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 June 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 June 30, 1996, there were outstanding 11,189,387 shares of
Class A Common Stock and 1,266,413 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 -- 3
June 30, 1996 and December 31, 1995
Unaudited Condensed Consolidated Statements 4
of Income -- Three Months and Six Months
Ended June 30, 1996 and 1995
Unaudited Condensed Consolidated Statements 5
of Cash Flow -- Six Months Ended June 30,
1996 and 1995
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 9
Results of Operations and Financial
Condition
Part II. Other Information 13
Signatures 14<PAGE>
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
1996 1995 *
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 1,282 $ 2,418
Accounts receivable 31,373 24,691
Inventories 98,850 95,743
Prepaid expenses & other
current assets 5,654 3,127
Deferred income taxes 19,600 11,400
Total current assets 156,759 137,379
Property, plant & equipment 106,064 116,357
Less accumulated depreciation
and amortization 52,099 51,346
Net property, plant and equipment 53,965 65,011
Other assets 4,920 6,189
Total assets $ 215,644 $ 208,579
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 9,320 $ 13,910
Accrued expenses 37,444 28,055
Total current liabilities 46,764 41,965
Long-term debt 11,160 --
Deferred income taxes -- 2,700
Employee benefit plan
liabilities 15,624 13,836
Shareholders' equity
Preferred stock -- --
Common stock:
Class A 112 112
Class B 13 13
Retained earnings 141,537 149,720
Cumulative foreign currency
translation adjustments 434 233
Total shareholders' equity 142,096 150,078
Total liabilities and
shareholders'equity $ 215,644 $ 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Net sales $ 82,579 $ 74,934 $ 203,455 $ 183,420
Cost of products sold 57,057 50,000 141,376 126,882
Gross profit 25,522 24,934 62,079 56,538
Selling, general and
administrative
expenses 29,858 28,670 61,324 56,824
Special charges 20,900 -- 20,900 --
Operating income (loss) (25,236) (3,736) (20,145) (286)
Other income (expense)
Interest expense (261) (346) (526) (551)
Interest income 247 337 580 663
Royalty income 1,017 378 1,821 1,422
Other 162 28 282 202
Other income -- net 1,165 397 2,157 1,736
Income (loss) before
taxes (24,071) (3,339) (17,988) 1,450
Income taxes (benefit) (14,231) (1,460) (11,524) 609
Net income (loss) $ (9,840) $ (1,879) $ (6,464)$ 841
Average number of shares
outstanding 12,456 12,995 12,456 13,163
Net income (loss) per
common share $ (0.79) $ (0.14) $ (0.52)$ 0.06
Cash dividend per common
share
Class A $ 0.07 $ 0.07 $ 0.14 $ 0.14
Class B $ 0.06 $ 0.06 $ 0.12 $ 0.12
See notes to condensed consolidated financial statements.<PAGE>
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating
activities
Net income (loss) for the
period $ (6,464) $ 841
Depreciation 5,350 5,222
Special charges 20,900 --
Deferred income tax benefit (11,600) 2,595
Items in income not affecting
cash 1,357 1,991
Changes in current assets (16,010) (36,333)
Changes in current liabilities (2,872) (2,080)
Net cash used in operating
activities (9,339) (27,764)
Cash flows from investing
activities
Property, plant and equipment
additions (2,916) (4,090)
Other (32) (1,027)
Proceeds from disposal of
assets 1,710 1,893
Net cash used in
investing activities (1,238) (3,224)
Cash flows from financing
activities
Net increase in long-term
borrowings 11,160 33,996
Cash dividends paid (1,719) (1,825)
Repurchase of common stock -- (10,883)
Net cash provided by financing
activities 9,441 21,288
Net decrease in cash and cash
equivalents $ (1,136) $ (9,700)
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 June 30, 1996 and December 31, 1995, the results of operations
for the three-month and six-month periods ended June 30, 1996 and
1995, and cash flows for the six-month periods ended June 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<PAGE>
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, reduces 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.
The Company's 1997 net income will be favorably impacted by a
substantial reduction of operating losses from its European
subsidiaries (which amounted to $4.6 million in 1995 and are
expected to be between $3 and $5 million in 1996), elimination of
our Genuine Kids business (which is operated as part of the
Company's retail operations) and royalty income generated from
the European licensing arrangement. The Company's European
subsidiary sales for 1995 and the six months ended June 30, 1996
amounted to $12.5 million and $8 million, respectively. The
Company's Genuine Kids sales for 1995 and the six months ended
June 30, 1996 amounted to $40.9 million and $16.1 million,
respectively.
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.<PAGE>
Note 3. Inventories
A summary of inventories follows:
June 30, December 31,
1996 1995
(Dollars in thousands)
Finished goods $ 63,231 $ 70,837
Work in process 26,228 15,462
Raw materials 9,391 9,444
Total $ 98,850 $ 95,743
The replacement cost of inventory exceeds the above LIFO costs by
$17,178 and $16,158 at June 30, 1996 and December 31, 1995.<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended June 30, 1996,
were $82.6 million, an increase of $7.7 million (10.2%) over 1995
second quarter sales of $74.9 million. Consolidated net sales
for the six months ended June 30, 1996, were $203.5 million, an
increase of $20.1 million (10.9%) over the first six months of
1995 sales of $183.4 million. The Company's domestic wholesale
business of approximately $45.8 million for the second quarter of
1996 was 6.5% more than 1995 second quarter sales of
approximately $43 million, with a corresponding increase in unit
shipments of approximately 10.8%. The increase in domestic
wholesale unit shipments resulted primarily from increased sales
of closeout merchandise. Shipments of first quality fashion
garments were relatively flat during the second quarter of 1996
when compared to 1995. The Company currently anticipates that
unit shipments for the second half of 1996 will be relatively
flat compared to 1995 unit shipments.
The Company's retail sales at its OshKosh B'Gosh branded stores
and Genuine Kids stores were approximately $32.1 million for the
second quarter of 1996, a 23.5% increase over 1995 second quarter
retail sales of approximately $26 million. For the six month
period ended June 30, 1996, Company retail sales were
approximately $61.2 million, a 25.7% increase over the first six
months of 1995 retail sales of approximately $48.7 million. The
Company's comparable store sales for the three month and six
month periods ended June 30, 1996 were up approximately 8.3% and
8.5%, respectively. During the second quarter of 1996, the
Company opened three OshKosh stores, converted three Genuine Kids
stores to OshKosh stores and closed two Genuine Kids stores. In
connection with the Company's recently announced discontinuance
of its Genuine Kids retail store chain, the Company currently
anticipates closing eight additional Genuine Kids stores and
converting eight to OshKosh stores 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 nine OshKosh stores during
the remainder of 1996.
The Company's gross profit margin as a percent of sales was 30.9%
in the second quarter of 1996, compared with 33.3% in the second
quarter of 1995. For the six months ended June 30, 1996, gross
margin as a percent of sales was 30.5% compared to 30.8% for the
first six months of 1995. The Company's second quarter 1996
gross margin was adversely affected by a much higher sales level
of closeout merchandise (both Holiday 1995 and Spring 1996 season
closeout merchandise). The Company currently anticipates modest
improvement in its gross profit margins for the remainder of 1996
as compared to the last two quarters of 1995.<PAGE>
Selling, general and administrative expenses (excluding the
special charges) for the three month and six month periods ended
June 30, 1996, increased $1.2 million and $4.5 million over the
three month and six month periods ended June 30, 1995,
respectively. As a percent of net sales, these expenses were
36.2% and 30.1% for the three month and six month periods ended
June 30, 1996 as compared to 38.3% and 31.0% in the comparable
periods of 1995. The primary reason for the dollar increase in
selling, general and administrative expenses is the Company's
continued expansion of its OshKosh retail business. The Company
currently anticipates that selling, general and administrative
expenses, as a percent of net sales, will be stable or down
slightly for the remainder of 1996 in comparison to the second
half of 1995.
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.<PAGE>
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, reduces 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.
The Company's 1997 net income will be favorably impacted by a
substantial reduction of operating losses from its European
subsidiaries (which amounted to $4.6 million in 1995 and are
expected to be between $3 and $5 million in 1996), elimination of
our Genuine Kids business (which is operated as part of the
Company's retail operations) and royalty income generated from
the European licensing arrangement. The Company's European
subsidiary sales for 1995 and the six months ended June 30, 1996
amounted to $12.5 million and $8 million, respectively. The
Company's Genuine Kids sales for 1995 and the six months ended
June 30, 1996 amounted to $40.9 million and $16.1 million,
respectively.
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.
The Company's net other income for the three month and six month
periods ended June 30, 1996 was $1.2 million and $2.2 million,
respectively, compared to $.4 million and $1.7 million in the
same periods of 1995. These increases result primarily from
increased royalty income from foreign licensees.
The Company's effective tax rate (tax benefit) for the second
quarter of 1996 was 59.1%. 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. The Company anticipates that its effective tax
rate to be applied against net income in the third and fourth
quarters of 1996 will be approximately 40%.
SEASONALITY
The Company's business is increasingly seasonal, with highest
sales and income in the third quarter which is the Company's peak<PAGE>
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. Accordingly, the Company has incurred net losses during
the second quarter of 1996 and 1995. Results of operations for
the Company's second quarter and six months ended June 30, 1996
are not indicative of anticipated quarterly results through the
balance of the year.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Net working capital at June 30, 1996 was $110 million as compared
to $95.4 million at the end of 1995 and $127.8 million at June
30, 1995. The Company's current ratio was 3.4 to 1 at June 30,
1996, compared to 3.3 to 1 at the end of 1995 and 4.4 to 1 at
June 30, 1995.
The decrease in net working capital at June 30, 1996 compared to
June 30, 1995 of $17.8 million is primarily attributable to the
Company's planned reduction in inventory levels. June 30, 1996
inventory levels were approximately $14.2 million below prior
year levels. The Company's accrued expenses at June 30, 1996
were approximately $7.2 million higher than prior year levels due
primarily to the effects of the Company's special charges
recorded in June 1996.
The Company maintains a revolving credit arrangement to provide
seasonal working capital borrowings and supports its letter of
credit requirements. At June 30, 1996, the Company had
approximately $11.2 million of long-term debt outstanding, as
compared to $34 million at June 30, 1995. This decrease in long-
term debt outstanding, substantially all of which is under the
Company's revolving credit arrangement, is a result of the
decrease in inventory levels and cash generated from operations.
The Company believes that its 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.<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The registrant's annual meeting of stockholders was held on May
3, 1996 (the "1996 Annual Meeting"). A majority of the shares of
each class of the registrant's Common Stock, represented in
person or by proxy, was required to constitute a quorum for
action to be taken by such class. A total of 10,063,946 shares
of Class A Common Stock and 1,033,030 shares of Class B Common
Stock were represented, in person or by proxy, at the 1996 Annual
Meeting, constituting a quorum of each class.
With respect to the election of Class A Directors, the following
votes were cast in favor of and withheld with respect to the
following management nominees:
Broker
Nominee Votes in Favor Votes Withheld Non-Votes
Orren J. Bradley 10,028,212 33,734 2,000
Jerry M. Hiegel 10,028,215 33,731 2,000
With respect to the election of Class B Directors, the following
votes were cast in favor of and withheld with respect to the
following management nominees:
Broker
Nominee Votes in Favor Votes Withheld Non-Votes
Douglas W. Hyde 1,027,615 5,415 0
Michael D. Wachtel 1,027,615 5,415 0
David L. Omachinski 1,027,615 5,415 0
Steven R. Duback 1,027,615 5,415 0
Judith D. Pyle 1,027,615 5,415 0
William F. Wyman 1,027,615 5,415 0
Stig A. Kry 1,027,615 5,415 0
Directors are elected by a plurality of the votes of the shares
of the class entitled to elect such directors, present in person
or represented by proxy at the meeting. "Plurality" means that
the individuals who receive the largest number of votes are
elected as directors up to the maximum number of directors to be
chosen at the meeting. There were no nominees for director other
than management's nominees identified above. Accordingly, each
such nominee received a plurality of the votes cast by shares of
the class indicated and, therefore, was elected.<PAGE>
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: July 23, 1996 /S/ DOUGLAS W. HYDE
Chairman of the Board, President
Chief Executive Officer and Director
Date: July 23, 1996 /S/ DAVID L. OMACHINSKI
Vice President-Finance, Treasurer,
Chief Financial Officer and Director<PAGE>
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