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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, 1996
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 39-519915
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
[X] 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 10K.
As of March 17, 1997, there were outstanding 10,535,571 shares of
Class A Common Stock and 1,260,704 shares of Class B Common
Stock, of which 8,712,383 shares and 225,049 shares,
respectively, were held by non-affiliates of the registrant.
Based upon the closing sales prices as of March 17, 1997, the
aggregate market value of the Class A Common Stock and Class B
Common Stock held by non-affiliates was $147,021,463.13 and
$4,388,455.50, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
OshKosh B'Gosh, Inc. definitive Proxy Statement for its annual
meeting to be held on May 2, 1997 (or such later date as the
directors may determine), incorporated into Part III.
INDEX
PART I PAGE
Item 1. Business
(a) General Development of Business
(b) Financial Information About Industry Segments
(c) Narrative Description of Business
Products
Raw Materials, Manufacturing and Sourcing
Sales and Marketing
Trademarks
Seasonality
Working Capital
Backlog
Competitive Conditions
Environmental Matters
Employees
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security
Holders
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Conditions
Item 8. Financial Statements and Supplementary Data
Item 9. Disagreements on Accounting and Financial
Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports
on Form 8-K
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 markets apparel for the children's wear, youth wear, and
men's wear markets. The Company also offers a children's
footwear collection. While its heritage is in the men's work
wear 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 93% of consolidated Company
revenues for 1996. 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 strategically
extends the product line and also leverages the economic value of
the OshKosh B'Gosh name via both domestic and international
licensing agreements.
In addition to the Company's wholesale business, the Company
also operates a chain of 115 domestic OshKosh B'Gosh branded
stores, including 110 factory outlet stores and five
showcase/mall stores, which sell first quality and irregular
OshKosh B'Gosh merchandise throughout the United States. In
1994, The Company opened an OshKosh B'Gosh showcase store in New
York City to feature a full line of OshKosh product in a
signature environment designed to reinforce brand awareness among
consumers. During 1996 the Company opened four first quality
retail stores in regional mall locations. The Company will be
expanding its retail product line in its OshKosh B'Gosh branded
stores by offering youth wear sizes for girls and boys under the
trade names Genuine Girls (girls sizes 7-16) and Genuine Blues
(boys sizes 8-16).
During 1996, the Company completed a comprehensive strategic
planning initiative. As part of this initiative and combined
with management's commitment to more efficient utilization of
working capital, the Company has taken steps to improve product
marketability, streamline operations, reduce its capital base and
cost structure and improve delivery performance. These actions
include limiting distribution of its children's wear product by
narrowing the distribution channels in which the Company's
products are sold over the next two years, discontinuing under-
performing business units and closing certain domestic
manufacturing facilities based on an on-going review of the
Company's manufacturing capacity and alternative sourcing
opportunities.
In accordance with the strategic planning initiative, the
Company reviewed the operations of its Genuine Kids business unit
and decided to discontinue the Genuine Kids brand which was used
to market a line of children's and youth apparel through a chain
of Company owned Genuine Kids retail stores. The wind-down of
the Genuine Kids store chain was completed in January 1997. See
"Item 7 Management's Discussion and Analysis of Results of
Operations and Financial Conditions" and "Special Charges" in the
Notes to the Consolidated Financial Statements, included in Item
8.
In 1985, OshKosh B'Gosh International Sales, Inc. was
created for the sale of OshKosh B'Gosh products to foreign
distributors. Over the next few years, the Company expanded
internationally through the creation of additional subsidiaries
in France, Hong Kong, Germany and the United Kingdom. During
1996, the Company decided to close the Hong Kong subsidiary, and
wind-down its unprofitable European operations. The Company's
European business will be transferred to a licensee beginning in
1997. Ownership of retail showcase stores in London and Paris
will be transferred to the Company's European licensee.
As an integrated manufacturer and marketer, the Company is
responsible for the design, manufacture and sourcing of its
apparel. Through its manufacturing facilities and third-party
contractors, the Company utilizes quality materials and skilled
workmanship from around the world to produce apparel and footwear
in accordance with Company specifications and production
schedules. 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. During 1996, as a part of the Company's ongoing
review of its internal manufacturing capacity, operational
effectiveness, and alternative sourcing opportunities, the
Company decided to close additional domestic manufacturing
facilities.
The Company licenses the OshKosh B'Gosh name for a wide
variety of children's products including sleepwear, outerwear,
apparel accessories, eyewear, educational toys, and bedding
products. The Company also receives royalties from international
licensees for the use of the OshKosh B'Gosh name on children's
and men's wear products. Prior to 1995, the Company had licensed
its name for use on footwear. In 1995, the Company began
sourcing and distributing footwear directly, both domestically
and internationally. During 1996, all footwear operations were
brought in-house, with the assumption of the sales and domestic
distribution functions, which were previously handled by a third-
party agent.
(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 work wear clothing under the OshKosh, OshKosh
B'Gosh, Baby B'Gosh or Genuine Kids labels. The Company added
the Genuine Girlsr and Genuine Bluesr labels during 1996. The
products are distributed primarily through better quality
department and specialty stores, 115 Company owned domestic
stores, and foreign retailers. The children's wear and youth
wear business, which is the largest segment of the business,
accounted for approximately 93% of 1996 sales compared to
approximately 92% of such sales in 1995 and 94% in 1994.
The children's wear and youth wear business is targeted to
reach the middle to upper middle segment of the sportswear
market, through the use of innovative designs, quality fabrics
and classic styling. The Company believes that its trade name is
a valuable asset in the marketing of its apparel, signifying
apparel that is classic in design and of high quality
construction. The Company tradename and trademarks are generally
displayed prominently on OshKosh product. Children's wear is
marketed in size ranges from layette/newborn and infant/toddler
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, which are offered
in two main groups: Fashion and Basics. The Fashion group is
organized primarily in a collection format of seasonal themes,
developed by an in-house product development staff. The products
in a collection share a primary design theme which is carried out
through fabric design and the distinctive use of colors,
screenprint, embroidery, and trim applications. These
collections are presented as three to five small groups within
each merchandising season.
The Company also offers a Basics product line, consisting
primarily of staple denim products with multiple wash treatments.
The Basics 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. This product line is developed to
be relatively seasonless, with signature OshKosh B'Gosh classic
styling. These styles are available to retail customers for
replenishment throughout the year. Some Basics items are also
designed to serve as a foundation for the Fashion group, with
seasonal colors and styles to complement the Company's Fashion
product offering.
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. Company management is currently re-evaluating
the men's wear product offering and anticipates a more focused
line.
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. While the Company's products are generally
traditional in nature and not intended to be "designer" items,
the Company attempts to incorporate current trends and consumer
preferences in its designs.
In selecting fabric 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 for a
limited period of time with some protection from imitation by
competitors.
Raw Materials, Manufacturing, and Sourcing
All raw materials used in the manufacture of Company
products are purchased from unaffiliated suppliers. The Company
purchases its raw materials directly for its owned manufacturing
facilities and may also procure and retain ownership of fabric
related 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 1996, approximately 77% of the Company's
direct expenditures for raw materials (fabric) were from its five
largest suppliers, with the largest such supplier accounting for
approximately 28% 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 domestic and
foreign sources, based on quality, pricing, and availability.
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.
Product development and administration are primarily
coordinated from the Company's headquarters facility in Oshkosh,
WI or its regional office in New York City. 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.
Approximately 65% of the Company's product line (excluding
footwear) is produced at Company-owned facilities, with the
remainder produced by numerous third party contractors throughout
the world, in accordance with the Company's specifications. Most
domestic production takes place in the Company's four Tennessee
and two Kentucky plants. The Company also leases a sewing plant
in Honduras, where cut apparel pieces are received from the
United States and are reimported by OshKosh B'Gosh as finished
goods under Section 9802 (previously Section 807). In 1996, as
part of the Company's review of manufacturing capacity and
utilization, the Company announced the closure of certain
domestic manufacturing facilities and continued to expand its use
of offshore manufacturing capabilities. These actions were part
of the Company's on-going effort to improve its product cost
structure. The Company has established guidelines for each of
its third party manufacturers in order to monitor product
quality, labor practices and financial viability. The Company
believes that its overall global manufacturing strategy gives the
Company maximum flexibility to properly balance the need for
timely shipments, high quality products and competitive pricing.
While no long-term, formal arrangements exist with its third-
party manufacturers, the Company considers these relationships to
be satisfactory. The Company believes it could, over a period of
time, obtain adequate alternative production capacity if any of
its independent manufacturers become unavailable. A sustained
disruption of such sources of supply could, particularly on a
short-term basis, have an adverse impact on the Company's
operations.
Because higher quality apparel manufacturing is generally
labor intensive (sewing, pressing, finishing and quality
control), the Company has continually sought to take advantage of
time saving 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 one of the
Company's six plants, with all domestic 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.
Sales and Marketing
In order to meet the diverse needs of its broad customer
base, the Company uses a wide variety of distribution channels to
market its products. Wholesale distribution is made primarily
through better quality department and specialty stores, although
sales are also made through direct mail catalog companies,
foreign retailers and other outlets. In 1996, the Company's
products were sold to approximately 2,700 wholesale customers
(approximately 9,700 stores) throughout the United States, and a
sizable number of international accounts.
Product sales to better quality department and specialty
stores are made primarily by an employee sales force with the
balance of sales made by manufacturer's representatives or
through 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.
In addition to its wholesale activities, OshKosh B'Gosh
products are also sold through 115 Company-owned domestic retail
stores, operating under two formats-- factory outlet stores and
mall-based specialty stores. The Company operated 110 domestic
factory outlet stores, which carry a large selection of first
quality Company branded apparel at a discount to conventional
retail prices. The factory outlet stores also provide a means of
distributing excess and out-of-season product, reducing the
amount of such product sold to discounters at excessively low
prices. In addition, the Company also operates four regional
mall-based stores and one showcase store. These full price, full
service stores feature a full line of OshKosh B'Gosh product in a
signature environment designed to convey the total OshKosh image
and build brand recognition among customers. The stores are also
used to test new styles and merchandising strategies.
The Company's broad distribution base insulates the Company
from reliance on any one customer. No one customer accounted for
more than 10% of the Company's 1996 sales. The Company's largest
ten and largest 100 customers accounted for approximately 40% and
60% of 1996 sales, respectively.
Domestic marketing programs are aimed at both the Company's
retail accounts and ultimate consumers, with a main goal of
increasing overall brand awareness. A national marketing program
includes advertising in both consumer and trade publications,
local cooperative advertising, promotions and in-store
merchandising. The Company also offers a cooperative
advertising program to its retail customers, paying a portion of
its retail customers' advertising expenditures up to a maximum
percentage of qualifying sales.
Trademarks
The Company utilizes the OshKosh, OshKosh B'Gosh, Baby
B'Gosh, Genuine Kids, Genuine Girls or Genuine Blues
trademarks on most of its products. Other significant trademarks
include a white triangular patch on the back of bib garments and
the Genuine Article. The Company currently has approximately 35
trademark registrations and 13 pending trademark applications in
the United States and has trademark registrations in 87 countries
outside the U.S. These trademarks and universal awareness of the
OshKosh B'Gosh name are significant in marketing the products.
Therefore, it is the Company's policy to vigorously defend its
trademarks against infringement under the laws of the U.S. and
other countries. The Company is not aware of any material
infringing uses.
Seasonality
Products are designed and marketed primarily for three
principal selling seasons:
PRIMARY
RETAIL SALES SEASON 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 1997
quarterly sales and income.
Working Capital
Working capital needs are affected primarily by inventory
levels, outstanding accounts receivable and trade payables. 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 1999. There were no outstanding
borrowings against these credit arrangements at December 31,
1996. Letters of credit or approximately $24 million were
outstanding at December 31, 1996.
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.
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 to a lesser extent on the basis of service and price. The
Company is focusing attention on the issues of price and service
and has taken and will continue to take steps to reduce costs,
become more 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, 1996, the Company employed approximately
4,700 persons. Approximately 30% of the Company's personnel are
covered by collective bargaining agreements with the United
Garment Workers of America.
ITEM 2. PROPERTIES
Approximate
Floor Area in
Location Square Feet Principal Use
Albany, KY 20,000 Manufacturing
Byrdstown, TN 32,000 Manufacturing
Celina, TN 100,000 Vacant/Held for Sale
Celina, TN 90,000 Laundering/Pressing
Columbia, KY 78,000 Vacant/Held for Sale
Dallas, TX (1) 1,995 Sales Offices/Showroom
Gainesboro, TN 61,000 Manufacturing
Jamestown, TN 43,000 Manufacturing
Liberty, KY 218,000 Manufacturing/Warehousing
Liberty, KY (2) 32,000 Warehousing
New York City, NY (3) 18,255 Sales Offices/Showroom
Oshkosh, WI 99,000 Exec. & Operating Offices
Oshkosh, WI 88,000 Vacant/Held for Sale
Oshkosh, WI 128,000 Distribution/Warehousing
Red Boiling Springs, TN 41,000 Vacant/Held for Sale
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 adequate for current production. The Company determined that
it no longer required the manufacturing capacity of its plants in
Celina TN, Columbia KY, Oshkosh WI and Red Boiling Springs TN.
These facilities were closed in 1996 or will be closed in early
1997. The carrying value of these facilities have been written
down to their net realizable value.
During 1996, the Company experienced increasing difficulties
in selling its idle manufacturing facilities and equipment,
necessitating that the Company reevaluate the fair market value
of its remaining manufacturing property and equipment. The
Company recorded significant special charges during the fourth
quarter of 1996 related to the impairment of assets. All
impacted manufacturing assets being used in production have been
written down to management's estimate of fair value. See "Item 7
Management's Discussion and Analysis of Results of Operations and
Financial Conditions" and "Special Charges" in the Notes to the
Consolidated Financial Statements included in Item 8.
Substantially all of the Company's retail stores occupy
leased premises, with lease terms generally in the range of 5-7
years. During the year, the Company reached agreements
concerning the termination of substantially all Genuine Kids
retail store leases. Costs incurred to settle the remaining
lease obligations have been included in the special charges
recorded by the Company during the year. For further information
regarding the terms of the leases and rental payments thereunder,
refer to "Leases" in the Notes to the Consolidated Financial
Statements included in Item 8 of this filing.
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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Quarterly Common Stock Data
1996 1995
Dividends Dividends
High Low per share High Low per share
Class A Common Stock
1st $17-1/2 $14-1/8 $0.07 $13-1/2 $0.07
$15
2nd 18-1/4 14-1/8 0.07 16-3/4 14 0.07
3rd 18-1/4 15-1/2 0.07 18 15-1/2 0.07
4th 17 14 0.07 17-1/2 11-1/2 0.07
Class B Common Stock
1st $19-1/2 $18-1/2 $0.06 $15 $13-1/2 $0.06
2nd 19-3/8 18-3/4 0.06 16-1/2 14-1/4 0.06
3rd 19-1/4 18-3/4 0.06 18 16-1/4 0.06
4th 19 18-7/8 0.06 18-3/4 17-1/4 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.
As of February 21,1997, there were 1,574 Class A common
stock shareholders of record and 179 Class B common stock
shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights
(Dollars in thousands, except per share amounts)
Year ended December 31,
1996 1995 1994 1993 1992
Financial results
Net sales $ 444,766 $ 432,266 $ 363,363 $ 340,186 $ 346,206
Net income 1,119 10,947 7,039 4,523 15,135*
Return on sales 0.3% 2.5% 1.9% 1.3% 4.4%
Financial condition
Working capital $ 104,641 $ 95,414 $ 101,946 $ 111,794 $ 111,075
Total assets 196,033 208,579 217,211 229,131 226,195
Shareholders' equity 138,077 150,078 158,814 171,998 175,153
Data per common share
Net income $ .09 $ .85 $ .50 $ .31 $ 1.04*
Cash dividends declared
Class A .28 .28 .3775 .5125 .5125
Class B .24 .24 .33 .45 .45
Shareholders' equity 11.72 12.05 11.76 11.79 12.01
* After a charge of $601 or $.04 per share to reflect cumulative
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 dollar amounts
December 31, from fiscal year
1996 1995 1994 1996 to 1995 1995 to 1994
Net sales 100.0% 100.0% 100.0 2.9% 19.0%
%
Cost of products sold 67.6% 68.2% 71.4% 1.9% 13.6%
Gross profit 32.4% 31.8% 28.6% 4.9% 32.3%
Selling, general and
administrative expenses 27.4% 27.9% 26.5% 1.2% 25.1%
Special charges 7.4% 0.6% -- 1118.5% N/A
Royalty income, net -1.4% -1.3% -1.3% 6.3% 19.1%
Operating income (loss) -1.0% 4.6% 3.4% -123.0% 60.8%
Other income--net 0.1% 0.1% 0.2% 99.6% -56.2%
Income (loss) before income
taxes -0.9% 4.7% 3.6% -120.3% 55.8%
Income taxes (benefit) -1.2% 2.2% 1.7% -156.4% 56.1%
Net income 0.3% 2.5% 1.9% -89.8% 55.5%
1996 Compared to 1995
Net Sales
Net sales in 1996 were $444.8 million, an increase of $12.5
million (2.9%) over 1995 net sales of $432.3 million. The
Company's 1996 domestic wholesale business of approximately
$250.5 million was 1.8% less than 1995 sales of approximately
$255 million. Shipments for 1996 were up 1.9% over 1995 unit
shipments. The decrease in dollar sales in 1996 was due
primarily to lower fall back-to-school (shipped primarily during
the Company's third quarter) and holiday (shipped during the
Company's third and fourth quarters) season order bookings,
combined with higher than anticipated order cancellations. Order
cancellations during the second half of 1996 resulted from a
combination of relatively weak retail "sell-thrus" at the
Company's retail customers (which occurred during the first half
of 1996), along with the implementation of the Company's
strategic direction to limit wholesale distribution. Actual unit
shipments during 1996 were slightly higher than in 1995 due to
higher shipments of close-out merchandise at significantly lower
prices.
A summary of the Company's retail sales at its OshKosh B'Gosh
branded stores and Genuine Kids stores follows:
Year ended December 31,
%
1996 1995 Change
(Dollars in millions)
Net sales
OshKosh B'Gosh $ 126.6 $ 97.5 29.8%
Genuine Kids 33.9 40.9 (17.1)%
Total $ 160.5 $ 138.4 16.0%
Comparable store sales in percentages
OshKosh B'Gosh +13.1% +7.9%
Genuine Kids -13.8% -4.9%
Combined +6.9% +3.6%
The Company's 29.8% increase in retail sales at its OshKosh
B'Gosh branded stores resulted from a combination of new store
openings, conversion of and combination with certain Genuine Kids
stores into OshKosh stores, as well as a 13.1% increase in
comparable store sales.
During 1996, the Company opened 15 OshKosh B'Gosh stores,
converted 4 Genuine Kids stores to OshKosh stores, combined 1
Genuine Kids store into an OshKosh store (the Genuine Kids store
was immediately adjacent to the OshKosh store), and closed 29
Genuine Kids stores. At year-end, the Company operated 100
domestic OshKosh retail stores, including 95 outlet stores and 5
showcase stores. At December 31, 1996, the Company was also
operating 58 Genuine Kids stores. In January, 1997, in
connection with the Company's previously announced plan to
discontinue its Genuine Kids retail store chain, the Company
converted an additional 15 Genuine Kids stores to OshKosh stores,
combined 7 Genuine Kids stores with OshKosh stores, and closed
the remaining 36 stores.
Gross Profit
The Company's gross profit margin as a percent of net sales
increased to 32.4% in 1996 compared with 31.8% in 1995. 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, offset in part by lower
domestic wholesale business gross profit margins. The Company's
gross profit margins for its domestic wholesale business during
1996 were adversely affected by a much higher sales level of
close-out merchandise.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses (excluding special
charges) for 1996 increased $1.5 million over 1995. As a percent
of net sales, these costs decreased to 27.4% as compared to 27.9%
in 1995 due to increased sales. The increase in selling, general
and administrative expenses in dollars relates primarily to
continued expansion of the Company's retail operations, offset in
part by the discontinuance of the Company's catalog business in
late 1995.
Special Charges
During the second quarter of 1996, the Company recorded pre-tax
special charges of $20.9 million which, net of income tax
benefits, reduced net income by $8 million ($.65 per share). The
special charges related to the discontinuance of the Company's
Genuine Kids retail store chain, wind-down of the Company's
European subsidiaries and transfer of the European business to a
licensee, and the closing of the Red Boiling Springs and Celina,
Tennessee sewing facilities. These actions eliminate the under-
performing Genuine Kids and European components of the Company's
business. The plant closings are a part of the Company's on-
going review of its manufacturing capacity, operational
effectiveness, and alternative sourcing opportunities.
During the second half of 1996, the Company began to execute its
plan to discontinue the Company's Genuine Kids retail store
chain, wind-down of the Company's European subsidiaries and
transfer of the European business to a licensee, and close its
manufacturing facilities in Red Boiling Springs and Celina,
Tennessee. Severance and related benefits for approximately
1,100 affected employees are expected to total approximately $3.9
million. Through December 31, 1996, approximately 875 employees
have been severed, with a total cost of approximately $1.7
million. The remaining affected employees are expected to be
terminated in the first quarter of 1997.
The second quarter 1996 special charges also included
approximately $6.9 million related to other exit costs, including
estimated lease settlements and anticipated costs to dispose of
certain operating assets as part of the exit plan, and $2.0
million related to anticipated losses on inventory disposals.
Through December 31, 1996, approximately $2.9 million of these
other exit costs have been incurred. The second quarter 1996
special charges also include approximately $8.1 million related
to impaired assets, recognized in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed Of." The Company's decision to
implement the aforementioned changes resulted in unamortized
retail leasehold improvements and excess manufacturing space in
Tennessee. All assets held for sale but not disposed of as of
December 31, 1996 have been written down to management's estimate
of fair value (approximately $2.3 million, net of disposal costs)
as part of the special charges.
The wind-down of the European entities permitted the recognition
of certain U.S. tax deductions previously unrecognized, resulting
in an approximate $4.5 million income tax benefit. This income
tax benefit, along with the $8.4 million income tax credit
resulting from the special charges, reduced the net impact on
Company earnings by $12.9 million.
During the second half of 1996, the Company experienced
increasing difficulties in selling its idle manufacturing
facilities and equipment. In addition, in October 1996 a long
standing customer contract for apparel finishing services was not
renewed, creating significant excess capacity in the Company's
garment finishing facility. These events along with related
adverse changes in the economic environment affecting U.S.
apparel manufacturers necessitated that the Company reevaluate
the fair market value of its remaining manufacturing property and
equipment in the fourth quarter of 1996.
As a result of this analysis, and a decision to close the
Company's Columbia, Kentucky sewing facility, the Company
recorded pre-tax special charges of $12 million in the fourth
quarter which, net of income tax benefits, reduced net income by
$7.2 million ($.58 per share). The special charge includes asset
impairments of approximately $9.5 million and severance and
related benefits for approximately 500 manufacturing employees
totaling approximately $2.5 million. All impacted manufacturing
assets being used in production have been written down to
management's estimate of fair value (approximately $10.9 million)
as part of this special charge.
In total, all 1996 special charges will require approximately
$11.2 million of cash outlays. This amount will be more than
offset by the cash generated from the income tax benefit of these
special charges and asset sales. As of December 31, 1996 the
cash expenditures related to these 1996 special charges amounted
to approximately $4.2 million.
The special charges are based on management's best estimates of
costs related to these decisions. The actual costs the Company
will ultimately incur are dependent on certain risks and
uncertainties and could differ from the amounts used to record
the estimated effects of these decisions. The Company is
currently on target to substantially complete these strategic
changes during the first half of 1997 and does not anticipate any
material changes to the special charges recorded during 1996.
During the third quarter of 1995, the Company recorded a pre-tax
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. The $2.7 million pre-tax
charge for plant closings included approximately $1.9 million of
severance and related costs pertaining to work force reductions
as well as $.8 million for facility closings and the write-down
of related assets.
These plant closings were completed in early 1996, with no
material changes in cost to fully effect these actions. The
Company's cash expenditures (net of income tax benefit) to carry
out these plant closings were approximately $1 million.
Royalty Income
The Company licenses the use of its trade name to selected
licensees in the U.S. and in foreign countries. The Company's
net royalty income was $6.1 million in 1996, a $.4 million
increase over 1995 net royalty income of $5.7 million. Royalty
income from domestic licensees was approximately $2.8 million in
both 1996 and 1995. Royalty income from foreign licensees was
approximately $3.3 million in 1996 as compared to $2.9 million in
1995.
Operating Income
The Company's 1996 operating loss of $4.6 million was $24.5
million lower than 1995 operating income. Excluding the impact
of the special charges recorded in 1996 and 1995, the Company's
operating income increased to $28.3 million as compared to $22.6
million in 1995.
Income Taxes
The Company recorded a $5.2 million income tax benefit during
1996, which includes an approximate $4.5 million income tax
benefit resulting from the recognition of previously unrecorded
U.S. tax benefits related to the discontinuance of the Company's
European subsidiaries. The remaining 1996 tax benefit relates to
the Company's net loss from operations during 1996. The
Company's effective tax rate for 1995 was 45.8%. This relatively
high effective tax rate resulted primarily from the Company's
foreign operating losses (principally in Europe) which provided
no tax benefit. Company management believes that deferred tax
assets totaling $21.9 million at December 31, 1996 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.
1995 Compared to 1994
Net Sales
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 toward
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
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 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 December 31, 1995, the Company operated
81 OshKosh B'Gosh branded stores and 92 Genuine Kids stores.
Gross Profit
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 improvement in the
wholesale business gross profit margin.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for 1995 (excluding
the $2.7 million charge for plant closures recorded during the
third quarter) increased $24.2 million over 1994. As a percent
of net sales, these costs increased to 27.9% as compared to 26.5%
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.
Special Charges
The Company recorded a pre-tax restructuring charge of $10.8
million in 1993. The restructuring charge included 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 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 and Marrowbone facilities have 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.
Royalty Income
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 $5.7 million in 1995, a $.9 million
increase over 1994 net royalty income of $4.8 million. Net
royalty income from domestic licensees was approximately $2.8
million in 1995 as compared to $2.9 million in 1994. Net royalty
income from foreign licensees was approximately $2.9 million in
1995 as compared to $1.9 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
increased royalties from existing licensees.
Interest Expense
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.
Income Taxes
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 provided no tax benefit in
those years.
Seasonality of Business
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 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 1997 quarterly sales and
income.
Financial Position, Capital Resources and Liquidity
The Company's financial position remains strong, as demonstrated
by its balance sheet. The Company had no outstanding long-term
debt at December 31, 1996 or 1995. At December 31, 1996, the
Company's cash, cash equivalents and short-term investments were
$41.2 million, compared to $2.4 million at the end of 1995. This
substantial increase relates to cash generated from operations,
combined with modest capital expenditures and proceeds from the
disposal of assets. Net working capital at the end of 1996 was
$104.6 million compared to $95.4 million at December 31, 1995,
and $101.9 million at 1994 year end. Cash provided by operations
increased to approximately $55.6 million in 1996, compared to
$19.5 million in 1995 and $22.1 million in 1994.
Accounts receivable at December 31, 1996 were $20.5 million
compared to $24.7 million at December 31, 1995. This reduction
is primarily attributable to the wind-down of the Company's
European wholesale business. Inventories at December 31, 1996
were $66.8 million, compared to $95.7 million at the end of 1995.
This substantial decrease in inventories is attributable to the
wind-down of the Company's European business, the discontinuance
of its Genuine Kids chain of retail stores, sourcing adjustments
made by the Company for the reduced volume of anticipated spring
1997 unit shipments, and an overall corporate focus on management
of working capital. Management believes that year-end 1996
inventory levels are generally appropriate for anticipated 1997
business activities. Capital expenditures were $7.3 million in
1996, compared with $9.7 million in 1995 and $9.9 million in
1994. The majority of 1996 capital expenditures related to build-
outs of new retail stores opened by the Company.
On August 6, 1996, the Company's Board of Directors authorized a
one million share repurchase program of the Company's Class A
common stock. Through December 31, 1996, the Company had
repurchased 672,600 shares of its Class A common stock under this
program for approximately $10.1 million. Since May 1994, the
Company has repurchased 2,822,600 shares of its Class A common
stock, representing approximately 19.4% of its total common stock
outstanding on that date.
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, 1999. 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 special charges, 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 1996
and 1995.
Inflation
The effects of inflation on the Company's operating results and
financial condition were not significant.
Outlook
The information contained in this outlook section is based on
current assumptions and expectations. This information is
forward looking and as such, is subject to certain risks and
uncertainties. Actual results may differ materially.
During 1996, the Company completed a comprehensive strategic
planning initiative. Over the past several years, the Company's
children's wear products have become widely distributed in the
United States. Management reached a strategic decision to shrink
distribution over the next two years. Company management has
undertaken a comprehensive review of its wholesale customer list
and has begun the process of limiting its distribution.
As a result of this strategic decision, along with the
competitive nature of the Company's business and relatively weak
"sell-thru" results experienced during the first half of 1996,
the Company anticipates a reduction in its wholesale business for
both the first quarter and all of 1997. The Company currently
anticipates that its spring 1997 season wholesale unit shipments
are estimated to be approximately 25% below the first quarter of
1996. Preliminary order bookings for the Company's fall back-to-
school season indicate that the Company's wholesale unit
shipments for the third quarter of 1997 are estimated to be
approximately 12% below the third quarter of 1996, primarily as a
result of the decision to limit distribution. Actual unit
shipments during these periods are contingent on a number of
factors, including the Company's ability to manufacture or source
products in a time frame which permits on-time shipments, the
financial strength of the retail industry, the level of consumer
spending for apparel, particularly in the children's wear
segment, as well as overall consumer acceptance of the Company
product styling.
Current Company plans for 1997 call for the opening of
approximately 11 new OshKosh B'Gosh retail stores and the closing
of 6 stores, along with the conversion of 15 Genuine Kids stores
to OshKosh stores. The Company will also be expanding its retail
product line by offering Genuine Girls (girls sizes 7-16) and
Genuine Blues (boys sizes 8-16) in its OshKosh retail stores
during the first quarter of 1997. All Genuine Kids stores
remaining at the end of 1996 were closed during January, 1997.
The Company's gross profit margin is impacted by a number of
factors, including product mix, the competitive pricing
environment within the children's wear segment of the apparel
industry, unit volume of products "closed out" at significantly
reduced prices, and the Company's ability to successfully move
labor intensive segments of the manufacturing process offshore.
The Company currently anticipates modest improvement in its gross
profit margin during 1997 as compared to 1996, primarily as a
result of the impact of the Company's anticipated increased
retail sales at higher gross margins relative to its domestic
wholesale business.
With the Company's wind-down of its European business operations
and transition of this business to a licensee, along with
anticipated growth in other foreign markets, the Company
currently anticipates an increase in its net royalty income from
foreign licensees of more than 40%.
The Company currently expects its effective tax rate to be
approximately 40% for 1997. This estimate is based on current
tax law and is subject to change.
Capital expenditures for 1997 are currently budgeted at
approximately $12.0 million. Depreciation expense is currently
estimated to be approximately $9.0 million.
The Company's future results of operations and the other forward
looking statements contained in this outlook section involve a
number of risks and uncertainties. In addition to the factors
discussed above, other factors could cause actual results to
differ materially. Such factors include, but are not limited to,
business conditions and the general economy, competitive factors,
risk of non-payment of accounts receivable, inability to ship
Company products within agreed to time frames due to
unanticipated manufacturing delays, failure of Company
contractors to deliver products within scheduled time frames, the
failure of Company suppliers to timely deliver needed raw
materials, as well as risks associated with foreign operations.
The forward looking statements included herein are only made as
of the date of this report. The Company undertakes no obligation
to publicly update such forward looking statements to reflect
subsequent events or circumstances.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity -
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
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, 1996 and 1995, 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, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). 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 believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31,
1996, 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.
Milwaukee, Wisconsin /S/ ERNST & YOUNG LLP
February 10, 1997
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
December 31,
ASSETS
1996 1995
Current assets
Cash and cash equivalents $ 31,201 $ 2,418
Short-term investments 10,040 --
Accounts receivable, less allowances of 20,504 24,691
$5,474 in 1996 and $3,970 in 1995
Inventories 66,799 95,743
Prepaid expenses and other current assets 1,890 3,127
Deferred income taxes 18,500 11,400
Total current assets 148,934 137,379
Property, plant and equipment, net 41,782 65,011
Deferred income taxes 3,400 --
Other assets 1,917 6,189
Total assets $ 196,033 $ 208,579
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,408 $ 13,910
Accrued liabilities 38,885 28,055
Total current liabilities 44,293 41,965
Deferred income taxes -- 2,700
Employee benefit plan liabilities 13,663 13,836
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 -- 10,525,571
shares in 1996, 11,189,387 shares in 1995 105 112
Class B, authorized -- 3,750,000 shares;
Issued and outstanding -- 1,260,704
shares in 1996, 1,266,413 shares in 1995 13 13
Retained earnings 137,349 149,720
Cumulative foreign currency translation
adjustments 610 233
Total shareholders' equity 138,077 150,078
Total liabilities and shareholders' equity $ 196,033 $ 208,579
See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars and shares in thousands, except per share amounts)
Year ended December 31,
1996 1995 1994
Net sales $ 444,766 $ 432,266 $ 363,363
Cost of products sold 300,495 294,770 259,416
Gross profit 144,271 137,496 103,947
Selling, general and administrative
expenses 122,055 120,589 96,363
Special charges and plant closings 32,900 2,700 --
Royalty income, net ( 6,100) (5,737) (4,817)
Operating income (loss) (4,584) 19,944 12,401
Other income (expense):
Interest expense (1,088) (1,772) (1,034)
Interest income 1,326 1,383 1,048
Miscellaneous 249 633 543
Other income - net 487 244 557
Income (loss) before income taxes (4,097) 20,188 12,958
Income taxes (benefit) (5,216) 9,241 5,919
Net income $ 1,119 $ 10,947 $ 7,039
Weighted average common shares outstanding 12,339 12,865 14,144
Net income per common share $ .09 $ .85 $ .50
See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Dollars and shares in thousands, except per share amounts)
Cumulative
Common Stock Additional Currency
Class A Class B Paid-In Retained Translation
Shares Amount Shares Amount Capital Earnings Adjustments
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
Net income -- -- -- -- -- 1,119 --
Dividends
- Class A ($.28 per share) -- -- -- -- -- (3,091) --
- Class B ($.24 per share) -- -- -- -- -- (303) --
Foreign currency translation
adjustments -- -- -- -- -- -- 377
Conversions of common shares 5 -- (5) -- -- -- --
Stock options exercised 3 -- -- -- 45 -- --
Repurchase of common shares,
net (673) (7) -- -- (45) (10,096) --
Balance - December 31, 1996 10,525 $105 1,261 $13 $ -- $137,349 $ 610
See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
1996 1995 1994
Cash flows from operating activities
Net income $ 1,119 $10,947 $ 7,039
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,998 10,591 9,972
Amortization 712 765 720
(Gain) loss on disposal of assets 242 79 (185)
Provision for deferred income taxes (13,200) (59) (965)
Pension expense, net of contributions 1,827 (1,331) 979
Special charges and plant closings 32,900 2,700 --
Changes in operating assets and liabilities:
Accounts receivable 4,187 (834) (4,380)
Inventories 28,944 (1,827) 6,083
Prepaid expenses and other current assets 1,237 (617) 1,300
Accounts payable (8,502) 4,474 (284)
Accrued liabilities (4,847) (5,416) 1,863
Net cash provided by operating activities 55,617 19,472 22,142
Cash flows from investing activities
Additions to property, plant and equipment (7,274) (9,728) (9,914)
Proceeds from disposal of assets 3,246 3,722 1,425
Purchase of short-term investments (10,040) -- --
Additions to other assets 731 (1,392) (186)
Net cash used in investing activities (13,337) (7,398) (8,675)
Cash flows from financing activities
Payments of long-term debt -- -- (536)
Dividends paid (3,394) (3,564) (5,311)
Repurchase of common shares, net (10,103) (16,606) (14,959)
Net cash used in financing activities (13,497) (20,170) (20,806)
Net increase (decrease) in cash and cash
equivalents 28,783 (8,096) (7,339)
Cash and cash equivalents at beginning of year 2,418 10,514 17,853
Cash and cash equivalents at end of year $31,201 $ 2,418 $10,514
Supplementary disclosures
Cash paid for interest $ 948 $ 1,547 $ 638
Cash paid for income taxes $ 5,213 $ 8,544 $ 3,937
See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share amounts)
Note 1. Significant accounting policies
Business - OshKosh B'Gosh, Inc. and its wholly-owned
subsidiaries (the Company) are engaged primarily in the
design, sourcing, 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.
Short-term investments - Short-term investments are
classified as available-for-sale securities and are
highly liquid debt instruments. These securities have
a put option feature that allows the Company to
liquidate the investments at their discretion and are
backed by a letter of credit from financial
institutions. These investments 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 99.0% of total 1996
and 95.3% of total 1995 inventories. Remaining
inventories are valued using the first-in, first-out
(FIFO) method.
Long-lived assets - 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," (SFAS No. 121) 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. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to
be disposed of. Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121 and determined
that the effect of initially applying this
pronouncement was not material.
Property, plant, and equipment - Property, plant, and
equipment are carried at cost or at management's
estimate of fair market value if considered impaired
under the provisions of SFAS No. 121. 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 3 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.
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 $11,448, $12,213, and $9,858 in
1996, 1995, and 1994, 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.
Reclassifications - Certain reclassifications of prior
year information have been made to conform to the 1996
presentation.
Note 2. Special charges
A table summarizing the major components of the special
charges and plant closings recorded in 1996 and 1995
follows:
Year ended December 31,
1996 1995
2nd Quarter 4th Quarter Total
Severance $ 3,900 $ 2,500 $ 6,400 $ 1,900
Asset impairment 8,100 9,500 17,600 800
Other exit costs 8,900 -- 8,900 --
Total $ 20,900 $ 12,000 $ 32,900 $ 2,700
During the second half of 1996, the Company experienced
increasing difficulties in selling its idle
manufacturing facilities and equipment. In addition,
in October 1996 a long standing customer contract for
apparel finishing services was not renewed, creating
significant excess capacity in the Company's garment
finishing facility. These events along with related
adverse changes in the economic environment affecting
U.S. apparel manufacturers necessitated that the
Company reevaluate the fair market value of its
remaining manufacturing property and equipment in the
fourth quarter of 1996.
As a result of this analysis, and a decision to close
the Company's Columbia, Kentucky sewing facility, the
Company recorded pre-tax special charges of $12,000 in
the fourth quarter which, net of income tax benefits,
reduced net income by $7,200 ($.58 per share). The
special charge includes asset impairments of
approximately $9,500 and severance and related benefits
for approximately 500 manufacturing employees totaling
approximately $2,500. All impacted manufacturing
assets being used in production have been written down
to management's estimate of fair value (approximately
$10,900) as part of this special charge.
During the second quarter of 1996, the Company recorded
special charges of $20,900 which amount to $8,000 ($.65
per share), net of tax benefits, related to the
discontinuance of the Company's Genuine Kids retail
store chain, wind-down of the Company's European
subsidiaries and transfer of the European business to a
licensee, and the closing of its Red Boiling Springs
and Celina, Tennessee sewing facilities. These actions
will eliminate the underperforming Genuine Kids and
European components of the Company's business. The
plant closings will accelerate the Company's strategic
direction to source product based solely on price,
quality and delivery factors, which has resulted in
more product being sourced outside of the United
States.
These decisions will affect approximately 1,100
employees, including approximately 500 retail store
employees throughout the United States, approximately
550 manufacturing employees from our plants in
Tennessee, and approximately 50 employees from the
Company's European subsidiaries. This special charge
includes severance and related benefits totaling
approximately $3,900. Through December 31 1996,
approximately 875 employees have been affected, with a
total cost to date of approximately $1,700. The
remaining employees are expected to be terminated in
the first quarter of 1997.
The second quarter special charges include
approximately $6,900 related to other exit costs,
including estimated lease settlements and anticipated
costs to dispose of certain operating assets as part of
the exit plan and $2,000 related to anticipated losses
on inventory disposals. Through December 31, 1996,
approximately $2,900 of these other exit costs have
been incurred. The special charges also include
approximately $8,100 related to impaired assets,
recognized in accordance with SFAS No. 121. The
Company's decision to implement the aforementioned
changes resulted in unamortized retail leasehold
improvements and excess manufacturing space in
Tennessee. All assets held for sale but not disposed
of as of December 31, 1996 have been written down to
management's estimate of fair value (approximately
$2,300, net of disposal costs) as part of the special
charges. The Company is actively pursuing buyers for
its excess manufacturing facilities.
The wind down of the European entities permitted the
recognition of certain U.S. tax deductions previously
unrecognized, resulting in an approximate $4,500 income
tax benefit. This income tax benefit, along with the
$8,400 income tax credit resulting from the special
charges, reduced the net impact on Company earnings by
$12,900.
In total, all 1996 special charges will require
approximately $11,200 of cash outlays. However, this
amount will be more than offset by the cash generated
from the income tax benefit and asset sales. As of
December 31, 1996, the cash expenditures related to
these 1996 special charges amount to $4,200.
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. The $2,700 pretax charge for plant closings
included approximately $1,900 of severance and related
costs pertaining to workforce reductions as well as
$800 for facility closings and the write-down of the
related assets.
These plant closings were completed in early 1996, with
no material changes in previously estimated costs to
fully effect these plant closings. The Company's cash
expenditures (net of income tax benefit) to carry out
these plant closings were approximately $1,000. The
remaining reserve at December 31, 1996 of approximately
$500 is expected to be settled in cash.
These special charges and plant closings are based on
management's best estimates of costs related to these
decisions. The actual costs the Company will
ultimately incur are dependent on certain risks and
uncertainties and could differ from the amounts used to
record the estimated effect of these decisions.
Note 3. Inventories
A summary of inventories follows:
December 31,
1996 1995
Finished goods $ 51,584 $ 70,837
Work in process 10,698 15,462
Raw materials 4,517 9,444
Total $ 66,799 $ 95,743
The replacement cost of inventory exceeds the above
LIFO costs by $15,100 and $16,158 at December 31, 1996
and 1995, respectively.
Partial liquidation of certain LIFO layers in 1996
increased net income by approximately $660.
Note 4. Property, plant and equipment.
A summary of property, plant, and equipment
follows:
December 31,
1996 1995
Land and improvements $ 3,910 $ 4,123
Buildings 17,999 35,478
Leasehold improvements 15,231 11,964
Machinery and equipment 30,607 64,759
Construction in progress -- 33
Total 67,747 116,357
Less: accumulated depreciation
and amortization 25,965 51,346
Property, plant and equipment, net $ 41,782 $ 65,011
The balances in 1996 reflect charges for impairments of
certain assets as required by SFAS No. 121, described
in Note 2, and the elimination of historical
accumulated depreciation and amortization related to
these items.
Note 5. Lines of credit
The Company maintains an unsecured 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, 1999.
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.
There were no outstanding borrowings against these
credit arrangements at December 31, 1996. Letters of
credit of approximately $24,000 were outstanding at
December 31, 1996, with $76,000 of the unused credit
facilities available for borrowing.
Note 6. Accrued liabilities
A summary of accrued liabilities follows:
1996 1995
Compensation $ 5,063 $ 5,893
Worker's compensation 10,750 10,400
Income taxes 5,292 2,288
Restructuring costs 10,694 334
Other 7,086 9,140
Total $ 38,885 $ 28,055
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,
1997 $ 10,525
1998 9,838
1999 8,951
2000 6,998
2001 4,909
Thereafter 10,362
Total minimum lease payments $ 51,583
Total rent expense charged to operations for all
operating leases is as follows:
Year ended December 31,
1996 1995 1994
Minimum rentals $ 17,691 $ 15,760 $ 11,139
Contingent 493 279 196
rentals
Total rent $ 18,184 $ 6,039 $ 11,335
expense
Note 8. Income taxes
Income tax expense (benefit) is comprised of the
following:
Year ended December 31,
1996 1995 1994
Current:
Federal $ 7,224 $ 7,440 $ 5,653
State and local 760 1,860 1,231
7,984 9,300 6,884
Deferred (13,200) (59) (965)
Total $ (5,216) $ 9,241 $ 5,919
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,
1996 1995
[Assets
(Liabilities)]
Current deferred taxes
Accounts receivable allowances $ 1,552 $ 1,398
Inventory valuation 5,562 3,778
Accrued liabilities 5,595 5,685
Restructuring costs 5,188 134
Other 603 405
Total net current deferred tax
assets $18,500 $11,400
Non-current deferred taxes
Depreciation $(2,583) $(7,881)
Deferred employee benefits 5,438 4,734
Trademark 545 447
Foreign loss carryforwards -- 3,971
Valuation allowance -- (3,971)
Total net non current deferred $ 3,400 $(2,700)
tax assets (liabilities)
The valuation allowance in 1995 related to foreign loss
carryforwards for which utilization was uncertain. In
conjunction with the wind down of the Company's
European operations as described in Note 2, all
material foreign loss carryforwards have been
eliminated and accordingly no future benefit is
expected to be realized.
For financial reporting purposes, income (loss) before
income taxes includes the following components:
Year Ended December 31
1996 1995 1994
Pre-tax income (loss):
United States $ 6,308 $24,513 $14,319
Foreign (10,405) (4,325) (1,361)
Total $(4,097) $20,188 $12,958
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,
1996 1995 1994
Federal statutory tax rate (35.0)% 35.0% 35.0%
Differences resulting from:
State and local income taxes, net of
federal income tax benefit (4.6) 4.7 4.5
Tax effect of foreign losses 13.6 7.5 3.7
U.S. tax deductions related to European
subsidiaries (109.8) -- --
Other 8.5 (1.4) 2.5
Total (127.3)% 45.8% 45.7%
As discussed in Note 2, the wind down of its European
subsidiaries permitted the recognition of certain U.S.
tax deductions previously unrecognized, resulting in a
1996 income tax benefit of approximately $4,500.
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 $3,795, $4,002, and $4,309
for 1996, 1995 and 1994, 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,
1996 1995 1994
Discount rate 7.5% 7.0% 7.5%
Expected long-term rate of
return on assets 8.0% 8.0% 8.0%
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,
1996 1995 1994
Service cost - benefits earned during
the period $ 2,315 $1,923 $ 2,212
Interest cost on projected benefit 1,888
obligations 2,230 1,947
Actual return on plan assets (2,572) (4,818) (1,118)
Net amortization and deferral 1,047 3,982 552
Net periodic pension cost $ 3,020 $3,034 $ 3,534
In conjunction with the special charges discussed in
Note 2, the Company curtailed defined benefit plans for
the affected plants. Curtailment and settlement costs
of approximately $271 are included in the special
charges.
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,
1996 1995
Assets ABO Assets ABO
Exceed Exceeds Exceed Exceeds
ABO Assets ABO Assets
Actuarial present value of benefit
obligations:
Vested benefits $ 16,397 $ 4,686 $ 11,957 $ 8,293
Nonvested benefits 633 86 740 211
Total accumulated benefit $ 17,030 $ 4,772 $ 12,697 $ 8,504
obligation
Projected benefit obligation $ 25,974 $ 5,364 $ 22,791 $ 8,864
Plan net assets at fair value 22,888 3,186 18,184 5,761
Projected benefit obligation in
excess of plan net assets (3,086) (2,178) (4,607) (3,103)
Unamortized transition asset (1,125) (13) (1,245) (58)
Unrecognized prior service cost 2,336 941 2,264 2,447
Unrecognized net (gain) loss (4,883) (193) (2,012) (100)
Adjustment to recognize minimum
liability -- -- -- (2,000)
Accrued pension liability at Dec. 31 $ (6,758) $(1,443) $ (5,600) $ (2,814)
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 $627,
$923 and $531 for 1996, 1995 and 1994, respectively.
In 1996, the Company initiated a profit-sharing plan
covering certain salaried and hourly employees pursuant
to Section 401(k) of the Internal Revenue Code, whereby
participants may contribute a percentage of
compensation, but not in excess of the maximum allowed
under the Code. The plan provides for a matching
contribution by the Company which amounted to
approximately $89 for 1996.
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 $59, $45 and $244 for 1996, 1995 and 1994,
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,
1996 1995
Accumulated postretirement benefit obligation:
Retirees $ 112 $ 189
Fully eligible active plan participants 297 157
Other active plan participants 808 404
1,217 750
Plan assets -- --
Unrecognized net gain 249 630
Accrued postretirement benefit cost $ 1,466 $1,380
Net periodic postretirment benefit cost was comprised of:
December 31,
1996 1995 1994
Service cost - benefit attributed to employee
service during the year $ 78 $ 42 $ 67
Interest cost on accumulated postretirement
benefit obligation 84 48 53
Net amortization and deferral (8) (34) (38)
Net periodic postretirment benefit cost $154 $ 56 $ 82
The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1996 and
7.0% in 1995 and 1994. 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, 1996
by approximately $86 and the aggregate of the service
and interest cost components of net periodic
postretirement benefit cost for 1996 by approximately
$16.
Note 10. Common stock
The Company maintains 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.
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.
On August 6, 1996, the Company's Board of Directors
authorized a one million share repurchase program of
the Company's Class A common stock. Through December
31, 1996, the Company had repurchased 672,600 shares of
its Class A common stock under this program for
approximately $10.1 million. Since May 1994, the
Company has repurchased 2,822,600 shares of its Class A
common stock, representing approximately 19.4% of its
total common stock outstanding on that date.
The Company's 1994 Incentive Stock Option Plan has
authorized the grant of options to management personnel
and directors for up to 1,470,000 shares of the
Company's common stock. As of December 31, 1996
1,147,000 shares are available for grant. Options
granted generally have 10 year terms and vest ratably
over a four year period following date of grant.
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) in accounting for its employee
stock options. Under APB 25, because 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.
The following pro forma information regarding net
income and earnings per share required by SFAS No. 123,
"Accounting for Stock Based Compensation" has been
determined as if the Company had accounted for its
employee stock options under the fair value method of
that statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-
average assumptions for 1996 and 1995, respectively:
risk-free interest rates of 5.81% and 7.47%; dividends
of $.28 and $.28; volatility factors of the expected
market price of the Company's common stock of .409 and
.415; and a weighted-average expected life of the
option of approximately 8 years. Changes in these
subjective assumptions can significantly affect the
fair value calculations.
The estimated fair value of the options is amortized to
expense over the options' vesting period. (Amounts in
thousands except for earnings per share information):
Years ended December 31,
1996 1995
Net income as reported $1,119 $10,947
Pro forma net income 880 10,814
Earnings per share as reported .09 .85
Pro forma earnings per share .07 .84
A summary of the Company's stock option activity, and related
information for the years ended December 31 follows:
1996 1995
Weighted- Weighted-
Options average Options average
(000) exercise price (000) exercise price
Outstanding-beginning
of year 156 $15 0 $--
Granted 162 16 161 15
Exercised (3) 15 -- --
Forfeited (13) 15 (5) 15
Outstanding end of year 302 $15 156 $15
Exerciseable at end of
year 45 $15 -- --
Weighted-average fair
value of options
granted during year $5.12 $5.01
Exercise prices for options outstanding as of December 31, 1996
ranged from $14 to $16. The weighted-average remaining contractual
life of those options is 8.7 years.
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 2, 1997.
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 2, 1997.
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 2, 1997.
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 2, 1997.
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 are filed as part
of this Annual Report.
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not
applicable, immaterial, or the required information is included in
the consolidated financial statements or notes thereto.
(3) Index to Exhibits
(b) Reports on Form 8-K.
None.
(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 0-13365, 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 0-13365, 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 the 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 Februrary 19,
1996 previously filed as Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
Commission File Number 0-13365, is incorporated herein by reference.
*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 Nnumber 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 0-13365, is incorporated herein by
reference.
10.7 Acknowledgement of 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.
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 June
28, 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 Director's 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.
*10.15 OshKosh B'Gosh, Inc. Flexible Nonstandardized 401(k) Adoption
Agreement and Smith Barney Prototype Defined Contribution Plan
Document #05.
21. The following is a list of subsidiaries of the Company as of December
31, 1996. The consolidated financial statements reflect the
operations of all subsidiaries as they existed on December 31, 1996.
State or Other
Jurisdiction of
Incorporation or
Name of Subsidiary Organization
Grove Industries Delaware
Manufacturera International Apparel, S.A. Honduras
OshKosh B'Gosh Europe, SNC France
OshKosh B'Gosh International Sales, Inc. Virgin Islands
OshKosh B'Gosh Asia/Pacific Ltd. (Inactive) 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
* Represents a plan that covers compensation, benefits and/or related
arrangements for executive management.
SIGNATURES
Date: March 27, 1997
Pursuant to the requirements of Section 13 of 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 Excutive
Officer
/S/MICHAEL D. WACHTEL Executive Vice President,
Chief Operating Officer
/S/DAVID L. OMACHINSKI Vice President, Treasurer
and Chief Financial Officer
/S/STEVEN R. DUBACK Secretary and Director
/S/WILLIAM F. WYMAN Vice President, Domestic
Licensing
Date: March 27, 1997
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(Dollars in Thousands)
Years ended December 31,
1996 1995 1994
Accounts receivable - allowances:
Balance at beginning of period $ 3,970 $ 3,700 $ 3,310
Charged to costs and expenses 10,392 8,084 6,508
Deductions - bad debts written off,
net of recoveries and other
allowances (8,888) (7,814) (6,118)
Balance at end of period $ 5,474 $ 3,970 $ 3,700
Years ended December 31,
1996 1995 1994
Restructuring costs - allowances:
Balance at beginning of period $ 334 $ 2,381 $ 8,186
Charged to cost and expenses 15,300 -- --
Actual restructuring costs incurred (4,940) (2,047) (5,805)
Balance at end of period $10,694 $ 334 $ 2,381