between City of
Liberty, Casey County, Kentucky and OshKosh B'Gosh,
Inc., dated October 4, 1984, and related Contract of
Lease and Rent dated as of November 26, 1968,
previously filed as Exhibit 10.14 to the Registrant's
Registration Statement No. 2-96586 on Form S-1, is
incorporated herein by reference.
*Represents a plan that covers compensation, benefits and/or
related arrangements for executive management.
34
10.8 Indemnity Agreement between OshKosh B'Gosh, Inc. and
William P. Jacobsen (Vice President and Treasurer of
OshKosh B'Gosh, Inc.) dated as of June 8, 1987,
previously filed as Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, Commission File Number 0-13365, is
incorporated herein by reference. (Note: Identical
agreements have been entered into by the Company with
each of the following officers: Anthony S. Giordano,
Douglas W. Hyde, Michael D. Wachtel, and Kenneth H.
Masters).
*10.9 OshKosh B'Gosh, Inc. Executive Non-Qualified Profit
Sharing Plan effective as of January 1, 1989,
previously filed as Exhibit 10.18 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990, Commission File Number 0-13365, is
incorporated herein by reference.
10.10 Employment agreement dated and effective May 1, 1994,
by and among OshKosh B'Gosh, Inc., Essex Outfitters,
Inc. and Barbara Widder-Lowry previously filed as
Exhibit 10.14 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,1994,
Commission File Number 000-13365, is incorporated
herein by reference.
10.11 Employment agreement dated and effective May 1, 1994
by and among OshKosh B'Gosh, Inc., Essex Outfitters,
Inc. and Paul A. Lowry previously filed as Exhibit
10.15 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,1994, Commission
File Number 000-13365, is incorporated herein by
reference.
10.12 Credit agreement between Oshkosh B'Gosh, Inc. and
Firstar Bank Milwaukee, N.A. and participating banks
as amended, dated as of January 30, 1996.
*10.13 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan
previously filed as Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31,1994, Commission File Number 000-13365, is
incorporated herein by reference.
10.14 OshKosh B'Gosh, Inc. 1995 Outside Directors' Stock
Option Plan previously filed as Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31,1994, Commission File Number
000-13365, is incorporated herein by reference.
*Represents a plan that covers compensation, benefits and/or
related arrangements for executive management.
35
21. The following is a list of the subsidiaries of the
Company as of December 31, 1995. The consolidated
financial statements reflect the operations of all
subsidiaries as they existed on December 31, 1995.
State or Other
Jurisdiction of
Name of Incorporation or
Subsidiary Organization
Term Co. (formerly Absorba, Inc.) Delaware
Grove Industries, Inc. Delaware
Manufacturera International
Apparel, S.A. Honduras
OshKosh B'Gosh Europe, S.A. France
OshKosh B'Gosh International
Sales, Inc. Virgin Islands
OshKosh B'Gosh Asia/Pacific Ltd. Hong Kong
OshKosh B'Gosh U.K. Ltd. United Kingdom
OshKosh B'Gosh Deutschland GmbH Germany
23. Consent of Ernst & Young LLP, Independent Auditors
27. Financial Data Schedule
36
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.
OSHKOSH B'GOSH, INC.
By: /s/ DOUGLAS W. HYDE
Chairman of the Board, President and Chief Executive Officer
By: /s/ DAVID L. OMACHINSKI
Vice President, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title
/S/ DOUGLAS W. HYDE Chairman of the Board,
President and Chief Executive Officer
/S/ MICHAEL D. WACHTEL Executive Vice President,
Chief Operating Officer and Director
/S/ DAVID L. OMACHINSKI Vice President, Treasurer
and Chief Financial Officer
/S/ STEVEN R. DUBACK Secretary and Director
/S/ ORREN J. BRADLEY Director
/S/ JERRY M. HIEGEL Director
/S/ JUDITH D. PYLE Director
37
(d)
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(Dollars in Thousands)
Years Ended December 31,
1995 1994 1993
Accounts Receivable - Allowances:
Balance at Beginning of Period $ 3,700 $3,310 $2,265
Charged to Costs and Expenses 8,084 6,508 5,979
Deductions - Bad Debts Written off,
Net of Recoveries and Other
Allowances (7,814) (6,118) (4,934)
Balance at End of Period $ 3,970 $3,700 $3,310
Years Ended December 31,
1994 1993 1992
Restructuring Costs - Allowances:
Balance at Beginning of Period $ 2,381 $ 8,186 $ 422
Charged to Cost and Expenses - - 10,836
Actual Restructuring Costs
Incurred (2,047) (5,805) (3,072)
Balance at End of Period $ 334 $ 2,381 $ 8,186
F-1