-----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, HVOinoM899+gpSU5jtdh1resSwd5QPg/zVDu6nrbzWJfUMPdCQeA1Usj1glmUTqq V/ZP9tr+1BnRV0B4ePcRnw== 0000075042-99-000004.txt : 19990422 0000075042-99-000004.hdr.sgml : 19990422 ACCESSION NUMBER: 0000075042-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990421 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: 99597896 BUSINESS ADDRESS: STREET 1: 112 OTTER AVE STREET 2: P O BOX 300 CITY: OSHKOSH STATE: WI ZIP: 54901 BUSINESS PHONE: 9202318800 MAIL ADDRESS: STREET 1: 112 OTTER AVE CITY: OSHKOSH STATE: WI ZIP: 54901 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 April 3, 1999 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. A Delaware Corporation 39-0519915 (I.R.S. ID) 112 Otter Avenue Oshkosh, Wisconsin 54901 Telephone number: (920) 231-8800 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 April 19, 1999, there were outstanding 14,269,908 shares of Class A Common Stock and 2,259,708 shares of Class B Common Stock. FORM 10-Q OSHKOSH B'GOSH, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets-April 3, 1999 and January 2, 1999 Unaudited Condensed Consolidated Statements of Income-Three Month Periods ended April 3, 1999 and April 4, 1998 Unaudited Condensed Consolidated Statements of Cash Flow-Three Month Periods Ended April 3, 1999 and April 4, 1998 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Item 3. Quantitative and Qualitative Disclosures About Market Risk Part II. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Part I - Financial Information Item 1. Financial Statements OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) April 3, January 2, 1999 1999 * (unaudited) Assets Current assets Cash and cash equivalents $ 3,126 $ 14,308 Short-term investments 480 2,500 Accounts receivable 30,736 24,008 Inventories 47,690 65,584 Prepaid expenses & other current assets 3,849 862 Deferred income taxes 14,200 16,700 Total current assets 100,081 123,962 Property, plant & equipment 65,488 65,588 Less accumulated depreciation and amortization 34,359 33,208 Net property, plant & equipment 31,129 32,380 Non-current deferred income taxes 4,100 4,900 Other assets 1,245 1,326 Total assets $ 136,555 $ 162,568 Liabilities and shareholders' equity Current liabilities Accounts payable $ 1,329 $ 7,638 Accrued expenses 39,951 39,448 Total current liabilities 41,280 47,086 Employee benefit plan liabilities 12,714 12,465 Shareholders' equity Preferred stock -- -- Common stock: Class A 143 157 Class B 23 23 Retained earnings 82,395 102,837 Total shareholders' equity 82,561 103,017 Total liabilities and shareholders' equity $ 136,555 $ 162,568 *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 April 3 April 4, 1999 1998 Net sales $ 101,933 $ 102,535 Cost of products sold 61,791 65,146 Gross profit 40,142 37,389 Selling, general and administrative expenses 31,465 30,662 Royalty income, net (1,996) (2,254) Operating income 10,673 8,981 Other income (expense): Interest expense (233) (85) Interest income 291 238 Miscellaneous (57) (51) Other income -- net 1 102 Income before taxes 10,674 9,083 Income taxes 4,166 3,742 Net income $ 6,508 $ 5,341 Net income per common share Basic $ 0.37 $ 0.27 Diluted $ 0.36 $ 0.27 Weighted average common shares outstanding Basic 17,687 19,730 Diluted (Including share equivalents) 17,878 19,974 Cash dividends per common share Class A $ 0.0500 $ 0.0350 Class B $ 0.0425 $ 0.0300 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (In thousands) (Unaudited) Three Month Period Ended April 3, April 4, 1999 1998 Cash flows from operating activities Net income for the period $ 6,508 $ 5,341 Depreciation 1,721 2,249 Deferred income taxes 3,300 1,000 Items in net income not affecting cash and cash equivalents 425 542 Changes in current assets 8,179 (7,004) Changes in current liabilities (5,806) (3,845) Net cash provided by (used in) operating activities 14,327 (1,717) Cash flows from investing activities Additions to property, plant and equipment (832) (5,135) Proceeds from disposal of assets 304 43 Sale of short-term investments, net 2,020 8,700 Changes in other assets (37) (34) Net cash provided by investing activities 1,455 3,574 Cash flows from financing activities Dividends paid (880) (678) Net proceeds from issuance of common shares 991 400 Repurchase of common shares (27,075) -- Net cash used in financing activities (26,964) (278) Net increase (decrease) in cash and cash equivalents $ (11,182) $ 1,579 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 April 3, 1999, the results of operations for the three month periods ended April 3, 1999 and April 4, 1998, and cash flows for the three month periods ended April 3, 1999 and April 4, 1998. 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 1998 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 1, 2000 for fiscal 1999 and 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 first quarter of 1998 consisted of 13 weeks and 3 days, while the first quarter period ended April 3, 1999 consisted of 13 weeks. Note 2. Inventories A summary of inventories follows: April 3, January 2, 1999 1999 (Dollars in thousands) Finished goods $ 40,445 $ 55,005 Work in process 5,382 9,333 Raw materials 1,863 1,246 Total $ 47,690 $ 65,584 The replacement cost of inventory exceeds the above LIFO costs by $14,049 and $13,899 at April 3, 1999 and January 2, 1999, respectively. Item 2. 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 First Quarter Ended April 3, 1999 April 4, 1998 Net sales 100.0% 100.0% Cost of products sold 60.6% 63.5% Gross profit 39.4% 36.5% Selling, general and administrative expenses 30.9% 29.9% Royalty income, net (2.0%) (2.2%) Operating income 10.5% 8.8% Other income, net 0.0% 0.1% Income for income taxes 10.5% 8.9% Income taxes 4.1% 3.7% Net income 6.4% 5.2% Net Sales Consolidated net sales for the first quarter ended April 3, 1999 were $101.9 million, a $.6 million decrease (.6%) from 1998 first quarter net sales of $102.5 million. The Company's net sales for the first quarter periods ended April 3, 1999 and April 4, 1998 are summarized as follows: Net Sales (in millions) Domestic Wholesale Retail International Total Three months ended: April 3, 1999 $ 60.3 $ 38.9 $ 2.7 $ 101.9 April 4, 1998 64.1 36.6 1.8 102.5 Increase (decrease) (3.8) 2.3 .9 (.6) Percent increase (decrease) (5.9%) 6.3% 50.0% (.6%) The Company's first quarter 1999 domestic wholesale unit shipments were flat as compared to 1998. The decrease in sales dollars for the first quarter of 1999 resulted primarily from a combination of product mix and lower average unit selling prices. The Company's first quarter 1999 retail sales increase resulted from a combination of a 5.9% comparable store sales gain and sales volume from stores opened subsequent to April 4, 1998. First quarter 1999 comparable store sales were favorably impacted by an earlier Easter than in 1998. For the remainder of 1999, the Company currently anticipates low single-digit comparable store sales gains. At April 3, 1999 the Company operated 123 domestic OshKosh retail stores, including 118 outlet stores and 5 showcase stores. During the first quarter of 1999, the Company opened one retail store. At April 4, 1998 the Company operated a total of 120 domestic OshKosh retail stores. Current Company plans for the remainder of 1999 call for the addition of 7-10 retail stores. Gross Profit The Company's gross profit margin as a percent of sales improved to 39.4% in the first quarter of 1999, compared to 36.5% in the first quarter of 1998. This gross profit margin improvement was due primarily to continued implementation and execution of the Company's global sourcing strategy and continuing focus on product design and development activities. The Company's current 1999 sourcing plan indicates that approximately 36% of units will be produced at the Company's domestic facilities as compared to approximately 42% in 1998. The Company currently anticipates further modest improvement in its gross profit margin for the remainder of 1999 as compared to 1998. Selling, General, and Administrative Expenses (S,G&A) S,G&A expenses for the first quarter of 1999 increased $.8 million over the first quarter of 1998. As a percentage of net sales, S,G&A expenses were 30.9% for the first quarter of 1999 as compared to 29.9% for the first quarter of 1998. The increase in S,G&A expenses relates primarily to costs associated with the Company's transition to an updated product distribution system and related processes. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's first quarter 1999 net royalty income of $2.0 million decreased approximately 11.4% from net royalty income earned in the first quarter of 1998 of approximately $2.3 million. 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). Operating Income As a result of the factors described above, the Company's operating income increased to $10.7 million for the first quarter of 1999 as compared to $9.0 million for the first quarter of 1998. Income Taxes The Company's effective tax rate for the first quarter of 1999 was 39.0% as compared to 41.2% for the first quarter of 1998. The decrease in the effective tax rate in the first quarter of 1999 was a result of the impact of tax planning initiatives to support changing business needs. Net Income Net income for the three months ended April 3, 1999 of $6.5 million was a $1.2 million (21.8%) increase over net income for the three months ended April 4, 1998 of $5.3 million. The Company's ongoing stock repurchase programs resulted in a reduction in its weighted-average diluted shares outstanding during the first quarter of 1999. This decrease, combined with the 21.8% increase in net income, resulted in a 33.3% increase in diluted earnings per share for the first quarter of 1999 of $.36 as compared to $.27 in 1998. SEASONALITY OF BUSINESS The Company's business is 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 1999 quarterly sales and income. First quarter 1999 operating results are not necessarily indicative of anticipated quarterly results throughout the balance of the year. YEAR 2000 CONSIDERATIONS General The Year 2000 issue involves computer programs and imbedded microprocessors in computer systems and other equipment that utilize two digits rather than four digits to define the applicable year. These systems need to be modified to process and properly recognize date sensitive information before, on, or after December 31, 1999. Without modification, these systems may not properly recognize date sensitive information when the year changes to 2000 and could generate erroneous data or a system failure. State of Readiness To assess the business risk associated with the Year 2000 issue, the Company has divided its review into four major areas. These areas include: 1. Computer hardware and application software programs that comprise the Company's primary business systems. 2. PC hardware and software, including LANS and servers that comprise various aspects of the Company's business. 3. Communications with what the Company believes to be all of its significant customers and vendors regarding the status of their Year 2000 compliance programs. 4. Other non-information technology aspects of the Company's business. The Company has identified three phases of its Year 2000 project applicable to various portions of the above major areas, which include a systems inventory of all hardware and programs, problem assessment, and remediation and testing. The Company has established a formal Year 2000 compliance project that addresses the Company's significant business systems. This project has an internal project leader to coordinate the inventory, problem assessment, and remediation and testing of the Year 2000 issues affecting the Company's information and other business systems. As of April 3, 1999, the systems inventory, problem assessment, and over 90% of the remediation and testing have been completed as it relates to the Company's computer hardware and application software programs. The Company currently anticipates this portion of the project will be substantially completed and all of these systems will be Year 2000 compliant by the end of the second quarter of 1999. All the Company's personal computers have been inventoried and problem assessment has been completed. Based on this assessment, significant remediation is not necessary, as we do not anticipate any major problems with our PC based hardware or software as a result of the Year 2000. The Company has received confirmation from what it believes to be all of its significant vendors and customers 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. The Company has completed the systems inventory and problem assessment related to all other essential non-information technology systems, and has initiated appropriate remediation and testing which is expected to be completed by mid-1999. Costs The Company is executing the Year 2000 program primarily with existing internal resources and some outside consultants. The Company has and will spend an aggregate of approximately $1 million, of which approximately $.9 million has been incurred through April 3, 1999, on its remediation efforts. All costs associated with the Year 2000 compliance are being funded with cash flow generated from operations and are being expensed as incurred. These amounts do not have a material impact on the Company's business, operations, or financial condition. Risks At this time, the Company believes that it is adequately addressing the Year 2000 issues, but there can be no assurance that the Year 2000 issues will not have a material adverse affect on the business, financial condition, or results of operations of the Company. Additionally, disruptions in the economy generally resulting from the Year 2000 problem could have a material adverse effect on the Company. 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, such failures could have a materially adverse effect on the result of operations, liquidity and financial condition of the Company. Contingency Plans The Company presently believes that the Year 2000 issue will not pose significant operational problems for its computer systems. The Company does plan to have its personnel "standing by" at the end of the year to resolve any potential problems as rapidly as possible. These problems are expected to be minimal. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY At April 3, 1999, the Company's cash, cash equivalents and short- term investments were $3.6 million, compared to $16.8 million at the end of 1998 and $15.4 million at April 4, 1998. This reduction is attributable to the Company's stock repurchases, offset in part by cash generated from operations. Net working capital at April 3, 1999 was $58.8 million compared to $76.9 million at January 2, 1999, and $86.0 million at April 4, 1998. Accounts receivable at April 3, 1999 were $30.7 million compared to $24.0 million at January 2, 1999 and $30.9 million at April 4, 1998. Inventories at April 3, 1999 were $47.7 million, compared to $65.6 million at January 2, 1999 and $64.1 million at April 4, 1998. Management believes that April 3, 1999 inventory levels are generally appropriate for anticipated ongoing 1999 business activities. Cash provided by operations amounted to approximately $14.3 million in the first quarter of 1999, compared to a use of cash of $1.7 million in the first quarter of 1998. The increase in cash provided by operating activities in the first quarter of 1999 over 1998 is primarily attributable to reduced inventory levels. Cash provided by investing activities totaled $1.5 million in the first quarter of 1999, compared to $3.6 million in 1998. Capital expenditures were $.8 million in the first quarter of 1999, compared with $5.1 million in 1998 and are currently budgeted at $9.6 million for all of 1999. Capital expenditures in 1998 related primarily to the Company's upgrade of its distribution systems and White House, Tennessee distribution facilities. These capital expenditures were offset by reductions in the levels of short-term investments. Depreciation and amortization are currently budgeted at $9.0 million for 1999. Cash used in financing activities totaled $27.0 million in the first quarter of 1999, compared to $.3 million in the first quarter of 1998. The Company's primary financing activities consisted of stock repurchase transactions in 1999 and dividends in both periods. On August 10, 1998, the Company's Board of Directors authorized a two-year, $60 million repurchase program of the Company's Class A common stock. During the first quarter of 1999, the Company repurchased 1,469,200 shares of its Class A common stock under this program for approximately $27.1 million. The Company has repurchased a total of 2,813,100 shares of its Class A common stock under its current repurchase programs for approximately $54.4 million. The Company has a credit agreement with participating banks. This arrangement provides a $60 million revolving credit facility and a $40 million revocable demand line of credit for cash borrowings, issuance of commercial paper and letters of credit. The Company had no outstanding long-term debt at April 3, 1999, January 2, 1999 or April 4, 1998. The agreement expires in June, 2001. The Company believes that these credit facilities, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs as well as its capital expenditures, remaining special charges, and business development needs. INFLATION The effects of inflation on the Company's operating results and financial condition were not significant. FORWARD-LOOKING STATEMENTS 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. In addition, from time to time the Company may issue press releases and other written communications, and representatives of the Company may make oral statements, which contain forward-looking information. Except for historical information, matters discussed in such oral and written communications, including this report, are forward-looking statements. 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, natural disasters, 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. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The registrant does not believe it has material exposure to market risk with respect to any of its investments; the registrant does not utilize market rate sensitive instruments for trading or other purposes. For information regarding the Company's investments, refer to the "Cash equivalents" and "Short-term investments" notes to the consolidated financial statements on page 19 of the 1998 Form 10-K. PART II. OTHER INFORMATION 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: 4/21/99 /S/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 4/21/99 /S/DAVID L. OMACHINSKI Vice President-Finance, Treasurer Chief Financial Officer and Director EX-27 2
5 3-MOS JAN-01-2000 APR-03-1999 3,126,000 0 36,862,000 6,126,000 47,690,000 100,080,000 65,488,000 34,359,000 136,555,000 41,280,000 0 0 0 166,000 82,395,000 136,555,000 101,933,000 103,929,000 61,791,000 31,465,000 57,000 0 233,000 10,674,000 4,166,000 6,508,000 0 0 0 6,508,000 .37 .36
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