-----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, PTJW9JTdZodlOb5uIdMJQlTuNZ1R/plb2MLCbbjbAV74Li82xCxxsy6u6obAT9WB +9xdS3CJuF2voXDKrgUsww== 0000075042-96-000011.txt : 19961024 0000075042-96-000011.hdr.sgml : 19961024 ACCESSION NUMBER: 0000075042-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961023 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: 96646468 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 September 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 September 30, 1996, there were outstanding 11,094,021 shares of Class A Common Stock and 1,260,654 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 -- September 30, 1996 and December 31, 1995 Unaudited Condensed Consolidated Statements of Income -- Three Months and Nine Months Ended September 30, 1996 and 1995 Unaudited Condensed Consolidated Statements of Cash Flow -- Nine Months Ended September 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Part II. Other Information Signatures OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) September 30, December 31, 1996 1995 * (Unaudited) Assets Current assets Cash and cash equivalents $ 10,301 $ 2,418 Accounts receivable 41,201 24,691 Inventories 78,424 95,743 Prepaid expenses & other current assets 4,309 3,127 Deferred income taxes 11,600 11,400 Total current assets 145,835 137,379 Property, plant & equipment 102,459 116,357 Less accumulated depreciation and amortization 51,039 51,346 Net property, plant and equipment 51,420 65,011 Other assets 4,819 6,189 Total assets $ 202,074 $ 208,579 Liabilities and shareholders' equity Current liabilities Accounts payable $ 5,431 $ 13,910 Accrued expenses 30,900 28,055 Total current liabilities 36,331 41,965 Deferred income taxes -- 2,700 Employee benefit plan liabilities 16,173 13,836 Shareholders' equity Preferred stock -- -- Common stock: Class A 111 112 Class B 13 13 Retained earnings 149,135 149,720 Cumulative foreign currency translation adjustments 311 233 Total shareholders' equity 149,570 150,078 Total liabilities and shareholders' equity $ 202,074 $ 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 Net sales $136,693 $142,952 $ 340,148 $326,372 Cost of products sold 91,587 94,721 232,963 221,603 Gross profit 45,106 48,231 107,185 104,769 Selling, general and administrative expenses 29,356 32,347 90,680 89,171 Special charges -- 2,700 20,900 2,700 Operating income (loss) 15,750 13,184 (4,395) 12,898 Other income (expense) Interest expense (293) (701) (819) (1,252) Interest income 259 308 839 971 Royalty income 1,300 1,561 3,121 2,983 Other (51) 403 231 605 Other income -- net 1,215 1,571 3,372 3,307 Income (loss) before taxes 16,965 14,755 (1,023) 16,205 Income taxes (benefit) 6,780 6,359 (4,745) 6,968 Net income $ 10,185 $ 8,396 $ 3,722 $ 9,237 Average number of shares outstanding 12,431 12,689 12,448 13,003 Net income per common share $ 0.82 $ 0.66 $ 0.30 $ 0.71 Cash dividend per common share Class A $ 0.07 $ 0.07 $ 0.21 $ 0.21 Class B $ 0.06 $ 0.06 $ 0.18 $ 0.18 See notes to condensed consolidated financial statements. OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (Dollars in thousands) (Unaudited) Nine Months Ended September 30, 1996 1995 Cash flows from operating activities Net income for the period $ 3,722 $ 9,237 Depreciation 7,910 7,836 Special charges 20,900 2,700 Deferred income tax provision (benefit) (2,900) 300 Items in income not affecting cash 2,385 (749) Changes in current assets (4,038) (31,137) Changes in current liabilities (12,798) 10,279 Net cash provided by (used in) operating activities 15,181 (1,534) Cash flows from investing activities Property, plant and equipment additions (4,815) (7,700) Other (949) (1,095) Proceeds from disposal of assets 2,773 2,650 Net cash used in investing activities (2,991) (6,145) Cash flows from financing activities Net increase in long-term borrowings --- 17,454 Cash dividends paid (2,578) (2,705) Common stock issued 45 --- Repurchase of common stock (1,774) (16,606) Net cash used in financing activities (4,307) (1,857) Net increase (decrease) in cash and cash equivalents $ 7,883 $ (9,536) 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 September 30, 1996 and the results of operations for the three-month and nine-month periods ended September 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, reduced 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. 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: September 30, December 31, 1996 1995 (Dollars in thousands) Finished goods $ 61,080 $ 70,837 Work in process 8,084 15,462 Raw materials 9,260 9,444 Total $ 78,424 $ 95,743 The replacement cost of inventory exceeds the above LIFO costs by $17,688 and $16,158 at September 30, 1996 and December 31, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Consolidated sales for the three months ended September 30, 1996, were $136.7 million, a decrease of $6.3 million (4.4%) from 1995 third quarter sales of $143.0 million. Consolidated net sales for the nine months ended September 30, 1996, were $340.1 million, an increase of $13.7 million (4.2%) over the first nine months of 1995 net sales of $326.4 million. The Company's domestic wholesale business of approximately $75.9 million for the third quarter of 1996 was 9.2% less than 1995 third quarter domestic wholesale sales of $83.6 million, with a corresponding decrease in unit shipments of approximately 4.4%. For the nine month period ended September 30, 1996, sales of domestic wholesale products were $199.9 million, a .8% decrease from the comparable period sales of 1995 of $201.4 million. Year to date unit shipments of domestic wholesale products are approximately 4.4% over the corresponding nine month period of 1995. The decrease in the third quarter wholesale unit shipments was due primarily to lower Fall/Back to School order bookings, combined with higher than anticipated order cancellations. Order cancellations during the third quarter of 1996 resulted from a combination of relatively weak retail "sell-thrus" at the Company's retail customers, along with delivery difficulties encountered by the Company due to the transition of its sourcing strategy. In the third quarter of 1996, sales dollars decreased by a greater percentage than unit sales due to higher shipments of closeout merchandise at significantly lower unit prices. Higher year-to-date shipments of closeout merchandise had a similar effect on sales to unit comparisons over the prior year. The Company currently anticipates that unit shipments for the fourth quarter of 1996 will be down by several percentage points as compared to the fourth quarter of 1995. A summary of the Company's retail sales at its OshKosh B'Gosh branded stores and Genuine Kids stores follows: (dollars in millions) Three months ended Nine months ended September 30, % September 30, % 1996 1995 Change 1996 1995 Change Sales OshKosh B'Gosh $ 37.4 $ 31.0 20.6% $ 82.5 $ 64.6 27.7% Genuine Kids 12.0 14.1 (14.9)% 28.1 29.2 (3.8)% Total $ 49.4 $ 45.1 9.5% $110.6 $ 93.8 17.9% Comparable store sales, in percentages OshKosh B'Gosh +8.2% +2.3% +11.4% +8.9% Genuine Kids -16.3% -7.6% - 8.6% -4.2% Combined +.9% -1.1% + 5.3% +4.3% During the third quarter of 1996, the Company opened five OshKosh B'Gosh stores, converted one Genuine Kids store to an OshKosh store and closed six Genuine Kids stores. At September 30, 1996, the Company operated ninety-three domestic OshKosh retail stores, including ninety outlet stores and three showcase stores. At September 30, 1996, the Company was also operating eighty Genuine Kids stores. In connection with the Company's recently announced discontinuance of its Genuine Kids retail store chain, the Company currently anticipates closing ten additional Genuine Kids stores and converting one to an OshKosh store 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 five OshKosh stores during the fourth quarter of 1996. Preliminary Company plans for its OshKosh retail store operations in 1997 include opening an additional sixteen stores, converting thirteen Genuine Kids stores and closing three to five stores. The Company will also expand its retail product line by offering Genuine Girls (girls sizes 7 to 14) and Genuine Blues (boys sizes 8 to 16) in its OshKosh retail stores during the first quarter of 1997. The Company's gross profit margin as a percent of sales was 33.0% in the third quarter of 1996, compared with 33.7% in the third quarter of 1995. For the nine months ended September 30, 1996, gross margin as a percent of sales was 31.5% compared to 32.1% for the first nine months of 1995. The Company's gross profit margins for the three months and nine months ended September 30, 1996 were adversely affected by a much higher sales level of closeout merchandise. The Company currently anticipates modest improvement in its gross profit margin for the fourth quarter of 1996 as compared to the fourth quarter of 1995. Selling, general and administrative expenses (excluding special charges) for the three months ended September 30, 1996 decreased $3.0 million over the three month period ended September 30, 1995. For the first nine months of 1996, selling, general and administrative expenses increased $1.5 million over the comparable period of 1995. As a percent of net sales, these expenses were 21.5% and 26.7% for the three month and nine month periods ended September 30, 1996 as compared to 22.6% and 27.3% in the comparable periods of 1995. The third quarter decrease in the dollar amount of these expenses was due primarily to the reduction in the Company's wholesale unit shipments. The Company currently anticipates that selling, general and administrative expenses, as a percent of net sales, will be stable or down slightly for the fourth quarter of 1996 in comparison to the fourth quarter of 1995. During the third quarter of 1996, the Company began to execute its plan to discontinue the Company's Genuine Kids retail store chain, the wind-down of the Company's European subsidiaries and transfer of the European business to a licensee, and close its manufacturing facilities in Red Boiling Springs and Celina, Tennessee. As of September 30, 1996, approximately 550 employees, primarily from our manufacturing facilities in Tennessee have been severed, with the total severance cost incurred of approximately $1.0 million. In addition, the Company has incurred approximately $1.2 million in other exit costs relating primarily to lease settlements. The Company is also proceeding with the wind-down of its European subsidiaries, and transferring the business to a licensee, which is anticipated to be completed by January 1, 1997. The Company is on target to substantially complete these strategic changes by March 31, 1997 and does not currently anticipate any material changes to the special charge recorded in the second quarter of 1996. The Company's net other income for the three month and nine month periods ended September 30, 1996 was $1.2 million and $3.4 million, respectively, compared to $1.6 million and $3.3 million in the same periods of 1995. The Company's effective tax rate for the third quarter of 1996 was 40.0% compared to 43.1% for the comparable period in 1995. The reduction in the effective tax rate for the third quarter of 1996 is the result of the recognition of the U.S. tax benefit of the operating losses incurred by the Company's European subsidiaries during the quarter. No tax benefit was recognized for such operating losses in the third quarter of 1995. The Company's net loss before taxes of $1.0 million for the first nine months of 1996 (after recognition of the $20.9 million pre-tax special charges recorded in the second quarter) is offset by an approximate $4.7 million income tax benefit. 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 which resulted in an approximate $4.5 million income tax credit. The Company anticipates that its effective tax rate to be applied against net income in the fourth quarter of 1996 will be approximately 40%. The Company's net income of $10.2 million ($.82 per share) for the third quarter of 1996 compares to $8.4 million ($.66 per share) in the comparable third quarter of 1995. The third quarter 1995 net income included a $2.7 million pre-tax plant closing special charge which reduced net income by approximately $1.6 million, or $.13 per share, net of income tax benefit. The Company recently completed a comprehensive strategic planning initiative. Over the past several years, the Company's childrenswear products have become widely distributed in the United States. A strategic decision has been reached by management to shrink distribution over the next two years. Company management has undertaken a comprehensive review of its wholesale customer list and has begun the process of limiting its distribution. As a result of this strategic decision, along with the competitive nature of the Company's business and relatively weak sell-thru results during 1996, the Company anticipates a significant reduction in its wholesale business for both the first quarter and all of 1997. Preliminary order bookings for the Company's Spring 1997 season indicate that the Company's wholesale unit shipments for the first quarter of 1997 could be in the range of 25% below the first quarter of 1996. 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. Results of operations for the Company's three months and nine months ended September 30, 1996 are not necessarily indicative of anticipated fourth quarter 1996 results. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Net working capital at September 30, 1996 was $109.5 million as compared to $95.4 million at the end of 1995 and $109.9 million at September 30, 1995. The Company's current ratio was 4.0 to 1 at September 30, 1996 compared to 3.3 to 1 at the end of 1995 and 3.1 to 1 at September 30, 1995. The Company's accounts receivable at September 30, 1995 of $41.2 million, were $6.8 million less than the accounts receivable balance of $48.0 million at September 30, 1995. This decrease relates directly to the Company's decreased wholesale shipments during the third quarter of 1996 as compared to 1995. Company inventories were $78.4 million at September 30, 1996 as compared to $97.0 million at September 30, 1995. This decrease in inventory is primarily attributable to the Company's planned reduction in inventory levels, along with the winding down of its Genuine Kids and European operations. The Company maintains a revolving credit arrangement to provide seasonal working capital borrowings and supports its letter of credit requirements. At September 30, 1996, the Company had no long-term debt outstanding under this arrangement as compared to $17.8 million outstanding at September 30, 1995. This decrease resulted primarily from the decrease in inventory levels and cash generated from operations. On August 6, 1996, the Company's Board of Directors authorized a one million share repurchase program of the Company's Class A common stock. Through September 30, 1996, the Company had repurchased 104,200 shares of its Class A common stock under this program for approximately $1.8 million. The Company believes that 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, as well as its share repurchase program. Certain information included in this document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "expects," "anticipates," or other such similar words. Statements that describe the Company's future strategic plans, goals or objectives are also forward-looking statements. Such forward- looking statements are subject to certain risks and uncertainties. Actual results could differ materially from those currently anticipated. 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 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: 10/22/96 /S/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 10/22/96 /S/DAVID L. OMACHINSKI Vice President-Finance, Treasurer, Chief Financial Officer and Director EX-27 2
5 1000 9-MOS DEC-31-1996 SEP-30-1996 10301 0 41201 0 78424 145835 102459 51039 202074 36331 0 0 0 124 149446 202074 340148 340148 232963 232963 111580 0 819 (1023) (4745) 3722 0 0 0 3722 .30 .30
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