-----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, RrNuQ51MvcEext78B58mnSqUM3ezfqIl5W1mOXoHD/46thUWrOKvXgoWFSHRzYVj io7UIvJP8q9m7Q5wZntkJQ== 0000075042-98-000016.txt : 19981022 0000075042-98-000016.hdr.sgml : 19981022 ACCESSION NUMBER: 0000075042-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981021 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: SEC FILE NUMBER: 000-13365 FILM NUMBER: 98728297 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 October 3, 1998 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) (920) 231-8800 (Registrant's telephone number) Effective January 1, 1998, the Company changed its fiscal year from a calendar year to a 52/53-week year ending on the Saturday closest to December 31 (January 2, 1999 for fiscal 1998). 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 October 3, 1998, there were outstanding 15,816,686 shares of Class A Common Stock and 2,338,544 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-October 3, 1998 and December 31, 1997 3 Unaudited Condensed Consolidated Statements of Income-Three Month and Nine Month Periods Ended October 3, 1998 and September 30, 1997 4 Unaudited Condensed Consolidated Statements of Cash Flows-Nine Month Periods Ended October 3, 1998 and September 30, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7 Part II. Other Information 13 Signatures 13 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) October 3, December 31, 1998 1997 * (Unaudited) Assets Current assets Cash and cash equivalents $ 1,084 $ 13,779 Short-term investments -- 8,700 Accounts receivable 37,427 23,278 Inventories 69,362 68,226 Prepaid expenses and other current assets 2,280 1,265 Deferred income taxes 15,100 15,800 Total current assets 125,253 131,048 Property, plant and equipment 69,547 62,192 Less accumulated depreciation and amortization 33,090 29,237 Net property, plant and equipment 36,457 32,955 Deferred income taxes 5,400 5,500 Other assets 4,758 5,285 Total assets $ 171,868 $ 174,788 Liabilities and shareholders' equity Current liabilities Short-term borrowings $ 5,450 $ -- Accounts payable 4,394 10,273 Accrued expenses 47,369 38,013 Total current liabilities 57,213 48,286 Employee benefit plan liabilities 14,172 13,345 Shareholders' equity Preferred stock -- -- Common stock: Class A 158 174 Class B 23 24 Retained earnings 100,302 112,959 Total shareholders' equity 100,483 113,157 Total liabilities and shareholders' equity $ 171,868 $ 174,788 * 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 month period ended Nine month period ended October 3, September 30, October 3, September 30, 1998 1997 1998 1997 Net sales $ 131,046 $ 124,922 $ 315,869 $ 293,429 Cost of products sold 80,242 78,320 194,900 190,751 Gross profit 50,804 46,602 120,969 102,678 Selling, general and administrative expenses 30,767 29,382 91,129 83,041 Royalty income, net (2,446) (3,167) (6,242) (6,179) Operating income 22,483 20,387 36,082 25,816 Other income (expense) Interest expense (113) (75) (285) (204) Interest income 169 338 666 1,403 Miscellaneous (17) 1 (91) (144) Other income-net 39 264 290 1,055 Income before income taxes 22,522 20,651 36,372 26,871 Income taxes 9,008 8,259 14,686 10,749 Net income $ 13,514 $ 12,392 $ 21,686 $ 16,122 Net income per common share Basic $ 0.71 $ 0.58 $ 1.12 $ 0.71 Diluted $ 0.70 $ 0.58 $ 1.10 $ 0.71 Weighted average common shares outstanding Basic 18,907 21,344 19,385 22,756 Diluted (Including share equivalents) 19,228 21,534 19,669 22,850 Cash dividends per common share Class A $ 0.05 $ 0.035 $ 0.12 $ 0.105 Class B $ 0.0425 $ 0.03 $ 0.1025 $ 0.09 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Nine month period ended October 3, September 30, 1998 1997 Cash flows from operating activities Net income $ 21,686 $ 16,122 Depreciation 5,939 6,412 Provision for deferred income taxes 800 1,000 Items in income not affecting cash 1,471 1,847 Changes in current assets (16,301) (2,853) Changes in current liabilities 3,864 6,466 Net cash provided by operating activities 17,459 28,994 Cash flows from investing activities Additions to property, plant and equipment (9,848) (5,140) Proceeds from disposal of assets 224 2,096 Sale of short-term investments, net 8,700 10,040 Other 67 (2,248) Net cash provided by (used in) investing activities (857) 4,748 Cash flows from financing activities Proceeds from short-term borrowings 5,450 -- Cash dividends paid (2,292) (2,305) Repurchase of common stock (33,009) (40,068) Common shares issued, net 554 20 Net cash used in financing activities (29,297) (42,353) Net decrease in cash and cash equivalents $ (12,695) $ (8,611) 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 consolidated 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 October 3, 1998 and the results of operations for the three-month and nine-month periods ended October 3, 1998 and September 30, 1997 and cash flows for the nine-month periods ended October 3, 1998 and September 30, 1997. 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 1997 Annual Report. Effective January 1, 1998, the Company changed its fiscal year from a calendar year to a 52/53-week year ending on the Saturday closest to December 31 (January 2, 1999 for fiscal 1998). Each quarter will generally consist of a 13-week period ending on a Saturday. Due to the conversion to a 52/53-week year, the three month period ended October 3, 1998 was one day shorter than the comparative period in fiscal 1997. Shareholders' equity, share and per share amounts for all periods presented have been adjusted for the 2 for 1 stock split declared by the Company's Board of Directors on August 10, 1998, effected in the form of a stock dividend. Note 2. Inventories A summary of inventories follows: October 3, December 31, 1998 1997 (Dollars in thousands) Finished goods $ 61,626 $ 49,400 Work in process 6,809 14,782 Raw materials 927 4,044 Total $ 69,362 $ 68,226 The replacement cost of inventory exceeds the above LIFO costs by $14,678 and $14,138 at October 3, 1998 and December 31, 1997, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected Company income statement data expressed as a percentage of net sales. As a Percentage of Net Sales for the Three month period ended Nine month period ended Oct. 3, 1998 Sept. 30, 1997 Oct. 3, 1998 Sept. 30, 1997 Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 61.2% 62.7% 61.7% 65.0% Gross profit 38.8% 37.3% 38.3% 35.0% Selling, general and administrative expenses 23.5% 23.5% 28.9% 28.3% Royalty income, net (1.9%) (2.5%) (2.0%) (2.1%) Operating income 17.2% 16.3% 11.4% 8.8% Other income, net -- 0.2% 0.1% .4% Income before income taxes 17.2% 16.5% 11.5% 9.2% Income taxes 6.9% 6.6% 4.6% 3.7% Net income 10.3% 9.9% 6.9% 5.5% Net Sales Consolidated net sales for the three month period ended October 3, 1998 were $131.0 million, a $6.1 million increase (4.9%) over 1997 third quarter net sales of $124.9 million. Consolidated net sales for the nine month period ended October 3, 1998 were $315.9 million, a $22.5 million increase (7.7%) from net sales of $293.4 million for the first nine months of 1997. The Company's net sales for the three month and nine month periods ended October 3, 1998 and September 30, 1997 are summarized as follows: Net Sales (in millions) Domestic Wholesale Retail International Total Three month period ended: October 3, 1998 $ 70.1 $ 59.3 $ 1.6 $ 131.0 September 30, 1997 69.7 53.5 1.7 124.9 Increase (decrease) .4 5.8 (0.1) 6.1 Percent increase (decrease) 0.6% 10.8% (5.9%) 4.9% Nine month period ended: October 3, 1998 $ 175.9 $135.5 $ 4.5 $ 315.9 September 30, 1997 165.9 122.0 5.5 293.4 Increase (decrease) 10.0 13.5 (1.0) 22.5 Percent increase (decrease) 6.0% 11.1% (18.2%) 7.7% The Company's domestic wholesale unit shipments for the three month and nine month periods ended October 3, 1998 were up 4.1% and 7.5%, respectively, over the corresponding three month and nine month periods of 1997. The Company currently anticipates a 5% to 7% increase in wholesale unit shipments for the remainder of 1998 as compared to 1997. The Company's third quarter 1998 retail sales increase resulted from a combination of an 8.1% comparable store sales gain and sales volume from stores opened subsequent to September 30, 1997. The Company's increase in retail sales for the first nine months of 1998 resulted from a combination of an 8.8% comparable store sales gains and sales volume from newly opened stores. Comparable store sales for 1998 were also favorably impacted by increased sales of Genuine Girl and Genuine Blues branded products for the entire period. These bigger sizes were introduced during the first quarter of 1997. For the remainder of 1998, the Company currently anticipates comparable store sales gains in the middle single digit range. At October 3, 1998 the Company operated 121 domestic OshKosh retail stores, including 113 outlet stores and 8 showcase stores. During the third quarter of 1998, the Company opened 1 outlet store and closed 1 existing store. At September 30, 1997, the Company operated 116 domestic OshKosh retail stores, including 108 outlet stores and 8 showcase stores. Current Company plans for the remainder of 1998 call for the addition of 3 retail stores. Gross Profit The Company's gross profit margin as a percent of net sales improved to 38.8% in the third quarter of 1998, compared to 37.3% in the third quarter of 1997. For the nine month period ended October 3, 1998, gross profit margin as a percent of net sales was 38.3%, compared to 35.0% for the first nine months of 1997. This gross profit margin improvement was due primarily to continued implementation and execution of the Company's sourcing strategy, improved operating efficiencies at the Company's domestic sewing facilities and the Company's continuing focus on product design and development activities. The Company's current 1998 sourcing plan indicates that approximately 40% of units will be produced at the Company's domestic facilities as compared to 47% in 1997. Selling, General and Administrative Expenses (S,G&A) S,G&A expenses for the three month and nine month periods ended October 3, 1998 increased $1.4 million and $8.1 million over the three and nine month periods ended September 30, 1997, respectively. As a percentage of net sales, S,G&A expenses were 23.5% and 28.9% for the three month and nine month periods ended October 3, 1998 as compared to 23.5% and 28.3% in the comparable periods of 1997. The increase in S,G&A expenses relates primarily to a combination of continued expansion of the Company's retail operations, increased volume of wholesale unit shipments, and expansion of the Company's brand enhancing activities. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. Royalty income for the three month period ended October 3, 1998 decreased $.7 million (22.8%) from the three month period ended September 30, 1997. This decrease resulted primarily from the Company's decisions to not renew its domestic outerwear license (which expired in May 1998) and its Japanese license arrangement (which ended in March 1998). Year to date royalty income of $6.2 million is flat with 1997 comparable period royalty income. The Company currently anticipates royalty income for the fourth quarter of 1998 to be relatively flat compared with the fourth quarter of 1997. Operating Income As a result of the factors described above, the Company's operating income for the three month and nine month periods ended October 3, 1998 increased to $22.5 million and $36.1 million as compared to $20.4 million and $25.8 million for the comparable periods in 1997. Income Taxes The Company's effective tax rates for the three month and nine month periods ended October 3, 1998 of approximately 40% and 40.4%, respectively, are comparable with 1997. Net Income Per Common Share The computation of net income per common share for the third quarter and first nine months of 1998 reflected a lower number of weighted average outstanding shares as compared to the same periods in 1997 (after retroactive consideration of the Company's September 1998 two-for-one stock split), primarily as a result of the Company's Dutch auction tender offer which was completed in August 1997 along with ongoing open market share repurchases under Company announced share repurchase programs. SEASONALITY OF BUSINESS The Company's business is increasingly seasonal, with highest sales and income in the third quarter, which is the Company's peak wholesale shipping period and a major retail selling season at its retail outlet stores. The Company's second quarter sales and income are the lowest, both because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 1998 quarterly sales and income. Third quarter 1998 operating results are not necessarily indicative of anticipated quarterly results throughout the balance of the year. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY At October 3, 1998 the Company's cash, cash equivalents and short-term investments were $1.1 million, compared to $22.5 million at December 31, 1997 and $22.6 million at September 30, 1997. The Company had short-term borrowings under its credit facilities of $5.5 million at October 3, 1998 as compared to no short-term borrowings at December 31, 1997 and September 30, 1997. Net working capital at October 3, 1998 was $68.0 million as compared to $82.8 million at the end of 1997 and $80.1 million at September 30, 1997. The Company's current ratio was 2.2 to 1 at October 3, 1998 as compared to 2.7 to 1 at the end of 1997 and 2.6 to 1 at September 30, 1997. The reduction in cash, cash equivalents and short-term investments, net working capital, and current ratio at October 3, 1998, along with the increased short- term borrowings as compared to September 30, 1997 is attributable primarily to the Company's stock repurchases, offset in part by cash generated from operations. Accounts receivable at October 3, 1998 were $37.4 million compared to $33.5 million at September 30, 1997. Inventories at October 3, 1998 were $69.4 million, compared to $55.0 million at September 30, 1997. The increase in inventory levels reflects the earlier receipt of Holiday merchandise in 1998 to provide improved complete and on time deliveries to the retail marketplace. Management believes that at October 3, 1998 inventory levels are generally appropriate for anticipated business activities for the remainder of 1998. The Company's capital expenditures for the first nine months of 1998 of $9.8 million compares to $5.1 million for the first nine months of 1997. This increase is primarily due to the Company's upgrade of its distribution systems and Whitehouse, Tennessee distributing facilities. Capital expenditures for all of 1998 are currently planned to be in the range of $12.0 million, including approximately $8.0 million related to the distribution system and facilities project. On August 10, 1998, the Company's Board of Directors authorized a two year, $60 million share repurchase program of the Company's Class A common stock. During the third quarter of 1998, the Company repurchased 1,087,900 shares of its Class A common stock under this program for approximately $22.7 million. During the first nine months of 1998, the Company repurchased 1,632,500 shares of its Class A common stock under its current and prior repurchase programs for approximately $33.0 million. At October 3, 1998 and September 30, 1997 the Company had no outstanding long-term debt. The Company believes that its cash and cash equivalents at October 3, 1998, credit facilities, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs and planned capital expenditures for the remainder of 1998. YEAR 2000 The Year 2000 issue involves computer programs and embedded microprocessors in computer systems and other equipment that utilize two digits rather than four to define the applicable year. These systems may be programmed to assume that all two digit dates are preceded by "19", causing "00" to be interpreted as 1900 versus 2000. This could result in the possible failure of those programs and devices to properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize date sensitive information could generate erroneous data or a system failure. The Company has a formal Year 2000 compliance project that addresses the Company's information technology systems. The Company has identified three phases of its Year 2000 project: 1) affected systems inventory, 2) problem assessment, and 3) remediation and testing. As of October 3, 1998, the inventory and assessment phases have been completed, and significant progress has been made in the remediation and testing phase. The Year 2000 project is currently anticipated to be complete in early 1999. The Company does not expect the costs associated with ensuring Year 2000 compliance to have a material impact on the Company's business, operations or financial condition. All costs associated with Year 2000 compliance are being funded with cash flow generated from operations and are being expensed as incurred. If some or all of the Company's remediated or replaced internal computer systems fail the testing phase, or if any software applications or embedded microprocessors critical to the Company's operations are overlooked in the assessment and remediation phases, there could be a material adverse effect on the Company's results of operations, liquidity and financial condition of a magnitude which the Company has not fully analyzed. The Company has requested written confirmation from what it believes to be all of its significant suppliers as to their Year 2000 compliance status, and has taken steps to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remedy their own Year 2000 issues. There can be no assurance that the systems of other companies with which the Company does business will be timely converted or that any such failure to upgrade or convert would not have an adverse effect on the Company's systems and operations. If the vendors of the Company's most important goods and services, or suppliers of the Company's necessary energy, telecommunications and transportation needs, fail to provide the Company with the materials and services which are necessary to produce, distribute and sell its products, the electrical power and other utilities to sustain its operations, or reliable means of obtaining supplies and transporting products to its customers, such failures could have a material adverse effect on the results of operations, liquidity and financial condition of the Company. The Company presently believes that the Year 2000 issue will not pose significant operational problems for its computer systems. However, the Company does not presently have a formal contingency plan in the event its Year 2000 compliance program is unsuccessful or not completed on a timely basis. SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which will be effective with the Company's financial statements for the fiscal year ending January 2, 1999. This statement establishes standards for reporting information about segments in annual and interim financial statements. This statement introduces a model for segment reporting entitled the "Management Approach." The Company does not believe that this statement will have a significant impact on the consolidated financial statements. OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE This Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on current assumptions and expectations that involve risks and uncertainties. Actual results may differ materially. The Company's future results of operations and financial position can be influenced by such factors as the level of consumer spending for apparel, particularly in the children's wear segment, overall consumer acceptance of the Company's product styling, the financial strength of the retail industry, including, but not limited to, business conditions and the general economy, competitive factors, risk of non-payment of accounts receivable, the unanticipated loss of a major customer, failure of Company suppliers to timely deliver needed raw materials, Year 2000 issues, particularly with respect to the Company's vendors and customers, as well as risk associated with foreign operations. In addition, the inability to ship Company products within agreed timeframes due to unanticipated manufacturing delays or the failure of Company contractors to deliver products within scheduled timeframes, are risk factors in ongoing business. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia. If the current financial and related difficulties were to adversely impact the Company's contractors in the Asian region, it could disrupt the supply of products contracted for by the Company. The forward-looking statements included herein are only made as of the date of this report. The Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule-Article 5 of Regulation S-X (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: 10/21/98 /S/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 10/21/98 /S/DAVID L. OMACHINSKI Vice President-Finance, Treasurer, Chief Financial Officer and Director EX-27 2
5 9-MOS JAN-02-1999 OCT-03-1998 1,084,000 0 42,827,000 5,400,000 69,362,000 125,253,000 69,547,000 33,090,000 171,868,000 57,213,000 0 0 0 181,000 100,302,000 171,868,000 315,869,000 315,869,000 194,900,000 91,129,000 91,000 0 285,000 36,372,000 14,686,000 21,686,000 0 0 0 21,686,000 1.12 1.10
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