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, 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)
(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, 1997, there were outstanding 10,425,571 shares
of Class A Common Stock and 1,260,704 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 -
-June 30, 1997 and December 31, 1996 3
Unaudited Condensed Consolidated Statements of
Income -- Three Months and Six Months
Ended June 30, 1997 and 1996 4
Unaudited Condensed Consolidated Statements
of Cash Flow -- Six Months Ended June 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 13
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
June 30, December
31, 1997 1996*
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 30,915 $ 31,201
Short-term investments 11,670 10,040
Accounts receivable 20,892 20,504
Inventories 60,849 66,799
Prepaid expenses & other
current assets 5,203 1,890
Deferred income taxes 15,300 18,500
Total current assets 144,829 148,934
Property, plant & equipment 65,358 67,747
Less accumulated depreciation
and amortization 27,760 25,965
Net property, plant and equipment 37,598 41,782
Non-current deferred income taxes 4,400 3,400
Other assets 3,424 1,917
Total assets $ 190,251 $ 196,033
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 3,406 $ 5,408
Accrued expenses 35,166 38,885
Total current liabilities 38,572 44,293
Employee benefit plan
liabilities 13,323 13,663
Shareholders' equity
Preferred stock -- --
Common stock:
Class A 104 105
Class B 13 13
Retained earnings 137,769 137,349
Cumulative foreign currency
translation adjustments 470 610
Total shareholders' equity 138,356 138,077
Total liabilities and
shareholders' equity $ 190,251 $ 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Net sales $ 71,144 $ 82,579 $168,507 $203,455
Cost of products sold 47,362 57,057 112,431 141,376
Gross profit 23,782 25,522 56,076 62,079
Selling, general and
administrative expenses 26,292 30,211 53,659 62,044
Special charges -- 20,900 -- 20,900
Royalty income, net (1,206) (1,370) (3,012) (2,541)
Operating income (loss) (1,304) (24,219) 5,429 (18,324)
Other income (expense)
Interest expense (97) (261) (129) (526)
Interest income 672 247 1,065 580
Other (17) 162 (145) 282
Other income (expense) --
net 558 148 791 336
Income (loss) before taxes (746) (24,071) 6,220 (17,988)
Income taxes (benefit) (300) (14,231) 2,490 (11,524)
Net income (loss) $ (446) $ (9,840) $ 3,730 $ (6,464)
Average number of shares
outstanding 11,686 12,456 11,731 12,456
Net income (loss) per
common share $ (0.04) $ (0.79) $ 0.32 $ (0.52)
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.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30,
1997 1996
Cash flows from operating activities
Net income (loss) $ 3,730 $ (6,464)
Depreciation 4,465 5,350
Special charges --- 20,900
Provision for deferred income taxes 2,200 (11,600)
Items in income not affecting cash 173 1,357
Changes in current assets 2,249 (16,010)
Changes in current liabilities (5,005) (2,872)
Net cash provided by (used in)
operating activities 7,812 (9,339)
Cash flows from investing activities
Additions to property, plant and
equipment (2,965) (2,916)
Proceeds from disposal of assets 1,765 1,710
Purchase of short-term investments (1,630) ---
Other (1,958) (32)
Net cash used in investing activities (4,788) (1,238)
Cash flows from financing activities
Net increase in long-term borrowings --- 11,160
Cash dividends paid (1,619) (1,719)
Repurchase of common shares (1,691) ---
Net cash provided by (used in)
financing activities (3,310) 9,441
Net decrease in cash and cash
equivalents $ (286) $ (1,136)
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, 1997, the results of operations for the three
month and six-month periods ended June 30, 1997 and 1996, and
cash flows for the six-month periods ended June 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:
June 30, December 31,
1997 1996
(Dollars in thousands)
Finished goods $ 43,478 $ 51,584
Work in process 14,218 10,698
Raw materials 3,153 4,517
Total $ 60,849 $ 66,799
The replacement cost of inventory exceeds the above LIFO costs
by $ 16,120 and $ 15,100 at June 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 June 30, 1997
were $71.1 million, a decrease of $11.5 million (13.9 %) over
1996 second quarter sales of $82.6 million. Consolidated net
sales for the six months ended June 30, 1996 were $168.5
million, a decrease of $35.0 million (17.2%) from sales of
$203.5 million for the first six months of 1996. The Company's
net sales for the three month and six month periods ended June
30, 1997 and 1996 are summarized as follows:
Net Sales
(in millions)
Domestic
Wholesale Retail International Other Total
Three months ended
June 30,
1997 $ 34.0 $ 35.7 $ 1.4 $ -- $ 71.1
1996 46.8 32.1 3.0 .7 82.6
Increase (decrease) (12.8) 3.6 (1.6) (.7) (11.5)
Percent increase
(decrease) (27.4%) 11.2% 53.3% -- (13.9%)
Six months ended
June 30,
1997 $ 96.3 $ 68.5 $ 3.7 $ -- $ 168.5
1996 127.2 61.2 13.4 1.7 203.5
Increase
(decrease) (30.9) 7.3 (9.7) (1.7) (35.0)
Percent increase
(decrease) (24.3%) 11.9% (72.4%) -- (17.2%)
The Company's domestic wholesale unit sales for the three month and
six month periods ended June 30, 1997 were down 25.4% and 25.3%,
respectively, from the corresponding three month and six month
periods of 1996. The decrease in unit shipments for the three month
and six month periods ended June 30, 1997 resulted primarily from a
combination of the Company's strategic decision to reduce distribution and
lower unit bookings, due primarily to relatively weak "sell-thru" results
experienced during the first half of 1996. In addition, the Company's 1996
first quarter sales included a substantial amount of wholesale unit shipments
of Holiday 1995 close-out merchandise. Shipments of first quality
garments during the three month and six month periods ended June
30, 1997 were down approximately 25.1% and 19.1%, respectively,
when compared to the same three month and six month periods of
1996.
The Company's retail sales for the three month and six month
periods ended June 30, 1997 and 1996 are summarized as follows:
Retail Net Sales Summary
(in millions)
OshKosh Stores Genuine Kids Stores Total Stores
Three months ended
June 30,
1997 $ 35.7 $ -- $ 35.7
1996 24.0 8.1 32.1
Increase (decrease) 11.7 (8.1) 3.6
Percent increase
(decrease) 48.8% -- 11.2%
Comparable store
sales increase 31.6%
Six months ended
June 30,
1997 $ 68.5 $ -- $ 68.5
1996 45.1 16.1 61.2
Increase (decrease) 23.4 (16.1) 7.3
Percent increase
(decrease) 51.9% -- 11.9%
Comparable store
sales increase 23.1%
The Company's increase in retail sales at its OshKosh B'Gosh
stores for the three month and six month periods ended June 30,
1997 resulted from both the conversion and combination of a total
of 22 Genuine Kids stores in early January, as well as the
comparable store sales gains. The three month and six 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 second quarter of
1997, the Company also opened one additional retail store. At
June 30, 1997, the Company operated 114 domestic OshKosh retail
stores, including 108 outlet stores and 6 showcase stores.
The Company's gross profit margin as a percent of sales improved
to 33.4% in the second quarter of 1997, compared to 30.9% in the
second quarter of 1996. For the six months ended June 30, 1997,
gross profit margin as a percent of sales was 33.3%, compared to
30.5% for the first six 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 six month periods ended June 30, 1997, decreased
$3.9 million and $8.4 million over the three and six month
periods ended June 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 37.0% and 31.8% for the three month and six month
periods ended June 30, 1997 as compared to 36.6% and 30.5% 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.
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 six 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
material changes to the amount of special charges recorded during
1996.
The Company's second quarter 1997 net royalty income of $1.2
million was approximately 12% less than net royalty income earned
in the second quarter of 1996 of approximately $1.4 million. This
decrease was due primarily to a reduction in the Company's
domestic royalty income and is consistent with the reduction in
the Company's overall wholesale business. Year-to-date royalty
income of $3 million is approximately $.5 million (18.5%) over the
first six months of 1996, due primarily to the Company's conversion
of its European business to a licensee.
The Company's interest income net of interest expense was $.6
million and $.9 million for the three month and six month periods
ended June 30, 1997 as compared to insignificant net interest
income throughout the first half of 1996. These increases
resulted from the significantly higher level of cash and
shortterm investments throughout the first half of 1997 as
compared to 1996.
The Company's effective tax rate for the three month and six
month periods ended June 30, 1997 was approximately 40.0%. The
unusually high income tax credits applied to the Company's net
loss for the three month and six month periods ended June 30,
1996 of 59.1% and 64.1%, respectively, were 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 loss of $.4 million for the second quarter of
1997 was $9.4 million less than its net loss for the three month
period ended June 30, 1996 of $9.8 million. The June 30, 1996
quarter included an after tax charge of approximately $8 million
related to special charges. Excluding the special charges, the
Company incurred a loss in the second quarter of 1996 of
approximately $1.8 million ($.15 per share) as compared to the
second quarter of 1997 net loss of approximately $.4 million
($.04 per share).
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. The Company anticipates this seasonal
trend to continue to impact 1997 quarterly sales and net income.
Second quarter 1997 operating results are not necessarily
indicative of anticipated quarterly results through the balance of
the year.
FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY
The Company's financial condition remains strong. At June 30,
1997 the Company's cash, cash equivalents and short-term
investments were $42.6 million, compared to $1.3 million at June
30, 1996. In addition, the Company had no direct borrowings
outstanding under its line of credit at June 30, 1997 as compared
to approximately $11.2 million outstanding under its credit line
at June 30, 1996. Net working capital at June 30, 1997 was $106.3
million, as compared to $104.6 million at the end of 1996 and $110
million at June 30, 1996. The Company's current ratio was 3.8 to
1 at June 30, 1997, compared to 3.4 to 1 at the end of 1996 and at
June 30, 1996.
Accounts receivable at June 30, 1997 were $20.9 million compared
to $31.4 million at June 30, 1996. This decrease in accounts
receivable relates primarily to decreased wholesale sales for the
second quarter of 1997 and the elimination of the Company's
European operations.
Inventories at June 30, 1997 were $60.8 million, compared to $98.9
million at June 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 third and fourth
quarter 1997 unit shipments, and an overall corporate focus on
management of working capital. Management believes that at June
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. The Dutch auction tender offer provides an
opportunity for shareholders to tender shares within a range of
$19 to $22 per share. The SEC has requested that the offer be
stated separately for the Class A shares on the one hand and the
Class B shares on the other, so the Company has amended the offer
so that it is limited to 225,000 Class B shares and 1,775,000
Class A shares. As a result of this modification, the Company has
also extended the period of the tender offer and the related
proration period and withdrawal rights so that they now end at
midnight on August 6, 1997. The Company believes that its cash,
cash equivalents and short-term investments at June 30, 1997,
available credit facilities, along with cash generated from
operations, will be sufficient to finance this tender offer, as
well as its seasonal working capital needs and remaining
restructuring expenditures for the remainder of 1997.
OUTLOOK
The information contained in this outlook section is based on
current assumptions and expectations. This information is
forwardlooking 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, the Company anticipates a reduction in its
wholesale business during the second half of 1997 of 5% to 10%
below the second half of 1996. Current Company plans for the
remainder of 1997 call for the opening of seven new OshKosh B'Gosh
retail stores and the closing of two stores.
Management currently anticipates that its gross profit margins
during the remainder of 1997 will continue to compare favorably
with gross profit margins reported in the last two quarters of
1996, primarily as a result of the continuing impact of the
implementation of the Company's strategic sourcing plan, reduction
in the level of close-out merchandise, and anticipated increased
retail sales at higher gross margins relative to its domestic
wholesale business.
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 4. Submission of Matters to a Vote of Security Holders.
The registrant's annual meeting of stockholders was held on May 2,
1997 (the "1997 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 9,666,718 shares of Class A
Common Stock and 1,067,901 shares of Class B Common Stock were
represented, in person or by proxy, at the 1997 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 9,572,590 94,128 0
Jerry M. Hiegel 9,572,915 93,803 0
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:
Nominee Votes in Favor Votes Withheld Broker Non-Votes
Douglas W. Hyde 1,065,771 2,130 0
Michael D. Wachtel 1,065,771 2,130 0
David L. Omachinski 1,065,771 2,130 0
Steven R. Duback 1,065,771 2,130 0
Shirley A. Dawe 1,065,771 2,130 0
William F. Wyman 1,065,771 2,130 0
Stig A. Kry 1,065,771 2,130 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.
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 22, 1997 /S/ DOUGLAS W. HYDE
Chairman of the Board, President
Chief Executive Officer and Director
Date: July 22, 1997 /S/ DAVID L. OMACHINSKI
Vice President-Finance, Treasurer,
Chief Financial Officer and Director
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