-----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, LNPuNnJinGsqxddlk3P4VdDuSe0SiwsWFtjEndWWamvsayFBXaoRE7GshK2JwNh0 JN6QIlvhLmBbxodtfLfUpA== 0000075042-00-000006.txt : 20000426 0000075042-00-000006.hdr.sgml : 20000426 ACCESSION NUMBER: 0000075042-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000425 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: 607741 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 1, 2000 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, 2000, there were outstanding 10,178,849 shares of Class A Common Stock and 2,238,945 shares of Class B Common Stock. FORM 10-Q OSHKOSH B'GOSH, INC. AND SUBSIDIARIES INDEX Page Part I. Financial Information 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets-April 1, 2000 and January 1, 2000 3 Unaudited Condensed Consolidated Statements of Income-Three Month Periods Ended April 1, 2000 and April 3, 1999 4 Unaudited Condensed Consolidated Statements of Cash Flow-Three Month Periods Ended April 1, 2000 and April 3, 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 Item 3. Qualitative and Quantitative Disclosures About Market Risk 12 Part II. Other Information 13 Item 6. Exhibits and Reports on Form 8- K 13 Signatures Part I - Financial Information Item 1. Financial Statements OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) April 1, 2000 January 1, 2000* (unaudited) Assets Current assets Cash and cash equivalents $ 4,476 $ 9,093 Investments 511 511 Accounts receivable 23,583 16,514 Inventories 45,041 48,495 Prepaid expenses & other current assets 1,314 774 Deferred income taxes 13,900 14,200 Total current assets 88,825 89,587 Property, plant & equipment 67,937 67,118 Less accumulated depreciation and amortization 36,996 35,470 Net property, plant & equipment 30,941 31,648 Non-current deferred income taxes 5,500 5,400 Other assets 2,823 3,064 Total assets $ 128,089 $ 129,699 Liabilities and shareholders'equity Current liabilities Current portion of long-term debt $ 15,000 $ 15,000 Accounts payable 6,401 10,269 Accrued liabilities 39,218 36,976 Total current liabilities 60,619 62,245 Long-term debt 29,000 29,000 Employee benefit plan liabilities 15,283 15,015 Shareholders' equity Preferred stock -- -- Common stock: Class A 101 104 Class B 23 23 Retained earnings 23,063 23,312 Total shareholders' equity 23,187 23,439 Total liabilities and shareholders' equity $ 128,089 $ 129,699 *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 1, 2000 April 3, 1999 Net sales $ 95,051 $ 101,933 Cost of products sold 54,464 61,791 Gross profit 40,587 40,142 Selling, general and administrative expenses 33,997 31,465 Royalty income, net (2,077) (1,996) Operating income 8,667 10,673 Other income (expense): Interest expense (1,187) (233) Interest income 161 291 Miscellaneous 49 (57) Other income (expense) -- net (977) 1 Income before taxes 7,690 10,674 Income taxes 2,999 4,166 Net income $ 4,691 $ 6,508 Net income per common share Basic $ 0.37 $ 0.37 Diluted $ 0.37 $ 0.36 Weighted average common shares outstanding Basic 12,612 17,687 Diluted (Including share equivalents) 12,784 17,878 Cash dividends per common share Class A $ 0.0500 $ 0.0500 Class B $ 0.0425 $ 0.0425 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 1, 2000 April 3, 1999 Cash flows from operating activities Net income for the period $ 4,691 $ 6,508 Depreciation 1,740 1,721 Deferred income taxes 200 3,300 Items in net income not affecting cash and cash equivalents 555 425 Changes in current assets (4,155) 8,179 Changes in current liabilities (1,626) (5,806) Net cash provided by operating activities 1,405 14,327 Cash flows from investing activities Additions to property, plant and equipment (1,095) (832) Proceeds from disposal of assets 4 304 Sale of investments, net -- 2,020 Changes in other assets 12 (37) Net cash provided by (used in) investing activities (1,079) 1,455 Cash flows from financing activities Dividends paid (613) (880) Net proceeds from issuance of common shares 65 991 Repurchase of common shares (4,395) (27,075) Net cash used in financing activities (4,943) (26,964) Net decrease in cash and cash equivalents (4,617) (11,182) Cash and cash equivalents at beginning of period 9,093 14,308 Cash and cash equivalents at end of period $ 4,476 $ 3,126 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (In thousands) (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 April 1, 2000, the results of operations and cash flows for the three month periods ended April 1, 2000 and April 3, 1999. 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 consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1999 Annual Report. Note 2. Inventories A summary of inventories follows: April 1, 2000 January 1, 2000 Finished goods $ 38,067 $ 37,262 Work in process 5,750 9,352 Raw materials 1,224 1,881 Total $ 45,041 $ 48,495 The replacement cost of inventory exceeds the above LIFO costs by $11,531 and $11,381 at April 1, 2000 and January 1, 2000, respectively. Note 3. Segment Reporting The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale, and through Company owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. In conjunction with a realignment of the Company's management reporting system at the beginning of 2000, certain operations have been segregated into segments as defined by Statement of Financial Accounting Standards, No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Company manages its business operations by periodic analysis of business unit operating results. For this purpose, domestic wholesale, retail, and procurement are separately identified for management reporting and are considered segments as defined by SFAS #131. Management evaluates the operating performance of each of its business units based on net income from operations as well as return on net assets. For this purpose, product is transferred to the domestic wholesale and retail business units at cost. However, procurement receives a markup on product transferred to the Company's marketing business units. Accounting policies used for segment reporting are consistent with the Company's overall accounting policies, except that inventories are valued on a first-in first-out basis. In addition, interest income, interest expense, certain corporate office expenses, and the effects of the last-in, first-out (LIFO) inventory valuation method are not allocated to individual business units, and are included in the All Other/Corporate column below. Segment assets include all assets used in the operation of each business unit, including accounts receivable, inventories, and property, plant and equipment. Certain other corporate assets that cannot be specifically identified with the operation of a business unit are not allocated. Financial information for the Company's reportable segments follows: All Domestic Other/ Wholesale Retail Procurement Corporate Total For the three months ended April 1, 2000 Net sales $ 48,254 $ 44,340 $ -- $ 2,457 $ 95,051 Segment income before taxes 5,368 1,482 116 724 7,690 Segment assets 49,840 39,404 19,969 18,876 128,089 Depreciation expense 395 723 377 245 1,740 For the three months ended April 3, 1999 Net sales $ 60,284 $ 38,909 $ -- $ 2,740 $101,933 Segment income before taxes 6,381 487 2,332 1,474 10,674 Segment assets 69,227 34,394 17,437 15,497 136,555 Depreciation expense 371 693 322 335 1,721 For the twelve months ended January 1, 2000 Net sales $212,371 $210,350 $ -- $ 7,065 $429,786 Segment income before taxes 21,896 18,278 10,556 2,457 53,187 Segment assets 53,175 32,747 21,266 22,511 129,699 Depreciation expense 1,570 3,107 1,222 1,194 7,093 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 1, 2000 April 3, 1999 Net sales 100.0% 100.0% Cost of products sold 57.3% 60.6% Gross profit 42.7% 39.4% Selling, general and administrative expenses 35.8% 30.9% Royalty income, net (2.2%) (2.0%) Operating income 9.1% 10.5% Other income (expense), net (1.0%) 0.0% Income before income taxes 8.1% 10.5% Income taxes 3.2% 4.1% Net income 4.9% 6.4% Net Sales Consolidated net sales for the first quarter ended April 1, 2000 were $95.1 million, a $ 6.8 million decrease (6.7%) from 1999 first quarter net sales of $101.9 million. The Company's net sales for the first quarter of 2000 and 1999 are summarized as follows: Net Sales (in millions) Domestic Wholesale Retail International Total Three months ended: April 1, 2000 $ 48.3 $ 44.3 $ 2.5 $ 95.1 April 3, 1999 60.3 38.9 2.7 101.9 Increase (decrease) $ (12.0) $ 5.4 $ (.2) $ (6.8) Percent increase (decrease) (19.9%) 13.9% (7.4%) (6.7%) The Company's first quarter 2000 domestic wholesale unit shipments decreased 16.9% compared to 1999. The decrease in unit shipments resulted from a combination of slightly lower booked orders, a significant reduction in the number of "close- out" units sold (the Company's inventory levels of close-out merchandise at the beginning of 2000 were substantially lower) and the timing of shipment of certain spring fashion items (shipment delayed into early April 2000). The Company's first quarter 2000 retail sales increase resulted from a combination of a 4.5% comparable store sales gain and sales volume from stores opened subsequent to April 3, 1999. For the remainder of 2000, the Company currently anticipates low single-digit comparable store sales gains. At April 1, 2000 the Company operated 129 domestic OshKosh retail stores, including 123 outlet stores, four showcase stores, and two strip mall stores. During the first quarter of 2000, the Company opened one retail outlet store and closed two retail outlet stores. At April 3, 1999 the Company operated a total of 123 domestic OshKosh retail stores. Current Company plans for the remainder of 2000 call for the addition of approximately 13 retail stores including six strip mall stores and the closing of six to nine outlet stores. Gross Profit The Company's gross profit margin as a percent of sales improved to 42.7% in the first quarter of 2000, compared to 39.4% in the first quarter of 1999. This gross profit margin improvement was due primarily to continued implementation and execution of the Company's global sourcing strategy, continuing focus on product design and development activities, and proportion of sales from our Company's retail stores. The Company's current 2000 sourcing plan indicates that approximately 79% of units will be produced at off-shore venues as compared to approximately 64% in 1999. The Company currently anticipates further modest improvement in its gross profit margin for the remainder of 2000 as compared to 1999. Selling, General, and Administrative Expenses (S,G&A) S,G&A expenses for the first quarter of 2000 increased $2.5 million over the first quarter of 1999. As a percentage of net sales, S,G&A expenses were 35.8% for the first quarter of 2000 as compared to 30.9% for the first quarter of 1999. The increase in S,G&A expenses relates primarily to the expansion of the Company's retail operations and higher product distribution expenses. 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 2000 net royalty income of $2.1 million increased approximately 4.0% compared to net royalty income earned in the first quarter of 1999 of approximately $2.0 million. Operating Income As a result of the factors described above, the Company's operating income decreased to $8.7 million for the first quarter of 2000 as compared to $10.7 million for the first quarter of 1999. Other Income (Expense) - Net The Company's first quarter 2000 net other income (expense) was a $1.0 million expense compared to zero in 1999. Interest expense increased by approximately $1.0 million in the first quarter of 2000, primarily as a result of borrowings to help finance the Company's Dutch Auction tender offer in November 1999 and other stock repurchase transactions. Income Taxes The Company's effective tax rate for the first quarter of 2000 and 1999 was 39.0%. The Company currently anticipates an effective income tax rate of approximately 39.0% for the remainder of 2000. Net Income Net income for the three months ended April 1, 2000 of $4.7 million was a $1.8 million (27.7%) decrease compared to net income for the three months ended April 3, 1999 of $6.5 million. The Company's ongoing stock repurchase programs and November 1999 Dutch Auction tender offer resulted in a significant reduction in its weighted-average diluted shares outstanding for the first quarter of 2000 compared to the first quarter of 1999. Despite the reduction in net income, the decrease in weighted-average diluted shares outstanding resulted in a 2.8% increase in diluted earnings per share for the first quarter of 2000 of $.37 as compared to $.36 in 1999. 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 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 2000 quarterly sales and income. First quarter 2000 operating results are not necessarily indicative of anticipated quarterly results throughout the balance of the year. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY At April 1, 2000, the Company's cash, cash equivalents and investments were $5.0 million, compared to $9.6 million at the end of 1999 and $3.6 million at April 3, 1999. This reduction is attributable to the Company's stock repurchases, offset in part by cash generated from operations. Net working capital at April 1, 2000 was $28.2 million compared to $27.3 million at January 1, 2000, and $58.8 million at April 3, 1999. The reduction in working capital compared to April 3, 1999 is attributable to reductions in accounts receivable and inventories, and an increase in the current portion of long term debt related to the Company's stock repurchases. Accounts receivable at April 1, 2000, were $23.6 million compared to $16.5 million at January 1, 2000, and $30.7 million at April 3, 1999. The decrease in accounts receivable is attributable to reduced wholesale shipments in the first quarter of 2000. Inventories at April 1, 2000, were $45.0 million, compared to $48.5 million at January 1, 2000, and $47.7 million at April 3, 1999. Management believes that April 1, 2000, inventory levels are generally appropriate for anticipated ongoing 2000 business activities. Cash provided by operations amounted to approximately $1.4 million in the first quarter of 2000, compared to $14.3 million in the first quarter of 1999. The change in cash provided by operating activities in the first quarter of 2000 compared to 1999 is primarily attributable to relatively comparable inventory levels during the first quarter of 2000, as compared to significant inventory reductions during the first quarter of 1999. Investing activities used $1.1 million of cash in the first quarter of 2000 compared to providing $1.5 million of cash in 1999. Capital expenditures were $1.1 million in the first quarter of 2000, compared with $.8 million in 1999 and are currently budgeted at $10 million for all of 2000. Depreciation and amortization are currently budgeted at $8 million for 2000. Cash used in financing activities totaled $4.9 million in the first quarter of 2000, compared to $27.0 million in the first quarter of 1999. The Company's primary financing activities consisted of stock repurchase transactions and dividends in both periods. On December 6, 1999, the Company's Board of Directors authorized a 1.5 million share repurchase program of the Company's Class A common stock. During the first quarter of 2000, the Company repurchased 244,600 shares of its Class A common stock under this program for approximately $4.4 million. The Company has repurchased a total of 498,500 shares of its Class A common stock under its current repurchase programs for approximately $9.2 million. In November, 1999, the Company entered into a new unsecured credit agreement with a number of banks that provides for a five year $125 million term loan for the repurchase of shares of its common stock through May, 2000 and a three year $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. The Company had $44 million of outstanding long-term debt at April 1, 2000 and at January 1, 2000, while there was no outstanding debt at April 3, 1999. The Company believes that these credit facilities, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs as well as its capital expenditures, required payments on long-term debt, and business development needs. FORWARD-LOOKING STATEMENTS This report 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, including statements regarding future unit shipments, planned store expansions and store closings, future comparable store net sales, future inventory levels and valuation implications, future growth in royalty income, future effective income tax rate, planned capital expenditures and depreciation and amortization expenses, and future cash needs. 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, 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 financial, political or other 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 Interest Rate Risk The credit agreement entered into by the Company in November, 1999 provides for $125 million to finance repurchases of the Company's common stock and a $75 million revolving credit facility available for general corporate purposes. Borrowings under this agreement bear interest at a variable rate, based on the London Interbank Offered Rates. Accordingly, the Company is affected by interest rate changes on its long-term debt. Management monitors this risk by carefully analyzing the short- term rates on its long-term debt portfolio and comparable long- term interest rates. The Company does not presently hedge its interest rate risk. With respect to this debt, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2000. Foreign Currency Risk The Company contracts for the manufacture of apparel with contractors in Asia, Central America, and Mexico. While these contracts are stated in terms of U.S. dollars, there can be no assurance that the cost for the production of the Company's products will not be affected by exchange fluctuations between the United States and the local currencies of these contractors. Due to the number of currencies involved, the Company cannot quantify the potential impact of future currency fluctuations on net income in future years. The Company does not hedge its exchange rate risk. Inflation Risk The Company manages its inflation risks by ongoing review of product selling prices and production costs. Management does not believe that inflation risks are material to the Company's business, its consolidated financial position, results of operations, or cash flows. Investment Risk The Company does not believe it has material exposure to market risk with respect to any of its investments; the Company does not utilize market rate sensitive instruments for trading or other purposes. 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: 4/25/00 /S/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 4/25/00 /S/DAVID L. OMACHINSKI Vice President-Finance, Treasurer Chief Financial Officer and Director EX-27 2
5 3-MOS DEC-30-2000 APR-01-2000 4,476,000 0 30,430,000 6,847,000 45,041,000 88,825,000 67,937,000 36,996,000 128,089,000 60,619,000 0 0 0 124,000 23,063,000 128,089,000 95,051,000 97,128,000 54,464,000 33,997,000 (49,000) 0 1,187,000 7,690,000 2,999,000 4,691,000 0 0 0 4,691,000 .37 .37
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