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 April 4, 1998
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)
Effective January 1, 1998, the Company changed its fiscal year
from a calendar year to a 52/53-week year ending on the Saturday
closest to December 31 (January 2, 1999 for fiscal 1998).
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 April 4, 1998, there were outstanding 8,705,504 shares of
Class A Common Stock and 1,177,357 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-April
4, 1998 and December 31, 1997 3
Unaudited Condensed Consolidated Statements
of Income-Three Month Periods ended April 4,
1998 and March 31, 1997 4
Unaudited Condensed Consolidated Statements
of Cash Flow-Three Month Periods Ended
April 4, 1998 and March 31, 1997 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)
April 4, December 31,
1998 1997 *
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 15,358 $ 13,779
Short-term investments --- 8,700
Accounts receivable 30,893 23,278
Inventories 64,108 68,226
Prepaid expenses & other
current assets 4,772 1,265
Deferred income taxes 15,000 15,800
Total current assets 130,131 131,048
Property, plant & equipment 66,836 62,192
Less accumulated depreciation
and amortization 31,137 29,237
Net property, plant & equipment 35,699 32,955
Non-current deferred income taxes 5,300 5,500
Other assets 5,170 5,285
Total assets $ 176,300 $ 174,788
Liabilities and shareholders'
equity
Current liabilities
Accounts payable $ 2,962 $ 10,273
Accrued expenses 41,208 38,013
Total current liabilities 44,170 48,286
Employee benefit plan liabilities 13,638 13,345
Shareholders' equity
Preferred stock --- ---
Common stock:
Class A 87 87
Class B 12 12
Additional paid-in capital 672 ---
Retained earnings 117,721 113,058
Total shareholders' equity 118,492 113,157
Total liabilities and
shareholders' equity $ 176,300 $ 174,788
*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 Month Period Ended
April 4, March 31,
1998 1997
Net sales $ 102,535 $ 97,363
Cost of products sold 65,146 65,069
Gross profit 37,389 32,294
Selling, general and administrative expenses 30,662 27,367
Royalty income, net (2,254) (1,806)
Operating income 8,981 6,733
Other income (expense):
Interest expense (85) (32)
Interest income 238 393
Miscellaneous (51) (128)
Other income -- net 102 233
Income before taxes 9,083 6,966
Income taxes 3,742 2,790
Net income $ 5,341 $ 4,176
Net income per common share
Basic $ 0.54 $ 0.35
Diluted $ 0.53 $ 0.35
Weighted average common shares
outstanding
Basic 9,865 11,777
Diluted (Including share equivalents) 9,987 11,780
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 Month Period Ended
April 4, March 31,
1998 1997
Cash flows from operating activities
Net income for the period $ 5,341 $ 4,176
Depreciation 2,249 2,113
Provision for deferred income taxes 1,000 3,000
Items in income not affecting cash 542 305
Changes in current assets (7,004) 4,102
Changes in current liabilities (3,845) (7,424)
Net cash provided by (used in)
operating activities (1,717) 6,272
Cash flows from investing activities
Additions to property, plant and
equipment (5,135) (1,624)
Proceeds from disposal of assets 43 661
Proceeds from sale of short-term
investments 8,700 ---
Other (34) (389)
Net cash provided by (used in)
investing activities 3,574 (1,352)
Cash flows from financing activities
Cash dividends paid (678) (814)
Common shares issued, net 400 ---
Repurchase of common shares --- (1,691)
Net cash used in financing activities (278) (2,505)
Net increase in cash and cash
equivalents $ 1,579 $ 2,415
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 April 4, 1998, the results of operations for the three month
periods ended April 4, 1998 and March 31, 1997, and cash flows
for the three month periods ended April 4, 1998 and March 31,
1997.
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 1997
Annual Report.
Effective January 1, 1998, the Company changed its fiscal year
from a calendar year to a 52/53-week year ending on the Saturday
closest to December 31 (January 2, 1999 for fiscal 1998). Each
quarter will generally consist of a 13-week period ending on a
Saturday. Due to the conversion to a 52/53-week year, the first
quarter of 1998 consists of 13 weeks and 3 days. Accordingly,
the first quarter period ended April 4, 1998 is four days longer
than the comparative quarter in fiscal 1997.
Note 2. Inventories
A summary of inventories follows:
April 4, December 31,
1998 1997
(Dollars in thousands)
Finished goods $ 46,587 $ 49,400
Work in process 14,967 14,782
Raw materials 2,554 4,044
Total $ 64,108 $ 68,226
The replacement cost of inventory exceeds the above LIFO costs by
$14,318 and $14,138 at April 4, 1998 and December 31, 1997,
respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
selected Company income statement data expressed as a percentage
of net sales.
As a Percentage of
Net Sales for the First Quarter Ended
April 4, 1998 March 31, 1997
Net sales 100.0% 100.0%
Cost of products sold 63.5% 66.8%
Gross profit 36.5% 33.2%
Selling, general and administrative expenses 29.9% 28.1%
Royalty income, net (2.2%) (1.9%)
Operating income 8.8% 7.0%
Other income, net 0.1% 0.2%
Income for income taxes 8.9% 7.2%
Income taxes 3.7% 2.9%
Net income 5.2% 4.3%
Net Sales
Consolidated net sales for the three months ended April 4, 1998
were $102.5 million, a $5.1 million increase (5.3%) over 1997
first quarter net sales of $97.4 million. The Company's net
sales for the three month periods ended April 4, 1998 and March
31, 1997 are summarized as follows:
Net Sales
(in millions)
Domestic
Wholesale Retail International Total
Three months ended:
April 4, 1998 $ 64.1 $ 36.6 $ 1.8 $102.5
March 31, 1997 62.3 32.8 2.3 97.4
Increase (decrease) 1.8 3.8 (.5) 5.1
Percent increase
(decrease) 2.9% 11.6% (21.7%) 5.3%
The Company's first quarter 1998 domestic wholesale unit
shipments were up 5.9% over 1997. This increase in unit
shipments and sales dollars for the first quarter of 1998
resulted primarily from the Company's change in its fiscal year
end to a 52/53-week period ending on the Saturday closest to
December 31. As a result, the Company's first quarter 1998 ended
April 4, which resulted in an additional three days of wholesale
shipments as compared to the quarter ended March 31, 1997.
The Company's first quarter 1998 retail sales increase resulted
from a combination of a 10.6% comparable store sales gain and
sales volume from stores opened subsequent to March 31, 1997.
First quarter 1998 comparable store sales were favorably impacted
by sales of bigger sizes of Genuine Girl and Genuine Blues
branded products for the entire quarter. These sizes were
introduced during the first quarter of 1997. For the remainder
of 1998, the Company currently anticipates comparable store sales
gains in the middle single digit range.
At April 4, 1998 the Company operated 120 domestic OshKosh retail
stores, including 112 outlet stores and 8 showcase stores.
During the first quarter of 1998, the Company opened one retail
store. At March 31, 1997 the Company operated a total of 113
domestic OshKosh retail stores. Current Company plans for the
remainder of 1998 call for the addition of 7 retail stores.
Gross Profit
The Company's gross profit margin as a percent of sales improved
to 36.5% in the first quarter of 1998, compared to 33.2% in the
first quarter of 1997. This gross profit margin improvement was
due primarily to continued implementation and execution of the
Company's sourcing strategy, improved operating efficiencies at
the Company's domestic sewing facilities, and the impact of the
Company's increased retail sales at higher gross margins as
compared to the wholesale business. The Company's current 1998
sourcing plan indicates that approximately 41% of units will be
produced at the Company's domestic facilities as compared to
approximately 47% in 1997.
Selling, General, and Administrative Expenses (S,G&A)
S,G&A expenses for the first quarter of 1998 increased $3.3
million over the first quarter of 1997. As a percentage of net
sales, S,G&A expenses were 29.9% for the first quarter of 1998 as
compared to 28.1% for the first quarter of 1997. The increase in
S,G&A expenses relates primarily to a combination of continued
expansion of the Company's retail operations and expansion of the
Company's brand enhancing activities.
Royalty Income
The Company licenses the use of its trade name to selected
licensees in the U.S. and in foreign countries. The Company's
first quarter 1998 net royalty income of $2.3 million increased
approximately 24.8% over net royalty income earned in the first
quarter of 1997 of approximately $1.8 million, resulting
primarily from increased royalty income generated from domestic
licensees.
Operating Income
As a result of the factors described above, the Company's income
before income taxes increased to $9.1 million for the first
quarter of 1998 as compared to $7.0 million for the first quarter
of 1997.
Income Taxes
The Company's effective tax rate for the first quarter of 1998
was 41.2% as compared to 40.1% for the first quarter of 1997.
Net Income Per Common Share
The first quarter 1998 computation of net income per common share
reflected a lower number of weighted average outstanding shares
as compared to the first quarter of 1997 primarily as a result of
the Company's Dutch auction tender offer which was completed in
August 1997.
SEASONALITY OF BUSINESS
The Company's business is 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
outlet stores. The Company's second quarter sales and income are
the lowest, both because of relatively low domestic wholesale
unit shipments and relatively modest retail store sales during
this period. The Company anticipates this seasonality trend to
continue to impact 1998 quarterly sales and income. First
quarter 1998 operating results are not necessarily indicative of
anticipated quarterly results throughout the balance of the year.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
At April 4, 1998 the Company's cash, cash equivalents and short-
term investments were $15.4 million, compared to $43.7 million at
March 31, 1997 and $22.5 million at December 31, 1997. Net
working capital at April 4, 1998 was $86.0 million as compared to
$82.8 million at the end of 1997 and $107.1 million at March 31,
1997. The Company's current ratio was 2.9 to 1 at April 4, 1998,
compared to 2.7 at the end of 1997 and 3.9 to 1 at March 31,
1997. The reduction in cash, cash equivalents and short-term
investments, net working capital, and current ratio at April 4,
1998 compared to March 31, 1997 is attributable primarily to the
Company's stock repurchases, offset in part by cash generated
from operations.
Accounts receivable at April 4, 1998 were $30.9 million compared
to $27.4 million at March 31, 1997. This increase in accounts
receivable related primarily to increased wholesale sales
resulting from the first quarter of 1998 ending on April 4, 1998
due to the change in the Company's fiscal year.
Inventories at April 4, 1998 were $64.1 million, compared to
$51.1 million at March 31, 1997. Management believes that at
April 4, 1998 inventory levels are generally appropriate for
anticipated business activities for the remainder of 1998.
The Company's first quarter 1998 capital expenditures of $5.1
million compares to $1.6 million for the first quarter of 1997.
This increase is primarily due to the Company's upgrade of its
distribution systems and White House, Tennessee distribution
facilities. Capital expenditures for all of 1998 are currently
planned to be approximately $13.0 million, including
approximately $8.0 million related to the distribution systems
and facilities project.
On August 25, 1997, the Company's Board of Directors authorized a
500,000 share repurchase program of the Company's Class A common
stock. Through April 4, 1998, the Company repurchased 141,500
shares of its Class A common stock under this program for
approximately $4.6 million.
At April 4, 1998 and March 31, 1997 the Company had no
outstanding long-term debt. The Company believes that its cash
and cash equivalents at April 4, 1998, credit facilities, along
with cash generated from operations, will be sufficient to
finance the Company's seasonal working capital needs and planned
capital expenditures for the remainder of 1998.
OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
This Form 10-Q contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements are based on
current assumptions and expectations that involve risks and
uncertainties. Actual results may differ materially. The
Company's future results of operations and financial position can
be influenced by such factors, the level of consumer spending for
apparel, particularly in the children's wear segment, overall
consumer acceptance of the Company's product styling, the
financial strength of the retail industry, including, but not
limited to, business conditions and the general economy,
competitive factors, risk of non-payment of accounts receivable,
failure of Company suppliers to timely deliver needed raw
materials, as well as risk associated with foreign operations.
In addition, the inability to ship Company products within agreed
timeframes due to unanticipated manufacturing delays or the
failure of Company contractors to deliver products within
scheduled timeframes, are risk factors in ongoing business. As a
part of the Company's product sourcing strategy, it routinely
contracts for apparel products produced by contractors in Asia.
If the current financial and related difficulties were to
adversely impact the Company's contractors in the Asian region,
it could disrupt the supply of products contracted for by the
Company.
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.
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: 4/22/98 /S/DOUGLAS W. HYDE
Chairman of the Board, President
Chief Executive Officer and
Director
Date: 4/22/98 /S/DAVID L. OMACHINSKI
Vice President-Finance, Treasurer
Chief Financial Officer and
Director
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