-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LM+jMXvzThLfFb79Okk2boWr6lm0A7zurqx2PaWAHYkLF0zcgC3VMsncz5g2X/IE 1VADQw2IpN7JuFXAV3EYjA== 0000075042-96-000006.txt : 19960724 0000075042-96-000006.hdr.sgml : 19960724 ACCESSION NUMBER: 0000075042-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960723 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSHKOSH B GOSH INC CENTRAL INDEX KEY: 0000075042 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 390519915 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13365 FILM NUMBER: 96597943 BUSINESS ADDRESS: STREET 1: 112 OTTER AVE STREET 2: P O BOX 300 CITY: OSHKOSH STATE: WI ZIP: 54901 BUSINESS PHONE: 4142318800 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 Number 0-13365 OshKosh B'Gosh, Inc. (Exact name of registrant as specified in charter) Delaware 39-0519915 (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 112 Otter Avenue, Oshkosh, Wisconsin 54901 (Address of principal executive offices) (Zip Code) (414)231-8800 (Registrant's telephone number) 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 As of June 30, 1996, there were outstanding 11,189,387 shares of Class A Common Stock and 1,266,413 shares of Class B Common Stock. FORM 10-Q OSHKOSH B'GOSH, INC. AND SUBSIDIARIES INDEX Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets -- 3 June 30, 1996 and December 31, 1995 Unaudited Condensed Consolidated Statements 4 of Income -- Three Months and Six Months Ended June 30, 1996 and 1995 Unaudited Condensed Consolidated Statements 5 of Cash Flow -- Six Months Ended June 30, 1996 and 1995 Notes to Condensed Consolidated Financial 6 Statements Item 2. Management's Discussion and Analysis of 9 Results of Operations and Financial Condition Part II. Other Information 13 Signatures 14 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) June 30, December 31, 1996 1995 * (Unaudited) Assets Current Assets Cash and cash equivalents $ 1,282 $ 2,418 Accounts receivable 31,373 24,691 Inventories 98,850 95,743 Prepaid expenses & other current assets 5,654 3,127 Deferred income taxes 19,600 11,400 Total current assets 156,759 137,379 Property, plant & equipment 106,064 116,357 Less accumulated depreciation and amortization 52,099 51,346 Net property, plant and equipment 53,965 65,011 Other assets 4,920 6,189 Total assets $ 215,644 $ 208,579 Liabilities and shareholders' equity Current liabilities Accounts payable $ 9,320 $ 13,910 Accrued expenses 37,444 28,055 Total current liabilities 46,764 41,965 Long-term debt 11,160 -- Deferred income taxes -- 2,700 Employee benefit plan liabilities 15,624 13,836 Shareholders' equity Preferred stock -- -- Common stock: Class A 112 112 Class B 13 13 Retained earnings 141,537 149,720 Cumulative foreign currency translation adjustments 434 233 Total shareholders' equity 142,096 150,078 Total liabilities and shareholders'equity $ 215,644 $ 208,579 * Condensed from audited financial statements. See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 Net sales $ 82,579 $ 74,934 $ 203,455 $ 183,420 Cost of products sold 57,057 50,000 141,376 126,882 Gross profit 25,522 24,934 62,079 56,538 Selling, general and administrative expenses 29,858 28,670 61,324 56,824 Special charges 20,900 -- 20,900 -- Operating income (loss) (25,236) (3,736) (20,145) (286) Other income (expense) Interest expense (261) (346) (526) (551) Interest income 247 337 580 663 Royalty income 1,017 378 1,821 1,422 Other 162 28 282 202 Other income -- net 1,165 397 2,157 1,736 Income (loss) before taxes (24,071) (3,339) (17,988) 1,450 Income taxes (benefit) (14,231) (1,460) (11,524) 609 Net income (loss) $ (9,840) $ (1,879) $ (6,464)$ 841 Average number of shares outstanding 12,456 12,995 12,456 13,163 Net income (loss) per common share $ (0.79) $ (0.14) $ (0.52)$ 0.06 Cash dividend per common share Class A $ 0.07 $ 0.07 $ 0.14 $ 0.14 Class B $ 0.06 $ 0.06 $ 0.12 $ 0.12 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (Dollars in thousands) (Unaudited) Six Months Ended June 30, 1996 1995 Cash flows from operating activities Net income (loss) for the period $ (6,464) $ 841 Depreciation 5,350 5,222 Special charges 20,900 -- Deferred income tax benefit (11,600) 2,595 Items in income not affecting cash 1,357 1,991 Changes in current assets (16,010) (36,333) Changes in current liabilities (2,872) (2,080) Net cash used in operating activities (9,339) (27,764) Cash flows from investing activities Property, plant and equipment additions (2,916) (4,090) Other (32) (1,027) Proceeds from disposal of assets 1,710 1,893 Net cash used in investing activities (1,238) (3,224) Cash flows from financing activities Net increase in long-term borrowings 11,160 33,996 Cash dividends paid (1,719) (1,825) Repurchase of common stock -- (10,883) Net cash provided by financing activities 9,441 21,288 Net decrease in cash and cash equivalents $ (1,136) $ (9,700) See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Basis of Preparation The condensed financial statements included herein have been prepared by the Company without audit. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the financial position as of June 30, 1996 and December 31, 1995, the results of operations for the three-month and six-month periods ended June 30, 1996 and 1995, and cash flows for the six-month periods ended June 30, 1996 and 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Annual Report. Note 2. Special Charges During the second quarter of 1996, the Company recorded special charges of $8.0 million ($.64 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 ultimately 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 of our 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 our European subsidiaries. Total severance and related benefits totaling approximately $3.9 million will be paid as employee terminations occur during the second half of 1996 and first half of 1997. The special charges include approximately $8.9 million related to other exit costs, including estimated lease settlements and anticipated costs to dispose of certain operating assets, including inventory, as part of the exit plan. The special charges also include approximately $8.1 million of 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." Of this amount, approximately $6.6 million reduced the carrying value of property, plant and equipment on the June 30, 1996 balance sheet. The Company's decision to implement these changes will result in unamortized retail leasehold improvements and excess manufacturing space in Tennessee. These assets have been written down to management's estimate of fair value (approximately $3.5 million, net of disposal costs) as part of the special charges. The Company is actively pursuing buyers for certain leasehold improvements and its manufacturing facilities. The liquidation of the European entities will permit 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, reduces the net impact on Company earnings by $12.9 million. In total, the special charges will require approximately $9.0 million of cash outlays. However, this amount will be more than offset by the cash generated from the income tax benefit and asset sales. These restructuring decisions should not have a material impact on the Company's ongoing results of operations or sales for the remainder of 1996 as the Company anticipates licensing its European business effective January 1, 1997 and will continue to operate a majority of its Genuine Kids stores through the first quarter of 1997. The Company's 1997 net income will be favorably impacted by a substantial reduction of operating losses from its European subsidiaries (which amounted to $4.6 million in 1995 and are expected to be between $3 and $5 million in 1996), elimination of our Genuine Kids business (which is operated as part of the Company's retail operations) and royalty income generated from the European licensing arrangement. The Company's European subsidiary sales for 1995 and the six months ended June 30, 1996 amounted to $12.5 million and $8 million, respectively. The Company's Genuine Kids sales for 1995 and the six months ended June 30, 1996 amounted to $40.9 million and $16.1 million, respectively. These 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 effect of these decisions. Note 3. Inventories A summary of inventories follows: June 30, December 31, 1996 1995 (Dollars in thousands) Finished goods $ 63,231 $ 70,837 Work in process 26,228 15,462 Raw materials 9,391 9,444 Total $ 98,850 $ 95,743 The replacement cost of inventory exceeds the above LIFO costs by $17,178 and $16,158 at June 30, 1996 and December 31, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Consolidated net sales for the three months ended June 30, 1996, were $82.6 million, an increase of $7.7 million (10.2%) over 1995 second quarter sales of $74.9 million. Consolidated net sales for the six months ended June 30, 1996, were $203.5 million, an increase of $20.1 million (10.9%) over the first six months of 1995 sales of $183.4 million. The Company's domestic wholesale business of approximately $45.8 million for the second quarter of 1996 was 6.5% more than 1995 second quarter sales of approximately $43 million, with a corresponding increase in unit shipments of approximately 10.8%. The increase in domestic wholesale unit shipments resulted primarily from increased sales of closeout merchandise. Shipments of first quality fashion garments were relatively flat during the second quarter of 1996 when compared to 1995. The Company currently anticipates that unit shipments for the second half of 1996 will be relatively flat compared to 1995 unit shipments. The Company's retail sales at its OshKosh B'Gosh branded stores and Genuine Kids stores were approximately $32.1 million for the second quarter of 1996, a 23.5% increase over 1995 second quarter retail sales of approximately $26 million. For the six month period ended June 30, 1996, Company retail sales were approximately $61.2 million, a 25.7% increase over the first six months of 1995 retail sales of approximately $48.7 million. The Company's comparable store sales for the three month and six month periods ended June 30, 1996 were up approximately 8.3% and 8.5%, respectively. During the second quarter of 1996, the Company opened three OshKosh stores, converted three Genuine Kids stores to OshKosh stores and closed two Genuine Kids stores. In connection with the Company's recently announced discontinuance of its Genuine Kids retail store chain, the Company currently anticipates closing eight additional Genuine Kids stores and converting eight to OshKosh stores during the remainder of 1996. Additional Genuine Kids stores may be closed in 1996 pending negotiations with landlords. The Company anticipates having all of its Genuine Kids stores closed by March 31, 1997. The Company also anticipates opening an additional nine OshKosh stores during the remainder of 1996. The Company's gross profit margin as a percent of sales was 30.9% in the second quarter of 1996, compared with 33.3% in the second quarter of 1995. For the six months ended June 30, 1996, gross margin as a percent of sales was 30.5% compared to 30.8% for the first six months of 1995. The Company's second quarter 1996 gross margin was adversely affected by a much higher sales level of closeout merchandise (both Holiday 1995 and Spring 1996 season closeout merchandise). The Company currently anticipates modest improvement in its gross profit margins for the remainder of 1996 as compared to the last two quarters of 1995. Selling, general and administrative expenses (excluding the special charges) for the three month and six month periods ended June 30, 1996, increased $1.2 million and $4.5 million over the three month and six month periods ended June 30, 1995, respectively. As a percent of net sales, these expenses were 36.2% and 30.1% for the three month and six month periods ended June 30, 1996 as compared to 38.3% and 31.0% in the comparable periods of 1995. The primary reason for the dollar increase in selling, general and administrative expenses is the Company's continued expansion of its OshKosh retail business. The Company currently anticipates that selling, general and administrative expenses, as a percent of net sales, will be stable or down slightly for the remainder of 1996 in comparison to the second half of 1995. During the second quarter of 1996, the Company recorded special charges of $8.0 million ($.64 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 ultimately 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 of our 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 our European subsidiaries. Total severance and related benefits totaling approximately $3.9 million will be paid as employee terminations occur during the second half of 1996 and first half of 1997. The special charges include approximately $8.9 million related to other exit costs, including estimated lease settlements and anticipated costs to dispose of certain operating assets, including inventory, as part of the exit plan. The special charges also include approximately $8.1 million of 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." Of this amount, approximately $6.6 million reduced the carrying value of property, plant and equipment on the June 30, 1996 balance sheet. The Company's decision to implement these changes will result in unamortized retail leasehold improvements and excess manufacturing space in Tennessee. These assets have been written down to management's estimate of fair value (approximately $3.5 million, net of disposal costs) as part of the special charges. The Company is actively pursuing buyers for certain leasehold improvements and its manufacturing facilities. The liquidation of the European entities will permit 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, reduces the net impact on Company earnings by $12.9 million. In total, the special charges will require approximately $9.0 million of cash outlays. However, this amount will be more than offset by the cash generated from the income tax benefit and asset sales. These restructuring decisions should not have a material impact on the Company's ongoing results of operations or sales for the remainder of 1996 as the Company anticipates licensing its European business effective January 1, 1997 and will continue to operate a majority of its Genuine Kids stores through the first quarter of 1997. The Company's 1997 net income will be favorably impacted by a substantial reduction of operating losses from its European subsidiaries (which amounted to $4.6 million in 1995 and are expected to be between $3 and $5 million in 1996), elimination of our Genuine Kids business (which is operated as part of the Company's retail operations) and royalty income generated from the European licensing arrangement. The Company's European subsidiary sales for 1995 and the six months ended June 30, 1996 amounted to $12.5 million and $8 million, respectively. The Company's Genuine Kids sales for 1995 and the six months ended June 30, 1996 amounted to $40.9 million and $16.1 million, respectively. These 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 effect of these decisions. The Company's net other income for the three month and six month periods ended June 30, 1996 was $1.2 million and $2.2 million, respectively, compared to $.4 million and $1.7 million in the same periods of 1995. These increases result primarily from increased royalty income from foreign licensees. The Company's effective tax rate (tax benefit) for the second quarter of 1996 was 59.1%. This high tax benefit is a result of the recognition of previously unrecorded U.S. tax benefits related to the discontinuance of the Company's European subsidiaries. The Company anticipates that its effective tax rate to be applied against net income in the third and fourth quarters of 1996 will be approximately 40%. SEASONALITY 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 selling season at its retail stores. The Company's second quarter sales and income are lowest, both because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. Accordingly, the Company has incurred net losses during the second quarter of 1996 and 1995. Results of operations for the Company's second quarter and six months ended June 30, 1996 are not indicative of anticipated quarterly results through the balance of the year. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Net working capital at June 30, 1996 was $110 million as compared to $95.4 million at the end of 1995 and $127.8 million at June 30, 1995. The Company's current ratio was 3.4 to 1 at June 30, 1996, compared to 3.3 to 1 at the end of 1995 and 4.4 to 1 at June 30, 1995. The decrease in net working capital at June 30, 1996 compared to June 30, 1995 of $17.8 million is primarily attributable to the Company's planned reduction in inventory levels. June 30, 1996 inventory levels were approximately $14.2 million below prior year levels. The Company's accrued expenses at June 30, 1996 were approximately $7.2 million higher than prior year levels due primarily to the effects of the Company's special charges recorded in June 1996. The Company maintains a revolving credit arrangement to provide seasonal working capital borrowings and supports its letter of credit requirements. At June 30, 1996, the Company had approximately $11.2 million of long-term debt outstanding, as compared to $34 million at June 30, 1995. This decrease in long- term debt outstanding, substantially all of which is under the Company's revolving credit arrangement, is a result of the decrease in inventory levels and cash generated from operations. The Company believes that its cash generated from operations, along with available credit facilities, will be sufficient to finance the Company's capital expenditure, seasonal working capital, restructuring and business development needs. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The registrant's annual meeting of stockholders was held on May 3, 1996 (the "1996 Annual Meeting"). A majority of the shares of each class of the registrant's Common Stock, represented in person or by proxy, was required to constitute a quorum for action to be taken by such class. A total of 10,063,946 shares of Class A Common Stock and 1,033,030 shares of Class B Common Stock were represented, in person or by proxy, at the 1996 Annual Meeting, constituting a quorum of each class. With respect to the election of Class A Directors, the following votes were cast in favor of and withheld with respect to the following management nominees: Broker Nominee Votes in Favor Votes Withheld Non-Votes Orren J. Bradley 10,028,212 33,734 2,000 Jerry M. Hiegel 10,028,215 33,731 2,000 With respect to the election of Class B Directors, the following votes were cast in favor of and withheld with respect to the following management nominees: Broker Nominee Votes in Favor Votes Withheld Non-Votes Douglas W. Hyde 1,027,615 5,415 0 Michael D. Wachtel 1,027,615 5,415 0 David L. Omachinski 1,027,615 5,415 0 Steven R. Duback 1,027,615 5,415 0 Judith D. Pyle 1,027,615 5,415 0 William F. Wyman 1,027,615 5,415 0 Stig A. Kry 1,027,615 5,415 0 Directors are elected by a plurality of the votes of the shares of the class entitled to elect such directors, present in person or represented by proxy at the meeting. "Plurality" means that the individuals who receive the largest number of votes are elected as directors up to the maximum number of directors to be chosen at the meeting. There were no nominees for director other than management's nominees identified above. Accordingly, each such nominee received a plurality of the votes cast by shares of the class indicated and, therefore, was elected. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities and 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. Date: July 23, 1996 /S/ DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: July 23, 1996 /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer, Chief Financial Officer and Director EX-27 2
5 1000 6-MOS DEC-31-1996 JUN-30-1996 1282 0 31373 0 98850 156759 106064 52099 215644 46764 0 0 0 125 141971 215644 82579 82579 57057 57057 50758 0 261 (24071) (14231) (9840) 0 0 0 (9840) (.79) (.79)
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