-----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, OpQN/r+GQamWJWw0Ntkuloj7AK2RVDVPq4P8hvwTmM+WQRszJo7GY7DgQYdG2e3/ w4T2R3X2NwBEzGEQ2DTrPQ== 0000075042-97-000017.txt : 19971022 0000075042-97-000017.hdr.sgml : 19971022 ACCESSION NUMBER: 0000075042-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971021 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: 97698816 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, 1997 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) 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, 1997, there were outstanding 8,778,613 shares of Class A Common Stock and 1,184,885 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, 1997 and December 31, 1996 3 Unaudited Condensed Consolidated Statements of Income -- Three Months and Nine Months Ended September 30, 1997 and 1996 4 Unaudited Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1997 and 1996 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 12 Signatures 12 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands) September 30, December 31, 1997 1996* (Unaudited) Assets Current assets Cash and cash equivalents $ 22,590 $ 31,201 Short-term investments -- 10,040 Accounts receivable 33,494 20,504 Inventories 54,959 66,799 Prepaid expenses and other current assets 3,593 1,890 Deferred income taxes 16,200 18,500 Total current assets 130,836 148,934 Property, plant and equipment 64,242 67,747 Less accumulated depreciation and amortization 27,358 25,965 Net property, plant and equipment 36,884 41,782 Deferred income taxes 4,700 3,400 Other assets 3,530 1,917 Total assets $175,950 $196,033 Liabilities and shareholders' equity Current liabilities Accounts payable $ 5,548 $ 5,408 Accrued expenses 45,211 38,885 Total current liabilities 50,759 44,293 Employee benefit plan liabilities 13,485 13,663 Shareholders' equity Preferred stock -- -- Common stock: Class A 88 105 Class B 12 13 Retained earnings 111,136 137,349 Cumulative foreign currency translation adjustments 470 610 Total shareholder's equity 111,706 138,077 Total liabilities and shareholders' equity $175,950 $196,033 * 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, 1997 1996 1997 1996 Net sales $124,922 $136,693 $293,429 $340,148 Cost of products sold 78,320 91,587 190,751 232,963 Gross profit 46,602 45,106 102,678 107,185 Selling, general and administrative expenses 29,382 29,731 83,041 91,775 Special charges -- -- -- 20,900 Royalty income, net (3,167) (1,675) (6,179) (4,216) Operating income (loss) 20,387 17,050 25,816 (1,274) Other income (expense) Interest expense (75) (293) (204) (819) Interest income 338 259 1,403 839 Other 1 (51) (144) 231 Other income (expense)-net 264 (85) 1,055 251 Income (loss) before taxes 20,651 16,965 26,871 (1,023) Income taxes (benefit) 8,259 6,780 10,749 (4,745) Net income $ 12,392 $ 10,185 $ 16,122 $ 3,722 Average number of shares outstanding 10,672 12,431 11,378 12,448 Net income per common share $ 1.16 $ 0.82 $ 1.42 $ 0.30 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 Flows (Dollars in thousands) (Unaudited) Nine Months Ended September 30, 1997 1996 Cash flows from operating activities Net income for the period $ 16,122 $ 3,722 Depreciation 6,412 7,910 Special charges -- 20,900 Provision for deferred income taxes 1,000 (2,900) Items in income not affecting cash 1,847 2,385 Changes in current assets (2,853) (4,038) Changes in current liabilities 6,466 (12,798) Net cash provided by operating activities 28,994 15,181 Cash flows from investing activities Additions to property, plant and equipment (5,140) (4,815) Proceeds from disposal of assets 2,096 2,773 Proceeds from sale of short-term investments 10,040 -- Other (2,248) (949) Net cash provided by (used in) investing activities 4,748 (2,991) Cash flows from financing activities Cash dividends paid (2,305) (2,578) Repurchase of common shares (40,068) (1,774) Other 20 45 Net cash used in financing activities (42,353) (4,307) Net increase (decrease) in cash and cash equivalents $ (8,611) $ 7,883 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, 1997, the results of operations for the three-month and nine-month periods ended September 30, 1997 and 1996, and cash flows for the nine-month periods ended September 30, 1997 and 1996. 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 1996 Annual Report. Note 2. Inventories A summary of inventories follows: September 30, December 31, 1997 1996 (Dollars in thousands) Finished goods $ 38,719 $ 51,584 Work in progress 11,809 10,698 Raw materials 4,431 4,517 Total $ 54,959 $ 66,799 The replacement cost of inventory exceeds the above LIFO costs by $16,480 and $15,100 at September 30, 1997 and December 31, 1996, respectively MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Consolidated net sales for the three months ended September 30, 1997 were $124.9 million, a decrease of $11.8 million (8.6%) over 1996 third quarter sales of $136.7 million. Consolidated net sales for the nine months ended September 30, 1997 were $293.4 million, a decrease of $46.7 million (13.7%) from sales of $340.1 million for the first nine months of 1996. A summary of the Company's net sales for the three month and nine month periods ended September 30, 1997 and 1996 are summarized as follows: Net Sales (in millions) Domestic Wholesale Retail International Other Total Three months ended September 30, 1997 $ 69.7 $ 53.4 $ 1.8 $ -- $124.9 1996 79.0 49.4 7.6 .7 136.7 Increase (decrease) (9.3) 4.0 (5.8) (.7) (11.8) Percent increase (decrease) (11.8%) 8.1% (76.3%) -- (8.6%) Nine months ended September 30, 1997 $166.0 $121.9 $ 5.5 $ -- $293.4 1996 206.2 110.6 20.9 2.4 340.1 Increase (decrease) (40.2) 11.3 (15.4) (2.4) (46.7) Percent increase (decrease) (19.5%) 10.2% (73.7%) -- (13.7%) The Company's domestic wholesale unit sales for the three month and nine month periods ended September 30, 1997 were down 14.5% and 21.5%, respectively, from the corresponding three month and nine month periods of 1996. The decrease in unit shipments for the three month and nine month periods ended September 30, 1997 resulted primarily from a combination of the Company's strategic decision to reduce distribution and a significant reduction in unit shipments of close-out merchandise. In addition, unit shipments during the first half of 1997 were adversely affected by weak "sell-thru" results experienced during the first half of 1996. Shipments of first quality garments during the three month and nine month periods ended September 30, 1997 were down approximately 8% and 14.9%, respectively, when compared to the same three month and nine month periods of 1996. The Company's retail sales for the three month and nine month periods ended September 30, 1997 and 1996 are summarized as follows: Retail Net Sales Summary (in millions) OshKosh Genuine Kids Stores Stores Total Three months ended September 30, 1997 $ 53.4 $ -- $ 53.4 1996 37.4 12.0 49.4 Increase (decrease) 16.0 (12.0) 4.0 Percent increase (decrease) 42.8% -- 8.1% Comparable store sales increase 34.6% Nine months ended September 30, 1997 $ 121.9 $ -- $ 121.9 1996 82.5 28.1 110.6 Increase (decrease) 39.4 (28.1) 11.3 Percent increase (decrease) 47.8% -- 10.2% Comparable store sales increase 28.2% The Company's increase in retail sales at its OshKosh B'Gosh stores for the three month and nine month periods ended September 30, 1997 resulted from both the conversion and combination of a total of 22 Genuine Kids stores in early January, as well as comparable store sales gains. The three month and nine month comparable store sales gains reported in 1997 reflected both an increase in sales of OshKosh B'Gosh branded products, along with the introduction of an expanded retail product line to include bigger sizes under the label Genuine Girls (girls sizes 7-16) and Genuine Blues (boys sizes 8-16). During the third quarter of 1997, the Company opened four additional retail stores and closed two stores. At September 30, 1997, the Company operated 116 domestic OshKosh retail stores, including 108 outlet stores and 8 showcase stores. The Company's gross profit margin as a percent of sales improved to 37.3% in the third quarter of 1997, compared to 33.0% in the third quarter of 1996. For the nine months ended September 30, 1997, gross profit margin as a percent of sales was 35.0%, compared to 31.5% for the first nine months of 1996. This gross profit margin improvement was due to enhanced gross margins for the Company's domestic wholesale business, along with the impact of the Company's increased retail sales at higher gross margins as compared to the wholesale business. Continued implementation and execution of the Company's sourcing strategy, along with substantial reduction in the sale of close-out merchandise during 1997, also contributed to the gross profit margin improvement. Selling, general, and administrative (S, G, & A) expenses for the three month and nine month periods ended September 30, 1997, decreased $.3 million and $8.7 million from the three and nine month periods ended September 30, 1996 (excluding special charges recorded during the second quarter of 1996), respectively. These decreases are directly attributable to the discontinuance of the Company's direct operations in Europe, elimination of the Genuine Kids retail store chain and decreased volume in the Company's wholesale business. As a percentage of net sales, S,G, & A expenses were 23.5% and 28.3% for the three month and nine month periods ended September 30, 1997 as compared to 21.8% and 27.0% in the comparable periods of 1996 (excluding special charges). The primary reason for the increased S, G, & A expenses as a percentage of sales is the decrease in 1997 net sales without a proportionate decrease in the fixed element of the Company's S, G, & A cost structure, combined with the impact of the Company's increased retail volume and related higher S, G, & A costs as compared to the wholesale business. During 1996, the Company recorded special charges related to the discontinuance of the Genuine Kids retail store chain and European subsidiaries, and the closing of three domestic sewing facilities. During the first nine months of 1997, the Company continued to execute its plan to eliminate underperforming elements of the Company's business and to adjust its domestic manufacturing capacity to improve manufacturing efficiency. The Company has completed substantially all strategic changes related to the special charges, and is not currently anticipating any increase in the amount of special charges recorded during 1996. The Company's third quarter 1997 net royalty income of $3.2 million was approximately 89% greater than net royalty income earned in the third quarter of 1996 of approximately $1.7 million. Year-to-date royalty income of $6.2 million is approximately $2.0 million (46.6%) over the first nine months of 1996. These third quarter and year-to-date increases are due primarily to the Company's conversion of its European business to a licensee, along with growth in other foreign markets. The Company's interest income net of interest expense was $.3 million and $1.2 million for the three month and nine month periods ended September 30, 1997 as compared to insignificant net interest income throughout the first nine months of 1996. These increases resulted from the significantly higher level of cash and short-term investments throughout the first nine months of 1997 as compared to 1996. The Company's effective tax rate for the three month and nine month periods ended September 30, 1997 was approximately 40.0%. The unusually high income tax credit applied to the Company's net loss for the nine month period ended September 30, 1996 was the result of the recognition of previously unrecorded U.S. tax benefits related to the discontinuance of the Company's European subsidiaries. The Company's net income of $12.4 million for the third quarter of 1997 was a $2.2 million increase (21.7%) over net income for the three month period ended September 30, 1996 of $10.2 million. Third quarter 1997 net income per share of $1.16 was 41.5% greater than per share net income of $.82 for the third quarter of 1996. Third quarter 1997 per share net income was favorably impacted by the Company's repurchase of approximately 1.7 million shares of common stock in August 1997 in connection with completion of a Dutch auction self-tender offer. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, entitled "Earnings Per Share," which will be effective for periods ending after December 15, 1997. This statement modifies the computation, presentation and disclosure requirements of earnings per share. This statement will have no material impact on the Company's reported earnings per share. 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 retail 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 outlet store sales during this period. Results of operations for the Company's three month and nine month periods ended September 30, 1997 are not necessarily indicative of anticipated fourth quarter 1997 results. FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY The Company's financial condition remains strong. At September 30, 1997 the Company's cash and cash equivalents were $22.6 million, compared to $10.3 million at September 30, 1996. The Company had no direct borrowings outstanding under its line of credit at September 30, 1997 or 1996. Net working capital at September 30, 1997 was $80.1 million, as compared to $104.6 million at the end of 1996 and $109.5 million at September 30, 1996. The Company's current ratio was 2.6 to 1 at September 30, 1997, compared to 3.4 to 1 at the end of 1996 and 4.0 to 1 at September 30, 1996. The decreases in the Company's working capital and current ratio are directly attributable to decreased inventories at September 30, 1997 and cash used to repurchase common stock in connection with the Company's recently completed Dutch auction self-tender offer. Accounts receivable at September 30, 1997 were $33.5 million compared to $41.2 million at September 30, 1996. This decrease in accounts receivable relates primarily to decreased wholesale sales for the third quarter of 1997 and the elimination of the Company's European operations. Inventories at September 30, 1997 were $55.0 million, compared to $78.4 million at September 30, 1996. This substantial decrease in inventories is attributable to the elimination of the Company's European and Genuine Kids businesses, sourcing adjustments made by the Company for the reduced volume of anticipated fourth quarter 1997 unit shipments, and an overall corporate focus on management of working capital. Management believes that at September 30, 1997, inventory levels are generally appropriate for anticipated business activities for the remainder of 1997. On June 30, 1997, the company announced that its Board of Directors approved a Dutch auction self-tender offer to repurchase up to two million shares of the Company's Class A common stock and Class B common stock. On August 7, 1997 the Company repurchased 1,656,578 shares of its Class A common stock and 41,524 shares of its Class B common stock for approximately $37.7 million, including related expenses. On August 26, 1997, the Company announced that its Board of Directors approved a stock repurchase program for up to 500,000 shares of its Class A common stock. Through September 30, 1997, the Company has repurchased 26,000 shares under this repurchase program. OUTLOOK The information contained in this outlook section is based on current assumptions and expectations. This information is forward-looking and, as such, is subject to certain risks and uncertainties. Actual results may differ materially. The Company's future results of operations can be influenced by such factors as business conditions and the general economy, competitive factors, the level of consumer spending for apparel, particularly in the children's wear segment, as well as overall consumer acceptance of the Company's product styling. Other risks and uncertainties are identified in the Company's 1996 Form 10-K. 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. As a result of the Company's 1996 strategic decision to reduce wholesale distribution, along with reduced sales levels of closeout merchandise, the Company anticipates a reduction in its wholesale business during the fourth quarter of 1997 of 5% to 8% below the fourth quarter of 1996. The Company currently anticipates unit shipments of its Spring 1998 children's apparel (shipped during the months of January through April, 1998) to be up moderately in comparison with Spring 1997. Current Company plans for the remainder of 1997 call for the opening of three new OshKosh B'Gosh retail stores. Preliminary 1998 Company plans call for the opening of eight to ten new OshKosh B'Gosh retail stores. While the Company posted 34.6% comparable store sales increases for its retail stores in the third quarter of 1997, the rate of such increases slowed significantly during the month of September. Management currently anticipates significantly lower comparable store sales increases for the fourth quarter of 1997 and all of 1998. The Company currently anticipates that, for all of 1997, its net royalty income from foreign licensees will increase by more than 40%. The Company also currently expects its effective tax rate to be approximately 40% for the remainder of 1997. 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: 10/21/97 /S/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 10/21/97 /S/DAVID L. OMACHINSKI Vice President-Finance, Treasurer, Chief Financial Officer and Director EX-27 2
5 9-MOS DEC-31-1997 SEP-30-1997 22,590 0 38161 4667 54959 130836 64242 27358 175950 50759 0 0 0 100 111606 175950 293429 301011 190751 273792 144 0 204 26871 10749 16122 0 0 0 16122 1.42 1.42
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