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.<PAGE>
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<PAGE>
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. <PAGE>
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. <PAGE>
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. <PAGE>
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<PAGE>
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.<PAGE>
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%<PAGE>
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<PAGE>
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<PAGE>
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.<PAGE>
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<PAGE>
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