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 March 31, 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
incorporation or organization) No.)
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 March 31, 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 -- March 31, 1997 and
December 31, 1996 3
Unaudited Condensed Consolidated
Statements of Income -- Three
Months ended March 31, 1997 and 1996 4
Unaudited Condensed Consolidated
Statements of Cash Flow -- Three
Months Ended March 31,1997 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 11
Signatures 11
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
1997 1996
(Unaudited) *
Assets
Current assets
Cash and cash equivalents $ 33,616 $ 31,201
Short-term investments 10,040 10,040
Accounts receivable 27,430 20,504
Inventories 51,103 66,799
Prepaid expenses & other
current assets 6,558 1,890
Deferred income taxes 15,200 18,500
Total current assets 143,947 148,934
Property, plant & equipment 64,815 67,747
Less accumulated depreciation and
amortization 24,214 25,965
Net property, plant and equipment 40,601 41,782
Deferred income taxes 3,700 3,400
Other assets 1,837 1,917
Total assets $ 190,085 $196,033
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 3,750 $ 5,408
Accrued expenses 33,119 38,885
Total current liabilities 36,869 44,293
Employee benefit plan liabilities 13,656 13,663
Shareholders' equity
Preferred stock -- --
Common stock:
Class A 104 105
Class B 13 13
Retained earnings 139,021 137,349
Cumulative foreign currency
translation adjustments 422 610
Total shareholders' equity 139,560 138,077
Total liabilities and $ 190,085 $196,033
shareholders' equity
* 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
March 31,
1997 1996
Net sales $ 97,363 $120,876
Cost of products sold 65,069 84,319
Gross profit 32,294 36,557
Selling, general and
administrative expenses 27,367 31,833
Royalty income, net (1,806) ( 1,171)
Operating income 6,733 5,895
Other income (expense):
Interest expense (32) (265)
Interest income 393 333
Other (128) 120
Other income -- net 233 188
Income before taxes 6,966 6,083
Income taxes 2,790 2,707
Net income $ 4,176 $ 3,376
Average number of shares
outstanding 11,777 12,456
Net income per common share $ 0.35 $ 0.27
Cash dividends per common share
Class A $ 0.07 $ 0.07
Class B $ 0.06 $ 0.06
See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Dollars in thousands)
(Unaudited)
Three months ended March 31,
1997 1996
Cash flows from operating
activities
Net income for the period $ 4,176 $ 3,376
Depreciation 2,113 2,595
Deferred income tax
provision 3,000 1,700
Other items in income not
affecting cash 305 (1,298)
Changes in current assets 4,102 (15,998)
Changes in current
liabilities (7,424) (147)
Net cash provided by (used in)
operating activities 6,272 (9,772)
Cash flows from investing
activities
Property, plant and
equipment additions (1,624) (891)
Other (389) 349
Proceeds from disposal of
assets 661 964
Net cash provided by (used in)
investing activities (1,352) 422
Cash flows from financing
activities
Net increase in long-term
borrowings -- 9,875
Cash dividends paid (814) (859)
Repurchase of common stock (1,691) --
Net cash provided by (used in)
financing activities (2,505) 9,016
Net increase (decrease) in cash
and cash equivalents $ 2,415 $ (334)
See notes to 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 March 31, 1997 and December 31,
1996, the results of operations for the three month periods
ended March 31, 1997 and 1996, and cash flows for the three
month periods ended March 31, 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:
March 31, December 31,
1997 1996
(Dollars in thousands)
Finished goods $ 39,492 $ 51,584
Work in process 9,005 10,698
Raw materials 2,606 4,517
Total $ 51,103 $ 66,799
The replacement cost of inventory exceeds the above LIFO
costs by $15,610 and $15,100 at March 31, 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 March 31, 1997
were $97.4 million, a decrease of $23.5 million (19.5%) over 1996
first quarter sales of $120.9 million. The Company's domestic
wholesale business of approximately $62.3 million for the first
quarter of 1997 was 22.5% less than 1996 first quarter sales of
approximately $80.4 million, with a corresponding decrease in
unit shipments of approximately 25.3%. The decrease in domestic
wholesale unit shipments 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. The Company's
sales declined less than the percentage decrease in unit sales as
a result of significantly lower sales of close-out merchandise at
much lower average selling prices. 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 first quarter of 1997 were down
approximately 17.7% when compared to the first quarter of 1996.
The Company's retail sales at its OshKosh B'Gosh branded retail
stores were approximately $32.8 million for the first quarter of
1997, an approximate 55% increase over 1996 first quarter sales
of approximately $21.1 million. Total Company retail sales
during the first quarter of 1996, including $8 million at the
Company's discontinued Genuine Kids stores, were approximately
$29.1 million. In early January 1997, in connection with the
Company's previously announced plan to discontinue its Genuine
Kids retail store chain, the Company converted 15 of the Genuine
Kids stores to OshKosh stores, combined 7 Genuine Kids stores
with OshKosh stores and closed the remaining 36 stores. The
Company's 55% increase in retail sales at its OshKosh B'Gosh
stores resulted from both the conversion and combination of a
total of 22 Genuine Kids stores in early January, as well as a
14.1% comparable store sales gain. The 14.1% comparable store
sales gain during the first quarter 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 first quarter of
1997, the Company also opened 2 additional retail stores and
closed 4 OshKosh stores. At March 31, 1997, the Company operated
113 domestic OshKosh retail stores, including 108 outlet stores
and 5 showcase stores.
The Company's gross profit margin as a percent of sales improved
to 33.2% in the first quarter of 1997, compared to 30.2% in the
first quarter of 1996. This gross profit margin improvement was
due to significantly improved 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 domestic wholesale business. Continued
implementation of the Company's sourcing strategy, more efficient
manufacturing plant utilization, as well as a substantial
reduction in the sale of close-out merchandise during the first
quarter of 1997 all contributed to the significant first quarter
1997 gross profit margin improvement.
Selling, general, and administrative (S, G & A) expenses for the
first quarter decreased $4.5 million from the first quarter of
1996. This decrease is directly attributable to the wind-down
of the Company's 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 28.1% for the first quarter of 1997 as compared to
26.3% in the first quarter of 1996. The primary reason for the
increased S, G & A expenses as a percentage of sales is the 19.5%
decrease in first quarter 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 relating to the
discontinuance of the 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 three
domestic sewing facilities. During the first quarter 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 change to the amount of
special charges recorded during 1996.
The Company's first quarter 1997 net royalty income of $1.8
million was approximately 54.2% over net royalty income earned in
the first quarter of 1996 of approximately $1.2 million. This
increase is due primarily to the Company's transition of its
European business to a licensee, along with growth in other
foreign markets.
The Company's effective tax rate was approximately 40.1% during
the first quarter of 1997 as compared to 44.5% for the first
quarter of 1996. The Company's first quarter 1996 effective tax
rate was adversely impacted by operating losses in the Company's
European subsidiaries which, at that time, provided no current
income tax benefit.
The Company's net income of $4.2 million for the first quarter of
1997 was $.8 million (23.7%) over 1996 first quarter net income.
Earnings per share improved to $.35 per share for the first
quarter of 1997, a 29.6% increase over 1996 first quarter
earnings per share of $.27. The Company's improved first quarter
results of operations are attributable to a combination of the
wind-down of the Company's European operations, closing of the
Genuine Kids retail store chain, improving gross profit margin
due to further implementation of the Company's sourcing strategy
and more efficient plant utilization, reduction in sale of close-
out merchandise, and increased retail sales at the Company's
OshKosh B'Gosh branded retail stores. These improvements were
offset in part by the lower level of wholesale shipments during
the first quarter of 1997.
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. Although the Company has not
yet fully determined the effect of this pronouncement on its
earnings per share computations, the Company currently
anticipates that this pronouncement will not materially impact
its 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. First
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 March 31,
1997 the Company's cash, cash equivalents and short-term
investments were $43.7 million, compared to $2.1 million at March
31, 1996. Net working capital at March 31, 1997 was $107.1
million, as compared to $104.6 million at the end of 1996 and
$109.2 million at March 31, 1996. The Company's current ratio
was 3.9 to 1 at March 31, 1997, compared to 3.4 to 1 at the end
of 1996 and 3.6 to 1 at March 31, 1996.
Accounts receivable at March 31, 1997 were $27.4 million compared
to $47.0 million at March 31, 1996. This decrease in accounts
receivable relates primarily to decreased wholesale sales for the
quarter and the wind-down of the Company's European operations.
Inventories at March 31, 1997 were $51.1 million, compared to
$84.8 million at March 31, 1996. This substantial decrease in
inventories is attributable to the wind-down of the Company's
European business, the discontinuance of its Genuine Kids chain
of retail stores, sourcing adjustments made by the Company for
the reduced volume of anticipated second and third quarter 1997
unit shipments, and an overall corporate focus on management of
working capital. Management believes that at March 31, 1997
inventory levels are generally appropriate for anticipated
business activity for the remainder of 1997.
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 March 31, 1997, the Company has
repurchased 772,600 shares of its Class A common stock under this
program for approximately $11.8 million. Since May 1994, the
Company has repurchased 2,922,600 shares of its Class A common
stock, representing approximately 20.0% of its total common stock
outstanding on that date.
At March 31, 1997 the Company had no outstanding long-term debt
as compared to $9.9 million of long-term debt outstanding at
March 31, 1996. The Company believes that its cash, cash
equivalents and short-term investments at March 31, 1997, credit
facilities, along with cash generated from operations, will be
sufficient to finance the Company's 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
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.
During 1996, the Company reached a strategic decision to reduce
wholesale distribution of its products. As a result of this
strategic decision, the Company anticipates a reduction in its
wholesale business during its second and third quarters of 1997
of approximately 8-10% below the second and third quarters of
1996. Primarily as a result of much stronger "sell-thrus" of the
Company's Holiday 1996 and Spring 1997 product offerings, the
Company currently anticipates total Holiday 1997 product
shipments in the fourth quarter to be nearly flat with unit
shipments in the fourth quarter of 1996.
Current Company plans for the remainder of 1997 call for the
opening of 9 new OshKosh B'Gosh retail stores and the closing of
2 stores.
Management currently anticipates that its gross profit margins
will continue to compare favorably during the remainder of 1997
with gross profit margins reported in the last three quarters of
1996, primarily as a result of the continuing impact of
implementation of the Company's strategic sourcing plan, improved
manufacturing efficiency, 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 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: April 22, 1997 /s/ DOUGLAS W. HYDE
Douglas W. Hyde
Chairman of the Board, President,
Chief Executive Officer and
Director
Date: April 22, 1997 /s/ DAVID L. OMACHINSKI
David L. Omachinski
Vice President-Finance, Treasurer,
Chief Financial Officer and
Director
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