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
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