ITEM 1. BUSINESS
(a) General Development of Business
OshKosh B'Gosh, Inc.(together with its subsidiaries, the "Company") was founded in 1895 and was incorporated in the state of Delaware in 1929. The
Company designs, manufactures, sources and sells apparel for the children's wear, youth wear, and men's wear markets. While its heritage is in the men's workwear market, the Company is currently best known for its line of high quality children's wear. The children's wear and youth wear business represented approximately 94% of consolidated Company revenues for 1994. The success of the children's wear business can be attributed to the Company's core themes: quality, durability, style, trust and Americana. These themes have propelled the Company to the position of market leader in the branded children's wear industry. The Company also leverages the economic value of the OshKosh B'Gosh name via both domestic and international licensing agreements.
The Company's long-term strategy is to provide high quality, high value clothing for the entire family. Toward this end the Company continues to expand its business lines and avenues for marketing its products. In 1990, the Company acquired Essex Outfitters, Inc. ("Essex"), a vertically integrated children's and youth wear retailer marketed under the Boston Trader label through a licensing agreement with Boston Trader Ltd. In 1994, the Company merged the operations of Essex into OshKosh B'Gosh, Inc. and created a new brand name, Genuine Kids , for the line of children's and youth wear formerly marketed under the Boston Trader label. The Genuine Kids line of apparel is sourced from third party manufacturers, primarily offshore, and sold primarily through a chain of 77 domestic retail stores.
OshKosh B'Gosh International Sales, Inc. was created in 1985 for the sale of OshKosh B'Gosh products to foreign distributors. In 1990, the Company formed OshKosh B'Gosh Europe, S.A. in conjunction with a joint venture with Poron Diffusion, S.A. to provide further access to European markets. In 1992 the Company acquired Poron's 49% interest in OshKosh B'Gosh Europe, S.A. During 1993 OshKosh B'Gosh made moves to strategically position itself for International expansion. OshKosh B'Gosh/Asia Pacific Ltd. was created in Hong Kong to oversee licensees and distributors in the Pacific Rim, to assist international licensees with the sourcing of product, and to expand the Company's presence in that region. OshKosh B'Gosh U.K. Ltd. and OshKosh B'Gosh Deutschland GmbH, incorporated in the United Kingdom and Germany respectively, were established to increase sales emphasis in those countries.
The Company's chain of 60 domestic OshKosh B'Gosh factory outlet stores sells irregular and first quality OshKosh B'Gosh merchandise throughout the United States. In 1994, the Company opened an OshKosh B'Gosh showcase store in New York City bringing total domestic stores to 61. In addition, Oshkosh B'Gosh Europe opened showcase stores in London and Paris during 1994. The showcase stores are designed to reinforce awareness and demand for OshKosh B'Gosh as a global brand. In 1993, the Company distributed its first children's wear mail order catalog, further expanding its channels of distribution.
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 under its wholly owned subsidiary Manufacturera International Apparel S.A.
(b) Financial Information About Industry Segments
The Company is engaged in only one line of business, namely, the apparel industry.
(c) Narrative Description of Business
Products
The Company designs, manufactures, sources and markets a broad range of children's clothing as well as lines of youth wear and men's casual and work wear clothing under the OshKosh , OshKosh B'Gosh , Baby B'Gosh , Genuine Kids or OshKosh Men's Wear labels. In 1994, the Company created the Our Stuff by OshKosh B'Gosh brandname (initial sales of the product are scheduled for the fall 1995 season). The products are distributed primarily through better quality department and specialty stores, 138 of the Company's own stores, direct mail catalogs and foreign retailers. The children's wear and youth wear business, which is the largest segment of the business, accounted for approximately 94% of 1994 sales compared to approximately 94% and 96% of such sales in 1993 and 1992, respectively.
The children's wear and youth wear business is targeted to reach the middle to upper middle segment of the sportswear market. Children's wear is in size ranges from newborn/infant to girls 6X and boys 7. Youth wear is in size ranges girls 7 to 14 and boys 8 to 20.
The Company's children's wear and youth wear business include a broad range of product categories organized primarily in a collection format whereby the products in that collection share a primary design theme which is carried out through fabric design, screenprint, embroidery, and trim applications. The Company also offers basic denim products with multiple wash treatments. The product offerings for each season will typically consist of a variety of clothing items including bib overalls, pants, jeans, shorts, and shortalls (overalls with short pant legs), shirts, blouses and knit tops, skirts, jumpers, sweaters, dresses, playwear and fleece.
The men's wear line is the original business that started the Company in 1895. The current line comprises the traditional bib overalls, several styles of waistband-work, carpenter, and painters-pants, five pocket jeans, work shirts and flannel shirts as well as coats and jackets. The line is designed with a full array of sizes up to and including size 60 inch waists and 5x size shirts.
Most products are designed by an in-house staff. Product design requires long lead times, with products generally being designed a year in advance of the time they actually reach the retail market. In general, the Company's products are traditional in nature and not intended to be "designer" items. In designing new products and styles, the Company attempts to incorporate current trends and consumer preferences in its traditional product offerings.
In selecting fabrics and prints for its products, the Company seeks, where possible, to obtain exclusive rights to the fabric design from its suppliers in order to provide the Company with some protection from imitation by competitors for a limited period of time.
Raw Materials, Manufacturing and Sourcing
All raw materials used in the manufacture of Company products are purchased from unaffiliated suppliers. In 1994, approximately 78% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 29% of total raw material expenditures. Fabric and various non-fabric items,
such as thread, zippers, rivets, buckles and snaps are purchased from a variety of independent suppliers. The fabric and accessory market in which OshKosh B'Gosh purchases its raw materials is composed of a substantial number of suppliers with similar products and capabilities, and is characterized by a high degree of competition. As is customary in its industry, the Company has no long-term contracts with its suppliers. To date, the Company has experienced little difficulty in satisfying its requirements for raw materials, considers its sources of supply to be adequate, and believes that it would be able to obtain sufficient raw materials should any one of its product suppliers become unavailable.
Production administration is primarily coordinated from the Company's headquarters facility in Oshkosh with most production taking place in its one Wisconsin, eight Tennessee, and five Kentucky plants. Overseas labor is also accessed through a leased sewing plant in Honduras, where cut apparel pieces are received from the United States and are reimported by OshKosh B'Gosh as finished goods. In addition, product is produced by contractors in 11 countries and imported into the United States.
The majority of the product engineering and sample making, allocation of production among plants and independent suppliers, material purchases and invoice payments is done through the Company's Oshkosh headquarters. All designs and specifications utilized by independent manufacturers are provided by the Company. While no long-term, formal arrangements exist with these manufacturers, the Company considers these relationships to be satisfactory. The Company believes it could obtain adequate alternative production capacity if any of its independent manufacturers become unavailable.
Because higher quality apparel manufacturing is generally labor intensive (sewing, pressing, finishing and quality control), the Company has continually sought to upgrade its manufacturing and distribution facilities. Economies are therefore realized by technical advances in areas like computer-assisted design, computer-controlled fabric cutting, computer evaluation and matching of fabric colors, automated sewing processes, and computer-assisted inventory control and shipping. In order to realize economies of operation within the domestic production facilities, cutting operations are located in three of the Company's fourteen plants, with all product washing, pressing and finishing done in one facility in Tennessee and all screenprint and embroidery done in one facility in Kentucky. Quality control inspections of both semi-finished and finished products are required at each plant, including those of independent manufacturers, to assure compliance.
Customer orders for fashion products are booked from three to six months in advance of shipping. Because most Company production of styled products is scheduled to fill orders already booked, the Company believes that it is better able to plan its production and delivery schedules than would be the case if production were in advance of actual orders. In order to secure necessary fabrics on a timely basis and to obtain manufacturing capacity from independent suppliers, the Company must make substantial advance commitments, sometimes as much as five to seven months prior to receipt of customer orders. Inventory levels therefore depend on Company judgment of market demand.
Trademarks
The Company utilizes the OshKosh , OshKosh B'Gosh , Baby B'Gosh or Genuine Kids trademarks on most of its products, either alone or in conjunction with a white triangular background. In addition, "The Genuine Article " is embroidered on the small OshKosh B'Gosh patch to signify apparel
that is classic in design and all-but-indestructible in quality construction. The Company currently uses approximately 21 registered and unregistered trademarks in the United States. These trademarks and universal awareness of the OshKosh B'Gosh name are significant in marketing the products.
Seasonality
Products are designed and marketed primarily for three principal selling seasons:
RETAIL SALES SEASON PRIMARY BOOKING PERIOD SHIPPING PERIOD Spring/Summer August-September January-April Fall/Back-to-School January-February May-August Winter/Holiday April-May September-December
The Company's business is increasingly seasonal, with highest sales and income in the third quarter which is the Company's peak 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 1995 quarterly sales and income.
Working Capital
Working capital needs are affected primarily by inventory levels, outstanding accounts receivable and trades payable. In June 1994, the Company entered into a credit agreement with a number of banks which provides a $60 million three year revolving credit facility and a $40 million revocable demand line of credit for cash borrowings, issuance of commercial paper and letters of credit. The agreement expires in June 1997. The Company also has a $12.5 million unsecured credit facility available at December 31, 1994 for issuance of letters of credit. There were no outstanding borrowings against these credit arrangements at December 31, 1994. Letters of credit of approximately $26 million were outstanding at December 31, 1994.
Inventory levels are affected by order backlog and anticipated sales. Accounts receivable are affected by payment terms offered. It is general practice in the apparel industry to offer payment terms of ten to sixty days from date of shipment. The Company offers net 30 days terms only.
The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound apparel manufacturers.
Sales and Marketing
Company products are sold primarily through better quality department and specialty stores, although sales are also made through direct mail catalog companies, foreign retailers and other outlets, including 137 Company operated domestic retail factory stores and one retail showcase store, and the Company's proprietary mail order catalog. No one customer accounted for more than 10% of the Company's 1994 sales. The Company's largest ten and largest 100 customers accounted for approximately 43% and 68% of 1994 sales, respectively. In 1994, the Company's products were sold to approximately 3,300 wholesale customers (approximately 10,600 stores) throughout the United States, and a sizeable number of international accounts.
Product sales to better quality department and specialty stores are primarily by an employee sales force with the balance of sales made through manufacturer's representatives or to in-house accounts. In addition to the central sales office in Oshkosh, the Company maintains regional sales offices and product showrooms in Dallas and New York. Most members of the Company's sales force are assigned to defined geographic territories, with some assigned to specific large national accounts. In sparsely populated areas and new markets, manufacturer's representatives represent the Company on a non- exclusive basis.
Direct advertising in consumer and trade publications is the primary method of advertising used. The Company also offers a cooperative advertising program, paying half of its customers' advertising expenditures for their products, generally up to two percent of the higher of the customer's prior or current year's gross purchases from the Company.
Backlog
The dollar amount of backlog of orders believed to be firm as of the end of the Company's fiscal year and as of the preceding fiscal year is not material for an understanding of the business of the Company taken as a whole.
Competitive Conditions
The apparel industry is highly competitive and consists of a number of domestic and foreign companies. Some competitors have assets and sales greater than those of the Company. In addition, the Company competes with a number of firms that produce and distribute only a limited number of products similar to those sold by the Company or sell only in certain geographic areas being supplied by the Company.
A characteristic of the apparel industry is the requirement that a marketer recognize fashion trends and adequately provide products to meet such trends. Competition within the apparel industry is generally in terms of quality, price, service, style and, with respect to branded product lines, consumer recognition and preference. The Company believes that it competes primarily on the basis of quality, style, and consumer recognition and to a lesser extent on the basis of service and price. The Company is focusing attention on the issue of price and service and has taken and will continue to take steps to reduce costs, become more 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 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, 1994, the Company employed approximately 6,600 persons. Approximately 52% of the Company's personnel are covered by collective bargaining agreements with the United Garment Workers of America.
The Company considers its relations with its personnel to be good.
ITEM 2.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located in Oshkosh, Wisconsin. Its principal office, manufacturing and distribution operations are conducted at the following locations:
Approximate Location Floor Area in Principal Square Feet Use
Albany, KY 20,000 Manufacturing Byrdstown, TN 32,000 Manufacturing Celina, TN 100,000 Manufacturing Celina, TN 90,000 Laundering/Pressing Columbia, KY 78,000 Manufacturing Columbia, KY 23,000 Manufacturing Dallas, TX (1) 1,995 Sales Offices/Showroom Gainesboro, TN 61,000 Manufacturing Gainesboro, TN 29,000 Warehousing Hermitage Springs, TN 52,000 Manufacturing Jamestown, TN 43,000 Manufacturing Liberty, KY 218,000 Manufacturing/Warehousing Liberty, KY (2) 32,000 Warehousing Los Angeles, CA (3) 667 Sales Offices/Showroom Marrowbone, KY 27,000 Manufacturing McEwen, TN (4) 29,000 Manufacturing New York City, NY (5) 18,255 Sales Offices/Showrooms Oshkosh, WI 99,000 Exec. & Operating Co. Offices Oshkosh, WI 88,000 Manufacturing Oshkosh, WI 128,000 Distribution/Warehousing Red Boiling Springs,TN 41,000 Manufacturing White House, TN 284,000 Distribution/Warehousing
All properties are owned by the Registrant with the exception of: (1) Lease expiration date - 1995, (2) Lease expiration date - 1999, (3) Lease expiration date -1997, (4) Lease expiration date - 1997, (5) Lease expiration date - 2007. The Company believes that its properties are well maintained and its manufacturing equipment is in good operating condition and sufficient for current production.
Substantially all of the Company's retail stores occupy leased premises. For information regarding the terms of the leases and rental payments thereunder, refer to the "Leases" note to the consolidated financial statements on page 26 of this Form 10-K.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not parties to any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Quarterly Common Stock Data
1994 1993 Stock Price Dividends Stock Price Dividends High Low Per Share High Low Per Share
Class A common stock 1st 21-3/4 14-1/2 $0.1025 22-1/2 14-1/2 $0.1025 2nd 15 12-1/4 0.1025 19 14-1/2 0.1025 3rd 15-1/2 13-1/2 0.1025 18-1/4 13-1/2 0.1025 4th 15-1/4 13 0.07 20-1/2 16-1/4 0.205
Class B common stock 1st 22 16-3/4 $0.09 18 12 $0.09 2nd 17 13-3/4 0.09 18-1/4 15-1/4 0.09 3rd 15-1/2 14 0.09 18 13-3/4 0.09 4th 15-1/4 13-1/2 0.06 20-3/4 17 0.18
The Company's Class A common stock and Class B common stock trade on the Over-The-Counter market and is quoted on NASDAQ under the symbols GOSHA and GOSHB, respectively. The table reflects the last price quotation on the NASDAQ National Market System and does not reflect mark-ups, mark-downs, or commissions and may not represent actual transactions.
The Company has paid cash dividends on its common stock each year since 1936. The Company's Certificate of Incorporation requires that when any dividend (other than a dividend payable solely in shares of the Company's stock) is paid on the Company's Class B Common Stock, a dividend equal to 115% of such amount per share must concurrently be paid on each outstanding share of Class A Common Stock.
As of March 17, 1995, there were 1,939 Class A common stock shareholders of record and 194 Class B common stock shareholders of record.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights (Dollars in thousands, except per share amounts)
Year Ended December 31, 1994 1993 1992 1991 1990
Financial Results Net sales $363,363 $340,186 $346,206 $365,173 $323,377 Net income 7,039 4,523 15,135* 23,576 29,552 Return on sales 1.9% 1.3% 4.4% 6.5% 9.1%
Financial Condition Working capital $102,463 $111,794 $111,075 $106,803 $103,063 Total assets 217,211 229,131 226,195 214,963 192,196 Long-term debt (less current maturities) 517 757 1,293 2,379 3,459 Shareholders equity 158,814 171,998 175,153 167,380 151,166
Data Per Common Share Net income $ .50 $ .31 $ 1.04* $ 1.62 $ 2.03 Cash dividends declared Class A .3775 .5125 .5125 .5125 .49 Class B .33 .45 .45 .45 .43 Shareholders equity 11.76 11.79 12.01 11.48 10.36
* After a charge of $601 or $.04 per share to reflect cumulative effect of change in accounting for nonpension postretirement benefits. See Note 10 to consolidated financial statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales in 1994 were $363.4 million, an increase of $23.2 million (6.8%) over 1993 sales of $340.2 million. The Company's 1994 domestic wholesale business of approximately $234 million was 9% less than 1993 sales of approximately $257 million, with a corresponding decline in unit shipments of approximately 6.7%. The decrease in domestic wholesale unit shipments related primarily to the effects of the competitive environment in the children's wear business combined with the effects of prior years poor shipping performance and perceived weakness in product design. The Company's Spring, 1995 children s fashion offering has been well received. Company initiatives undertaken during 1994 resulted in significantly improved shipping performance to customers. In addition, improved product design contributed to better sell-thrus and margins for a majority of our wholesale customers. The Company currently anticipates that unit shipments of its Spring, 1995 wholesale product offering will exceed Spring, 1994 by over 10%. Early indications of acceptance of the Company's Fall, 1995 children's fashion offering have also been promising.
Company retail sales at its OshKosh B'Gosh branded outlet stores and Genuine Kids stores were approximately $99.4 million for 1994, a 52.5% increase over 1993 retail sales of approximately $65.2 million. This retail sales increase was primarily driven by the opening of an additional 46 retail stores during 1994. In addition, the Company's comparable store sales for 1994 were up approximately 3.6%. At year end the Company operated 61 OshKosh B'Gosh branded stores and 77 Genuine Kids stores. The Company anticipates continued expansion of its retail business through the opening of approximately 35 additional retail stores during 1995.
The Company's gross profit margin as a percent of sales improved to 28.6% in 1994, compared with 28.0% in 1993. This gross profit margin improvement was due primarily to the impact of the Company's increased retail sales at higher gross margins relative to its domestic wholesale business. The favorable impact of the Company's retail gross margins was offset in part by the domestic wholesale gross margin, which was down in 1994 primarily as a result of the adverse impact of reduced unit volume on our manufacturing operations and slightly lower pricing to wholesale customers. As a result of capacity reduction initiatives implemented during 1994 and early 1995, along with increased utilization of contracted manufacturing resources outside of the United States, the Company anticipates further improvement in its gross profit margins during 1995.
Selling, general and administrative expenses for 1994 increased $16.5 million over 1993. As a percent of net sales, selling, general and administrative expenses were 26.1% in 1994, up from 23.1% in 1993. The primary reason for the increased selling, general and administrative expenses is the Company's aggressive expansion of its retail business. In addition, the Company's increasing focus on its international operations resulted in an increase in 1994's selling, general and administrative expenses of approximately $2.7 million. Also, the Company's catalog division, initiated in the second half of
1993, added approximately $1.6 million to selling, general and administrative expenses in 1994. Continued expansion of the Company's retail business, along with further development of its foreign business and catalog division, will result in higher selling, general and administrative expenses in relation to its net sales in 1995.
During the fourth quarter of 1993, the Company recorded a pretax restructuring charge of $10.8 million. Restructuring costs (net of income tax benefit) reduced net income by $7.1 million ($.49 per share) in 1993. The restructuring charge included approximately $3.3 million for facility closings, write-down of the related assets and severance costs pertaining to work force reductions. The restructuring charge also reflected the Company's decision to market its Trader Kids line of children's apparel under the new name Genuine Kids and the resulting costs of the Company's decision not to renew its Boston Trader license arrangement beyond 1994, as well as expenses to consolidate its retail operations. Accordingly, the restructuring charge also included approximately $7.5 million for write-off of unamortized trademark rights and expenses relating to consolidating the Company's retail operations.
During 1994, the Company implemented its restructuring plan. The Company closed its McKenzie, Tennessee facility and announced plans to close its Dover, Tennessee facility, which was completed in early 1995. Closing of the Dover facility in 1995 will reduce the Company's work force by approximately 270 employees. The Company was able to sell both operating facilities, and reached satisfactory agreements with all affected employees 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 consolidated the operations of its retail business into its Oshkosh office. As of December 31, 1994, the Company estimates that remaining restructuring costs are sufficiently provided for in the residual restructuring liability. Remaining costs include charges for facility closings, including disposal of the real estate and severance costs pertaining to work force reductions. This plan should be substantially completed during 1995.
The Company's effective tax rate for 1994 was 45.7% compared to 51.3% in 1993. The relatively high effective tax rates for both years result primarily from the Company's foreign operating losses, which provide no tax benefit. In addition, the high 1993 effective tax rate was the result of substantially lower income before income taxes in 1993 (which resulted in part from the restructuring charge). Company management believes that the $11.5 million deferred tax asset at December 31, 1994 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.
In November of 1992, the Financial Accounting Standards Board issued its Statement No. 112 entitled Employers Accounting for Post Employment Benefits. This standard had no significant impact on the Company's 1994 financial statements.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net sales in 1993 were $340.2 million, down 1.7% from 1992 sales of $346.2 million. The Company's domestic wholesale business of approximately $257 million in 1993 was 9.3% less than 1992 sales, due primarily to a decline in unit shipments of approximately 10% in 1993 from 1992. The decrease in domestic wholesale unit shipments related primarily to the effects of the competitive pricing environment in the children's wear business, the Company's difficulty in meeting the delivery requirements of its wholesale customers as well as perceived weakness in its product design.
Company retail sales at its OshKosh B'Gosh branded outlet stores and its Trader Kids stores (now marketed under the Genuine Kids name) expanded to approximately $65.2 million in 1993, a 49.9% increase over 1992 retail sales of approximately $43.5 million. Retail sales increases resulted primarily from the opening of an additional 38 retail stores during 1993.
Gross profit margin as a percent of sales improved to 28.0% in 1993, compared with 25.1% in 1992. During 1993, the Company experienced a slight improvement in its domestic wholesale gross margins. Increased retail store sales, at higher gross profit margins, had a significant impact on improved overall gross margin performance. Gross margins for 1992 were unfavorably impacted by manufacturing inefficiencies resulting from the restructuring of production lines and increasing workers compensation insurance and employee health care costs.
Selling, general and administrative expenses increased $12.1 million in 1993 from 1992. As a percent of net sales, selling, general and administrative expenses were 23.1% in 1993, up from 19.2% in 1992. The primary reason for the increased selling, general and administrative expenses was the Company's increased focus on its retail business. In addition, the Company initiated a catalog division in the second half of 1993 which added approximately $1.2 million to its selling, general and administrative expenses. Increased emphasis on foreign sales opportunities, including the start-up cost associated with the opening of sales offices, also added to the Company's selling, general and administrative expenses during 1993.
During the fourth quarter of 1993, the Company recorded a pretax restructuring charge of $10.8 million. Restructuring costs (net of income tax benefit) reduced net income by $7.1 million ($.49 per share) in 1993.
During 1992, the Company reduced its estimate of the Absorba line restructuring costs originally recorded in 1991 by $2.8 million, due to the efficient and orderly wind down of operations and favorable settlement of lease obligations. This adjustment to restructuring costs (net of income taxes) increased 1992 net income by $1.8 million ($.12 per share).
Royalty income, net of expenses, was $3.4 million in 1993, as compared to $2.6 million in 1992. The increase in net royalty income resulted primarily from additional foreign license agreements.
The effective tax rate for 1993 was 51.3% compared to 39.8% in 1992. The higher 1993 effective tax rate resulted from the Company's foreign operating losses, which provide no tax benefit, combined with
the Company's substantially lower income before income taxes in 1993 (which resulted in part from the restructuring charge). The Company's early adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, in 1992 had no material impact on 1992's results of operations.
The Company elected early adoption of the Statement of Financial Accounting Standards No. 106, Employers Accounting for Post Retirement Benefits Other Than Pensions, in 1992. The Company elected to record the entire transition obligation in 1992, which resulted in a net $.6 million after tax ($.04 per share) reduction in net income.
SEASONALITY
The Company's business is increasingly seasonal, with highest sales and income in the third quarter which is the Company's peak 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 1995 quarterly sales and income.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
The Company's financial position remained strong throughout 1994. At December 31, 1994, the Company's cash and cash equivalents were $10.5 million, compared to $17.9 million at the end of 1993 and $21.1 million at the end of 1992. Net working capital at the end of 1994 was $102.5 million, compared to $111.8 million at 1993 year end and $111.1 million at 1992 year end. Cash provided by operations was approximately $22.1 million in 1994, compared to $21.6 million in 1993 and $22.9 million in 1992.
Accounts receivable at December 31, 1994 were $23.9 million compared to $19.5 million at December 31, 1993. Inventories at the end of 1994 were $93.9 million, down $6.1 million from 1993. Management believes that year end 1994 inventory levels are generally appropriate for anticipated 1995 business activity.
Capital expenditures were approximately $9.9 million in 1994 and $9 million in 1993. Capital expenditures for 1995 are currently budgeted at approximately $12 million.
On June 14, 1994, the Company announced a stock repurchase program for up to 1,500,000 shares of its Class A common stock in open market transactions at prevailing prices. Through December 31, 1994, the Company has repurchased approximately 1,084,000 shares of its Class A common stock for approximately $15 million.
In June 1994, the Company finalized a credit agreement with participating banks. This arrangement provides a $60 million, three year revolving credit facility and a $40 million revocable demand line of credit for cash borrowings, issuance of commercial paper and letters of credit. The agreement expires in June 1997. The Company believes that these credit facilities, along with cash generated from operations, will be sufficient to finance the Company's stock repurchase program as well as its capital expenditure, seasonal
working capital, remaining restructuring and business development needs.
Dividends on the Company's Class A and Class B common stock totaled $.3775 per share and $.33 per share, respectively, in 1994, compared to $.5125 per share and $.45 per share on the Company's Class A and Class B common stock, respectively, in 1993. The dividend payout rate was 75% of net income in 1994 and 163% in 1993. The Company's lower earnings from operations in 1993 combined with the fourth quarter 1993 restructuring charge resulted in the unusually high 1993 payout rate.
INFLATION
The effects of inflation on the Company's operating results and financial condition were not significant.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Financial Statements:
Reports of Independent Auditors 16
Consolidated Balance Sheets - December 31, 1994 and 1993 18
Consolidated Statement of Income - years ended December 31, 1994, 1993, and 1992 19
Consolidated Statements of Changes in Shareholders Equity - years ended December 31, 1994, 1993, and 1992 20
Consolidated Statements of Cash Flows - years ended December 31, 1994, 1993, and 1992 21
Notes to Consolidated Financial Statements 22
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, 1994 and 1993, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended. Our audit also included the 1994 and 1993 financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oshkosh B'Gosh, Inc. and Subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related 1994 and 1993 financial statements schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Notes 1 and 10 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for income taxes and nonpension postretirement benefits.
Milwaukee, Wisconsin ERNST & YOUNG LLP February 6, 1995
REPORT OF SCHUMAKER, ROMENESKO & ASSOCIATES, S.C. INDEPENDENT AUDITORS
The Board of Directors OshKosh B'Gosh, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of income, changes in shareholders' equity and cash flows of OshKosh B'Gosh, Inc. and Subsidiaries for the year ended December 31, 1992. Our audit also included the 1992 financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of OshKosh B'Gosh, Inc. and Subsidiaries for the year ended December 31, 1992 in conformity with generally accepted accounting principles. Also, in our opinion, the related 1992 financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Notes 1 and 10 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for income taxes and nonpension postretirement benefits.
Oshkosh, Wisconsin SCHUMAKER, ROMENESKO & ASSOCIATES, S.C. February 15, 1993
Consolidated Balance Sheets OshKosh B'Gosh, Inc. (Dollars in thousands, except share and per share amounts) and Subsidiaries
December 31, 1994 1993 ASSETS Current assets Cash and cash equivalents $ 10,514 $ 17,853 Accounts receivable, less allowances of $3,700 in 1994 and $3,310 in 1993 23,857 19,477 Inventories 93,916 99,999 Prepaid expenses and other current assets 2,510 3,810 Deferred income taxes 11,510 10,716 Total current assets 142,307 151,855 Property, plant and equipment, net 69,829 71,755 Other assets 5,075 5,521
Total assets $217,211 $229,131
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 240 $ 536 Accounts payable 9,436 9,720 Accrued liabilities 30,168 29,805 Total current liabilities 39,844 40,061 Long-term debt 517 757 Deferred income taxes 2,869 3,040 Employee benefit plan liabilities 15,167 13,275 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 - 12,233,787 shares in 1994, 13,280,572 shares in 1993 122 133 Class B, authorized - 3,750,000 shares; Issued and outstanding - 1,267,713 shares in 1994, 1,305,228 shares in 1993 13 13 Additional paid-in capital - 2,971 Retained earnings 158,933 169,182 Cumulative foreign currency translation adjustments (254) (301) Total shareholders' equity 158,814 171,998 Total liabilities and shareholders' equity $217,211 $229,131
See notes to consolidated financial statements.
Consolidated Statements of Income OshKosh B'Gosh, Inc. (Dollars and shares in thousands, except per share amounts) and Subsidiaries
Year Ended December 31, 1994 1993 1992
Net sales $363,363 $340,186 $346,206 Cost of products sold 259,416 244,926 259,344
Gross profit 103,947 95,260 86,862
Selling, general and administrative expenses 94,988 78,492 66,414 Restructuring - 10,836 (2,800)
Operating income 8,959 5,932 23,248
Other income (expense): Interest expense (1,034) (626) (797) Interest income 1,048 1,114 1,022 Royalty income, net of expenses 3,442 3,417 2,562 Miscellaneous 543 (545) 91
Other income - net 3,999 3,360 2,878
Income before income taxes and cumulative effect of accounting change 12,958 9,292 26,126 Income taxes 5,919 4,769 10,390
Income before cumulative effect of accounting change 7,039 4,523 15,736 Cumulative effect of change in accounting for nonpension postretirement benefits - - (601)
Net income $ 7,039 $ 4,523 $ 15,135
Weighted average common shares outstanding 14,144 14,586 14,586
Income per share before cumulative effect of accounting change $.50 $.31 $1.08 Change in accounting for nonpension postretirement benefits - - (.04)
Net income per common share $.50 $.31 $1.04
See notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity Oshkosh B'Gosh, Inc. (Dollars and shares in thousands, except per share amounts) and Subsidiaries
Cumulative Foreign Common Stock Additional Currency Class A Class B Paid-In Retained Translation Shares Amount Shares Amount Capital Earnings Adjustments Balance - December 31, 1991 12,777 $128 1,809 $18 $2,971 $164,263 $ - Net income - - - - - 15,135 - Dividends - Class A ($.5125 per share) - - - - - (6,548) - - Class B ($.45 per share) - - - - - (814) -
Balance - December 31, 1992 12,777 128 1,809 18 2,971 172,036 - Net income - - - - - 4,523 - Dividends - Class A ($.5125 per share) - - - - - (6,667) - - Class B ($.45 per share) - - - - - (710) - Foreign currency translation adjustments - - - - - - (301) Conversions of common shares 504 5 (504) (5) - - -
Balance - December 31, 1993 13,281 133 1,305 13 2,971 169,182 (301) Net income - - - - - 7,039 - Dividends - Class A ($.3775 per share) - - - - - (4,886) - - Class B ($.33 per share) - - - - - (425) - Foreign currency translation adjustments - - - - - - 47 Conversions of common shares 37 - (37) - - - - Repurchase of common shares (1,084) (11) - - (2,971) (11,977) -
Balance - December 31, 1994 12,234 $122 1,268 $13 $ - $158,933 $(254)
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows OshKosh B'Gosh, Inc. (Dollars in thousands) and Subsidiaries
Year Ended December 31, 1994 1993 1992 Cash flows from operating activities Net income $ 7,039 $ 4,523 $15,135 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,692 9,233 8,375 (Gain) loss on disposal of assets (185) 63 85 Minority interest in loss of consolidated subsidiary - - (108) Provision for deferred income taxes (965) (5,537) 35 Pension expense, net of contributions 979 1,852 1,753 Cumulative effect of accounting change - - 1,001 Restructuring - 10,836 (2,800) Changes in operating assets and liabilities: Accounts receivable (4,380) 4,948 (643) Inventories 6,083 (7,247) 1,478 Prepaid expenses and other current assets1,300 (1,624) (252) Accounts payable (284) (1,376) (2,522) Accrued liabilities 1,863 5,940 1,313 Net cash provided by operating activities 22,142 21,611 22,850
Cash flows from investing activities Additions to property, plant and equipment (9,914) (8,990) (12,563) Proceeds from disposal of assets 1,425 1,159 625 Investments in subsidiaries - - (900) Additions to other assets (186) (1,783) (1,602) Net cash used in investing activities (8,675) (9,614) (14,440)
Cash flows from financing activities Proceeds from long-term borrowings - - 7,000 Payments of long-term debt (536) (7,896) (1,270) Dividends paid (5,311) (7,377) (7,362) Repurchase of common stock (14,959) - - Net cash used in financing activities (20,806) (15,273) (1,632)
Net increase (decrease) in cash and cash equivalents (7,339) (3,276) 6,778 Cash and cash equivalents at beginning of year 17,853 21,129 14,351
Cash and cash equivalents at end of year $10,514 $17,853 $21,129
Supplementary disclosures Cash paid for interest $ 638 $ 1,030 $ 823 Cash paid for income taxes $ 3,937 $12,194 $ 9,877
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, manufacture and marketing of apparel to wholesale customers and through Company owned retail stores.
Principles of consolidation - The consolidated financial statements include the accounts of all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash equivalents - Cash equivalents consist of highly liquid debt instruments such as money market accounts and commercial paper with original maturities of three months or less. The Company's policy is to invest cash in conservative instruments as part of its cash management program and to evaluate the credit exposure of any investment. Cash and cash equivalents are stated at cost, which approximates market value.
Inventories - Inventories are stated at the lower of cost or market. Inventories stated on the last-in, first-out (LIFO) basis represent 95.7% of total 1994 and 90.6% of total 1993 inventories. Remaining inventories are valued using the first-in, first-out (FIFO) method.
Property, plant and equipment - Property, plant and equipment are carried at cost. Depreciation and amortization for financial reporting purposes is calculated using the straight line method based on the following useful lives:
Years Land improvements 10 to 15 Buildings 10 to 40 Leasehold improvements 5 to 10 Machinery and equipment 5 to 10
Income taxes - Effective January 1, 1992, the Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". This Statement requires recognition of deferred tax assets and liabilities for all temporary differences between the financial reporting and income tax basis of the Company's assets and liabilities. The effect of this accounting change at January 1, 1992 was not material.
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.
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. There are no common stock equivalents.
Advertising - Advertising costs are expensed as incurred and totaled $9,858, $11,209, and $10,180 in 1994, 1993, and 1992, respectively.
Note 2. Restructuring
During 1993, the Company recorded a pretax restructuring charge of $10,836. The restructuring charge included approximately $3,300 for facility closings, write-down of the related assets and severance costs pertaining to work force reductions. The restructuring charge also reflected the Company's decision to market its Trader Kids line of children's apparel under the new name Genuine Kids and the resulting costs of the Company's decision not to renew its Boston Trader license arrangement beyond 1994, as well as expenses to consolidate its retail operations. Accordingly, the restructuring charge included approximately $7,500 for write-off of unamortized trademark rights and expenses related to consolidating the Company's retail operations. Restructuring costs (net of income tax benefit) reduced net income by $7,100 ($.49 per share) in 1993.
During 1994, the Company implemented its restructuring plan. The Company closed its McKenzie, Tennessee facility, and announced plans to close its Dover, Tennessee facility, which was completed in early 1995. The Company was able to sell both operating facilities, and reached satisfactory agreements with all affected workforce concerning severance arrangements. The Company also began to market a portion of its childrenswear line under the Genuine Kids label, discontinuing the Trader Kids line of childrens' apparel. The Company also successfully consolidated the operations of its retail business into its OshKosh office. As of December 31, 1994, the Company estimates that remaining restructuring costs are sufficiently provided for in the residual restructuring liability. Remaining costs include charges for facility closings, including disposal of the real estate and severance costs pertaining to workforce reductions. This plan should be substantially completed in early 1995.
During 1992, the Company reduced its estimate of the Absorba line restructuring costs originally recorded in 1991 by $2,800, due to the efficient and orderly wind down of operations and favorable settlement of lease obligations. This adjustment to restructuring costs (net of income taxes) increased 1992 net income by $1,800 ($.12 per share).
Note 3. Inventories
A summary of inventories follows:
December 31, 1994 1993
Finished goods $75,187 $82,737 Work in process 7,410 5,008 Raw materials 11,319 12,254
Total $93,916 $99,999
The replacement cost of inventory exceeds the above LIFO costs by $16,122 and $14,716 at December 31, 1994 and 1993, respectively.
Note 4. Property, plant and equipment
A summary of property, plant and equipment follows:
December 31, 1994 1993
Land and improvements $ 4,139 $ 4,172 Buildings 37,442 37,640 Leasehold improvements 7,862 5,268 Machinery and equipment 70,498 67,026 Construction in progress 9 291
Total 119,950 114,397
Less: accumulated depreciation and amortization 50,121 42,642
Property, plant and equipment, net $69,829 $71,755
Depreciation and amortization expense on property, plant and equipment for the years ended December 31, 1994, 1993, and 1992 amounted to approximately $9,972, $8,425, and $7,909, respectively.
Note 5. Lines of Credit
In June 1994, the Company entered into a credit agreement with a number of banks which provides a $60,000 three year revolving credit facility and a $40,000 revocable demand line of credit for cash borrowings, issuance of commercial paper, and letters of credit. The agreement expires in June 1997.
Under the terms of the agreement, interest rates are determined at the time of borrowing and are based on London Interbank Offered Rates plus .625% or the prime rate. Commitment fees of .125% are required on the $100,000 credit facilities. The Company is required to maintain certain financial ratios in connection with this agreement.
The Company also has a $12,500 unsecured credit facility available at December 31, 1994 for issuance of letters of credit.
There were no outstanding borrowings against these credit arrangements at December 31, 1994. Letters of credit of approximately $26,150 were outstanding at December 31, 1994, with $23,774 of the unused revocable demand line of credit available for borrowing.
Note 6. Accrued liabilities
A summary of accrued liabilities follows: December 31, 1994 1993 Compensation $ 8,491 $ 4,701 Group health insurance - 1,700 Worker's compensation 10,800 8,600 Income taxes 1,729 640 Restructuring costs 2,381 8,186 Other 6,767 5,978
Total $30,168 $29,805
Note 7. Long-term debt
The Company's long-term debt is summarized as follows:
December 31, 1994 1993
Obligation under industrial development revenue bonds $200 $ 666 Other mortgage notes and loans with interest at varying rates 557 627
Total 757 1,293
Less current maturities 240 536
Total long-term debt $517 $757
The final payment on the industrial development revenue bond is due October 1, 1995. The interest rate on the bond is approximately 80% of prime rate (prime rate was 8.5% at December 31, 1994).
Annual total maturities of principal on long-term debt are as follows:
Year ending December 31,
1995 $240 1996 42 1997 43 1998 45 1999 47 Thereafter 340
Total $757
Note 8. 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,
1995 $10,202 1996 9,148 1997 8,452 1998 7,608 1999 6,151 Thereafter 17,034
Total minimum lease payments $58,595 Total rent expense charged to operations for all operating leases is as follows:
Year Ended December 31, 1994 1993 1992
Minimum rentals $11,139 $7,718 $5,921 Contingent rentals 196 167 179
Total rent expense $11,335 $7,885 $6,100
Note 9. Income taxes
Income tax expense (credit) is comprised of the following:
Year Ended December 31, 1994 1993 1992 Current: Federal $5,653 $ 8,571 $ 8,155 State and local 1,231 1,735 1,800 6,884 10,306 9,955 Deferred (965) (5,537) 435
Total $5,919 $4,769 $10,390
The components of the Company's deferred tax asset and deferred tax liability include:
December 31, 1994 1993 [Assets (Liabilities)] Current deferred taxes: Accounts receivable allowances $ 1,402 $ 1,272 Inventory valuation 2,835 2,129 Accrued liabilities 5,994 3,714 Restructuring costs 834 3,204 Other 445 397
Total net current deferred tax asset $11,510 $10,716
Non-current deferred taxes: Depreciation $(8,497) $(8,266) Deferred employee benefits 5,234 4,419 Trademark 394 807 Foreign loss carryforwards 2,418 1,807 Valuation allowance (2,418) (1,807)
Total net long-term deferred tax liability $(2,869) $(3,040)
For financial reporting purposes, income before income taxes and cumulative effect of accounting change includes the following components:
Year Ended December 31, 1994 1993 1992 Pretax income (loss): United States $14,319 $11,704 $27,574 Foreign (1,361) (2,412) (1,448)
Total $12,958 $9,292 $26,126
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, 1994 1993 1992 Federal statutory tax rate 35.0% 35.0% 34.0% Differences resulting from: State and local income taxes, net of federal income tax benefit 4.5 4.1 4.2 Foreign losses with no tax benefit 3.7 9.1 1.9 Other 2.5 3.1 (.3)
Total 45.7% 51.3% 39.8%
Note 10. Retirement plans
The Company has defined contribution and defined benefit pension plans covering substantially all employees. Charges to operations by the Company for these pension plans totaled $4,309, $4,621, and $4,477 for 1994, 1993 and 1992, 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. Plan assets included 7,000 shares of OshKosh B'Gosh, Inc. Class A common stock at December 31, 1993 and 9,500 and 5,000 shares of OshKosh B'Gosh, Inc. Class B common stock at December 31, 1994 and 1993, respectively, with a total market value of approximately $128 and $236 at December 31, 1994 and 1993, respectively.
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, 1994 1993 1992
Discount rate 7.5% 7.0% 7.0-7.5% Expected long-term rate of return on assets 8.0% 7.0% 7.5-8.0% Rates of increase in compensation levels 0-4.5% 0-4.5% 0-5.5%
Net periodic pension cost was comprised of:
December 31, 1994 1993 1992 Service cost - benefits earned during the period $2,212 $2,318 $2,309 Interest cost on projected benefit obligations 1,888 1,808 1,601 Actual return on plan assets (1,118) (1,708) (1,037) Net amortization and deferral 552 1,259 636
Net periodic pension cost $3,534 $3,677 $3,509
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, 1994 1993 Assets ABO Assets ABO Exceed Exceeds Exceed Exceeds ABO Assets ABO Assets Actuarial present value of benefit obligations: Vested benefits $ 9,365 $ 6,599 $ 9,051 $ 6,308 Nonvested benefits 916 313 1,604 449
Total accumulated benefit obligation $10,281 $ 6,912 $10,655 $ 6,757
Projected benefit obligation $19,334 $ 7,244 $22,299 $ 6,835
Plan net assets at fair value 12,451 2,980 12,070 2,777
Projected benefit obligation in excess of plan net assets (6,883) (4,264) (10,229) (4,058)
Unamortized transition asset (1,382) (20) (1,535) (23)
Unrecognized prior service cost 2,586 3,022 2,821 2,867
Unrecognized net (gain) loss (604) (679) 3,546 (592)
Adjustment to recognize minimum liability - (2,000) - (2,200)
Accrued pension liability at December 31 $(6,283) $(3,941) $(5,397) $(4,006)
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 $531, $565 and $658 for 1994, 1993 and 1992, respectively.
The Company also has a supplemental retirement program for designated employees. Annual provisions to this unfunded plan are discretionary and are determined by the Company's Executive Committee. Charges to operations by the Company for additions to this plan totaled $244, $379 and $310 for 1994, 1993 and 1992, 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.
In 1992, the Company adopted the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In applying this pronouncement, the Company elected to immediately recognize the accumulated postretirement benefit obligation as of the beginning of 1992 of approximately $1 million in the first quarter of 1992 as a change in accounting principle. The charge, net of an income tax benefit of $400, was $601 or $.04 per share.
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, 1994 1993
Accumulated postretirement benefit obligation: Retirees $ 159 $ 119 Fully eligible active plan participants 169 216 Other active plan participants 523 670
851 1,005 Plan assets - - Unrecognized net gain 497 281
Accrued postretirement benefit cost $1,348 $1,286
Net periodic postretirement benefit cost was comprised of:
Year Ended December 31, 1994 1993 1992
Service cost - benefits attributed to employee service during the year $ 67 $ 98 $119 Interest cost on accumulated postretirement benefit obligation 53 61 75 Net amortization and deferral (38) (18) -
Net periodic postretirement benefit cost $82 $141 $194
The discount rate used in determining the accumulated postretirement benefit obligation was 7% in 1994 and 1993. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 12%, declining gradually to 6% by 2012 and then declining further to an ultimate rate of 4% by 2022.
The health care cost trend rate assumption has a significant impact on the amounts reported. Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation at December 31, 1994 by approximately $108 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by approximately $13.
Note 11. Common stock
In May, 1993 shareholders of the Company approved a stock conversion plan whereby shares of Class B common stock may be converted to an equal number of Class A common shares.
The Company's common stock authorization provides that dividends be paid on both the Class A and Class B common stock at any time that dividends are paid on either. Whenever dividends (other than dividends of Company stock) are paid on the common stock, each share of Class A common stock is entitled to receive 115% of the dividend paid on each share of Class B common stock.
The Class A common stock shareholders are entitled to receive a liquidation preference of $7.50 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 $7.50 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.
Note 12. Business and credit concentrations
The Company provides credit, in the normal course of business, to department and specialty stores. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.
The Company's customers are not concentrated in any specific geographic region. In 1993, sales to a customer, as a percentage of total sales, amounted to approximately 10%. In 1992, sales to two customers, as a percentage of total sales, amounted to approximately 12% each.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III.
ITEM 10.
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 5, 1995.
ITEM 11.
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 5, 1995.
ITEM 12.
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 5, 1995.
ITEM 13.
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 5, 1995.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Financial statements for OshKosh B'Gosh, Inc. listed in the Index to Financial Statements and Supplementary Data on page 17 are filed as part of this Annual Report.
(2) Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not applicable or the required information is included in the consolidated financial statements and notes thereto.
(3) Index to Exhibits
(b) Reports on Form 8-K None.
(3) Exhibits
3.1 Certificate of Incorporation of OshKosh B'Gosh, Inc., as restated, October 20, 1988, previously filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, Commission File Number 0-13365, is incorporated herein by reference.
3.2 By-laws of OshKosh B'Gosh, Inc., as amended through the date hereof.
*10.1 Employment Agreement dated July 7, 1980, between OshKosh B'Gosh, Inc. and Charles F. Hyde as extended by "Request For Later Retirement" dated April 15, 1986 and accepted by Board of Directors' resolution on May 2, 1986, previously filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, Commission File Number 0-13365, is incorporated herein by reference.
*10.2 Employment Agreement dated July 7, 1980, between OshKosh B'Gosh, Inc. and Thomas R. Wyman, previously filed as Exhibit 10.2 to the Registrant's Registration Statement No. 2-96586 on Form S-1, is incorporated herein by reference.
*10.3 OshKosh B'Gosh, Inc. Pension Plan as amended, previously filed as Exhibit 10.3 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.
*10.4 OshKosh B'Gosh, Inc. Profit Sharing Plan, as amended on August 5, 1985, previously filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File Number 0-13365, is incorporated herein by reference.
*10.5 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.
*10.6 OshKosh B'Gosh, Inc. Executive Deferred Compensation Plan as amended, previously filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 0-13365, is incorporated herein by reference.
*10.7 OshKosh B'Gosh, Inc. Officers Medical and Dental Reimbursement Plan, as amended.
10.8 Lease Agreement between OshKosh B'Gosh, Inc. and City of Oshkosh, Wisconsin, dated as of March 1, 1975, previously filed as Exhibit 10.13 to the Registrant's Registration Statement No. 2-96586 on Form S-1, is incorporated herein by reference.
*Represents a plan that covers compensation, benefits and/or related arrangements for executive management.
10.9 Acknowledgement and Guaranty Agreement between City of Liberty, Casey County, Kentucky and OshKosh B'Gosh, Inc., dated October 4, 1984, and related Contract of Lease and Rent dated as of November 26, 1968, previously filed as Exhibit 10.14 to the Registrant's Registration Statement No. 2-96586 on Form S-1, is incorporated herein by reference.
10.10 Loan Agreement between OshKosh B'Gosh, Inc. and City of Oshkosh, Wisconsin, dated as of October 1, 1985, previously filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File Number 0-13365, is incorporated herein by reference.
10.11 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: Charles F. Hyde, Thomas R. Wyman, John F. Beckman, Anthony S. Giordano, Douglas W. Hyde, Michael D. Wachtel, and Kenneth H. Masters).
*10.12 Employment agreement dated December 14, 1989 and effective February 1, 1990, between OshKosh B'Gosh, Inc. and Harry M. Krogh, previously filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, Commission File Number 0-13365, is incorporated herein by reference.
*10.13 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.
10.14 Employment agreement dated and effective May 1, 1994, by and among OshKosh B'Gosh, Inc., Essex Outfitters, Inc. and Barbara Widder-Lowry.
10.15 Employment agreement dated and effective May 1, 1994 by and among OshKosh B'Gosh, Inc., Essex Outfitters, Inc. and Paul A. Lowry.
10.16 Credit agreement between Oshkosh B'Gosh, Inc. and Firstar Bank Milwaukee, N.A. and participating banks as amended, dated as of June 24, 1994.
*10.17 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan.
10.18 OshKosh B'Gosh, Inc. 1995 Outside Directors' Stock Option Plan.
*Represents a plan that covers compensation, benefits and/or related arrangements for executive management.
21. The following is a list of the subsidiaries of the Company as of December 31, 1994. The consolidated financial statements reflect the operations of all subsidiaries as they existed on December 31, 1994.
State or Other Jurisdiction of Name of Incorporation or Subsidiary Organization
Term Co. (formerly Absorba, Inc.) Delaware
Grove Industries, Inc. Delaware
Manufacturera International Apparel, S.A. Honduras
OshKosh B'Gosh Europe, S.A. France
OshKosh B'Gosh International Sales, Inc. Virgin Islands
OshKosh B'Gosh Asia/Pacific Ltd. Hong Kong
OshKosh B'Gosh U.K. Ltd. United Kingdom
OshKosh B'Gosh Deutschland GmbH Germany
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OSHKOSH B'GOSH, INC.
By: /s/ DOUGLAS W. HYDE Chairman of the Board, President and Chief Executive Officer
By: /s/ DAVID L. OMACHINSKI Vice President, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title
/S/ DOUGLAS W. HYDE Chairman of the Board, President, Chief Executive Officer and Director
/S/ MICHAEL D. WACHTEL Executive Vice President, Chief Operating Officer and Director
/S/ DAVID L. OMACHINSKI Vice President, Treasurer, Chief Financial Officer and Director
/S/ STEVEN R. DUBACK Secretary and Director
/S/ THOMAS R. WYMAN Director
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Schedule II
Valuation and Qualifying Accounts (Dollars in Thousands)
Years Ended December 31, 1994 1993 1992
Accounts Receivable - Allowances: Balance at Beginning of Period $ 3,310 $2,265 $2,335 Charged to Costs and Expenses 6,508 5,979 4,500 Deductions - Bad Debts Written off, Net of Recoveries and Other Allowances (6,118) (4,934) (4,570)
Balance at End of Period $ 3,700 $3,310 $2,265
Years Ended December 31, 1994 1993 1992
Restructuring Costs - Allowances: Balance at Beginning of Period $ 8,186 $ 422 $ 5,600 Charged to Cost and Expenses - 10,836 (2,800) Actual Restructuring Costs Incurred (5,805) (3,072) (2,378)
Balance at End of Period $ 2,381 $ 8,186 $ 422