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 1, 2000
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.
A Delaware Corporation 39-0519915
(I.R.S. ID)
112 Otter Avenue
Oshkosh, Wisconsin 54901
Telephone number: (920) 231-8800
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 19, 2000, there were outstanding 10,178,849 shares of
Class A Common Stock and 2,238,945 shares of Class B Common
Stock.
FORM 10-Q
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets-April
1, 2000 and January 1, 2000 3
Unaudited Condensed Consolidated Statements
of Income-Three Month Periods Ended April 1,
2000 and April 3, 1999 4
Unaudited Condensed Consolidated Statements
of Cash Flow-Three Month Periods Ended
April 1, 2000 and April 3, 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
Item 3. Qualitative and Quantitative Disclosures About
Market Risk 12
Part II. Other Information 13
Item 6. Exhibits and Reports on Form 8- K 13
Signatures
Part I - Financial Information
Item 1. Financial Statements
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
April 1, 2000 January 1, 2000*
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 4,476 $ 9,093
Investments 511 511
Accounts receivable 23,583 16,514
Inventories 45,041 48,495
Prepaid expenses & other current assets 1,314 774
Deferred income taxes 13,900 14,200
Total current assets 88,825 89,587
Property, plant & equipment 67,937 67,118
Less accumulated depreciation and amortization 36,996 35,470
Net property, plant & equipment 30,941 31,648
Non-current deferred income taxes 5,500 5,400
Other assets 2,823 3,064
Total assets $ 128,089 $ 129,699
Liabilities and shareholders'equity
Current liabilities
Current portion of long-term debt $ 15,000 $ 15,000
Accounts payable 6,401 10,269
Accrued liabilities 39,218 36,976
Total current liabilities 60,619 62,245
Long-term debt 29,000 29,000
Employee benefit plan liabilities 15,283 15,015
Shareholders' equity
Preferred stock -- --
Common stock:
Class A 101 104
Class B 23 23
Retained earnings 23,063 23,312
Total shareholders' equity 23,187 23,439
Total liabilities and shareholders' equity $ 128,089 $ 129,699
*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 1, 2000 April 3, 1999
Net sales $ 95,051 $ 101,933
Cost of products sold 54,464 61,791
Gross profit 40,587 40,142
Selling, general and administrative expenses 33,997 31,465
Royalty income, net (2,077) (1,996)
Operating income 8,667 10,673
Other income (expense):
Interest expense (1,187) (233)
Interest income 161 291
Miscellaneous 49 (57)
Other income (expense) -- net (977) 1
Income before taxes 7,690 10,674
Income taxes 2,999 4,166
Net income $ 4,691 $ 6,508
Net income per common share
Basic $ 0.37 $ 0.37
Diluted $ 0.37 $ 0.36
Weighted average common shares outstanding
Basic 12,612 17,687
Diluted (Including share equivalents) 12,784 17,878
Cash dividends per common share
Class A $ 0.0500 $ 0.0500
Class B $ 0.0425 $ 0.0425
See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
Three Month Period Ended
April 1, 2000 April 3, 1999
Cash flows from operating activities
Net income for the period $ 4,691 $ 6,508
Depreciation 1,740 1,721
Deferred income taxes 200 3,300
Items in net income not affecting cash
and cash equivalents 555 425
Changes in current assets (4,155) 8,179
Changes in current liabilities (1,626) (5,806)
Net cash provided by operating activities 1,405 14,327
Cash flows from investing activities
Additions to property, plant and equipment (1,095) (832)
Proceeds from disposal of assets 4 304
Sale of investments, net -- 2,020
Changes in other assets 12 (37)
Net cash provided by (used in) investing activities (1,079) 1,455
Cash flows from financing activities
Dividends paid (613) (880)
Net proceeds from issuance of common shares 65 991
Repurchase of common shares (4,395) (27,075)
Net cash used in financing activities (4,943) (26,964)
Net decrease in cash and cash equivalents (4,617) (11,182)
Cash and cash equivalents at beginning of period 9,093 14,308
Cash and cash equivalents at end of period $ 4,476 $ 3,126
See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands)
(Unaudited)
Note 1. Basis of Preparation
The condensed consolidated 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 1, 2000, the results of operations and cash
flows for the three month periods ended April 1, 2000 and April
3, 1999.
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
consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
1999 Annual Report.
Note 2. Inventories
A summary of inventories follows:
April 1, 2000 January 1, 2000
Finished goods $ 38,067 $ 37,262
Work in process 5,750 9,352
Raw materials 1,224 1,881
Total $ 45,041 $ 48,495
The replacement cost of inventory exceeds the above LIFO costs by
$11,531 and $11,381 at April 1, 2000 and January 1, 2000,
respectively.
Note 3. Segment Reporting
The Company designs, sources, and markets apparel products using
primarily the OshKosh B'Gosh brand. The apparel products are
primarily marketed in two distinct distribution channels:
domestic wholesale, and through Company owned retail stores. The
Company designs and sources product to meet the needs of these
distribution channels through a single procurement business unit.
In conjunction with a realignment of the Company's management
reporting system at the beginning of 2000, certain operations
have been segregated into segments as defined by Statement of
Financial Accounting Standards, No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The Company
manages its business operations by periodic analysis of business
unit operating results. For this purpose, domestic wholesale,
retail, and procurement are separately identified for management
reporting and are considered segments as defined by SFAS #131.
Management evaluates the operating performance of each of its
business units based on net income from operations as well as
return on net assets. For this purpose, product is transferred
to the domestic wholesale and retail business units at cost.
However, procurement receives a markup on product transferred to
the Company's marketing business units. Accounting policies used
for segment reporting are consistent with the Company's overall
accounting policies, except that inventories are valued on a
first-in first-out basis. In addition, interest income, interest
expense, certain corporate office expenses, and the effects of
the last-in, first-out (LIFO) inventory valuation method are not
allocated to individual business units, and are included in the
All Other/Corporate column below.
Segment assets include all assets used in the operation of each
business unit, including accounts receivable, inventories, and
property, plant and equipment. Certain other corporate assets
that cannot be specifically identified with the operation of a
business unit are not allocated. Financial information for the
Company's reportable segments follows:
All
Domestic Other/
Wholesale Retail Procurement Corporate Total
For the three months
ended April 1, 2000
Net sales $ 48,254 $ 44,340 $ -- $ 2,457 $ 95,051
Segment income
before taxes 5,368 1,482 116 724 7,690
Segment assets 49,840 39,404 19,969 18,876 128,089
Depreciation expense 395 723 377 245 1,740
For the three months
ended April 3, 1999
Net sales $ 60,284 $ 38,909 $ -- $ 2,740 $101,933
Segment income
before taxes 6,381 487 2,332 1,474 10,674
Segment assets 69,227 34,394 17,437 15,497 136,555
Depreciation expense 371 693 322 335 1,721
For the twelve months
ended January 1, 2000
Net sales $212,371 $210,350 $ -- $ 7,065 $429,786
Segment income
before taxes 21,896 18,278 10,556 2,457 53,187
Segment assets 53,175 32,747 21,266 22,511 129,699
Depreciation expense 1,570 3,107 1,222 1,194 7,093
Item 2. 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 1, 2000 April 3, 1999
Net sales 100.0% 100.0%
Cost of products sold 57.3% 60.6%
Gross profit 42.7% 39.4%
Selling, general and
administrative expenses 35.8% 30.9%
Royalty income, net (2.2%) (2.0%)
Operating income 9.1% 10.5%
Other income (expense), net (1.0%) 0.0%
Income before income taxes 8.1% 10.5%
Income taxes 3.2% 4.1%
Net income 4.9% 6.4%
Net Sales
Consolidated net sales for the first quarter ended April 1, 2000
were $95.1 million, a $ 6.8 million decrease (6.7%) from 1999
first quarter net sales of $101.9 million. The Company's net
sales for the first quarter of 2000 and 1999 are summarized as
follows:
Net Sales
(in millions)
Domestic
Wholesale Retail International Total
Three months ended:
April 1, 2000 $ 48.3 $ 44.3 $ 2.5 $ 95.1
April 3, 1999 60.3 38.9 2.7 101.9
Increase (decrease) $ (12.0) $ 5.4 $ (.2) $ (6.8)
Percent increase (decrease) (19.9%) 13.9% (7.4%) (6.7%)
The Company's first quarter 2000 domestic wholesale unit
shipments decreased 16.9% compared to 1999. The decrease in
unit shipments resulted from a combination of slightly lower
booked orders, a significant reduction in the number of "close-
out" units sold (the Company's inventory levels of close-out
merchandise at the beginning of 2000 were substantially lower)
and the timing of shipment of certain spring fashion items
(shipment delayed into early April 2000).
The Company's first quarter 2000 retail sales increase resulted
from a combination of a 4.5% comparable store sales gain and
sales volume from stores opened subsequent to April 3, 1999. For
the remainder of 2000, the Company currently anticipates low
single-digit comparable store sales gains.
At April 1, 2000 the Company operated 129 domestic OshKosh retail
stores, including 123 outlet stores, four showcase stores, and
two strip mall stores. During the first quarter of 2000, the
Company opened one retail outlet store and closed two retail
outlet stores. At April 3, 1999 the Company operated a total of
123 domestic OshKosh retail stores. Current Company plans for
the remainder of 2000 call for the addition of approximately 13
retail stores including six strip mall stores and the closing of
six to nine outlet stores.
Gross Profit
The Company's gross profit margin as a percent of sales improved
to 42.7% in the first quarter of 2000, compared to 39.4% in the
first quarter of 1999. This gross profit margin improvement was
due primarily to continued implementation and execution of the
Company's global sourcing strategy, continuing focus on product
design and development activities, and proportion of sales from
our Company's retail stores. The Company's current 2000 sourcing
plan indicates that approximately 79% of units will be produced
at off-shore venues as compared to approximately 64% in 1999.
The Company currently anticipates further modest improvement in
its gross profit margin for the remainder of 2000 as compared to
1999.
Selling, General, and Administrative Expenses (S,G&A)
S,G&A expenses for the first quarter of 2000 increased $2.5
million over the first quarter of 1999. As a percentage of net
sales, S,G&A expenses were 35.8% for the first quarter of 2000 as
compared to 30.9% for the first quarter of 1999. The increase in
S,G&A expenses relates primarily to the expansion of the
Company's retail operations and higher product distribution
expenses.
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 2000 net royalty income of $2.1 million increased
approximately 4.0% compared to net royalty income earned in the
first quarter of 1999 of approximately $2.0 million.
Operating Income
As a result of the factors described above, the Company's
operating income decreased to $8.7 million for the first quarter
of 2000 as compared to $10.7 million for the first quarter of
1999.
Other Income (Expense) - Net
The Company's first quarter 2000 net other income (expense) was a
$1.0 million expense compared to zero in 1999. Interest expense
increased by approximately $1.0 million in the first quarter of
2000, primarily as a result of borrowings to help finance the
Company's Dutch Auction tender offer in November 1999 and other
stock repurchase transactions.
Income Taxes
The Company's effective tax rate for the first quarter of 2000
and 1999 was 39.0%. The Company currently anticipates an
effective income tax rate of approximately 39.0% for the
remainder of 2000.
Net Income
Net income for the three months ended April 1, 2000 of $4.7
million was a $1.8 million (27.7%) decrease compared to net
income for the three months ended April 3, 1999 of $6.5 million.
The Company's ongoing stock repurchase programs and November 1999
Dutch Auction tender offer resulted in a significant reduction in
its weighted-average diluted shares outstanding for the first
quarter of 2000 compared to the first quarter of 1999. Despite
the reduction in net income, the decrease in weighted-average
diluted shares outstanding resulted in a 2.8% increase in diluted
earnings per share for the first quarter of 2000 of $.37 as
compared to $.36 in 1999.
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
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 2000 quarterly sales and income. First
quarter 2000 operating results are not necessarily indicative of
anticipated quarterly results throughout the balance of the year.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
At April 1, 2000, the Company's cash, cash equivalents and
investments were $5.0 million, compared to $9.6 million at the
end of 1999 and $3.6 million at April 3, 1999. This reduction is
attributable to the Company's stock repurchases, offset in part
by cash generated from operations. Net working capital at April
1, 2000 was $28.2 million compared to $27.3 million at January 1,
2000, and $58.8 million at April 3, 1999. The reduction in
working capital compared to April 3, 1999 is attributable to
reductions in accounts receivable and inventories, and an
increase in the current portion of long term debt related to the
Company's stock repurchases. Accounts receivable at April 1,
2000, were $23.6 million compared to $16.5 million at January 1,
2000, and $30.7 million at April 3, 1999. The decrease in
accounts receivable is attributable to reduced wholesale
shipments in the first quarter of 2000. Inventories at April 1,
2000, were $45.0 million, compared to $48.5 million at January 1,
2000, and $47.7 million at April 3, 1999. Management believes
that April 1, 2000, inventory levels are generally appropriate
for anticipated ongoing 2000 business activities.
Cash provided by operations amounted to approximately $1.4
million in the first quarter of 2000, compared to $14.3 million
in the first quarter of 1999. The change in cash provided by
operating activities in the first quarter of 2000 compared to
1999 is primarily attributable to relatively comparable inventory
levels during the first quarter of 2000, as compared to
significant inventory reductions during the first quarter of
1999.
Investing activities used $1.1 million of cash in the first
quarter of 2000 compared to providing $1.5 million of cash in
1999. Capital expenditures were $1.1 million in the first
quarter of 2000, compared with $.8 million in 1999 and are
currently budgeted at $10 million for all of 2000. Depreciation
and amortization are currently budgeted at $8 million for 2000.
Cash used in financing activities totaled $4.9 million in the
first quarter of 2000, compared to $27.0 million in the first
quarter of 1999. The Company's primary financing activities
consisted of stock repurchase transactions and dividends in both
periods.
On December 6, 1999, the Company's Board of Directors authorized
a 1.5 million share repurchase program of the Company's Class A
common stock. During the first quarter of 2000, the Company
repurchased 244,600 shares of its Class A common stock under this
program for approximately $4.4 million. The Company has
repurchased a total of 498,500 shares of its Class A common stock
under its current repurchase programs for approximately $9.2
million.
In November, 1999, the Company entered into a new unsecured
credit agreement with a number of banks that provides for a five
year $125 million term loan for the repurchase of shares of its
common stock through May, 2000 and a three year $75 million
revolving credit facility available for general corporate
purposes, including cash borrowings and issuances of letters of
credit. The revolving credit facility expires November 3, 2002.
The Company had $44 million of outstanding long-term debt at
April 1, 2000 and at January 1, 2000, while there was no
outstanding debt at April 3, 1999. The Company believes that
these credit facilities, along with cash generated from
operations, will be sufficient to finance the Company's seasonal
working capital needs as well as its capital expenditures,
required payments on long-term debt, and business development
needs.
FORWARD-LOOKING STATEMENTS
This report 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, including statements regarding future unit shipments,
planned store expansions and store closings, future comparable
store net sales, future inventory levels and valuation
implications, future growth in royalty income, future effective
income tax rate, planned capital expenditures and depreciation
and amortization expenses, and future cash needs. In addition,
from time to time, the Company may issue press releases and other
written communications, and representatives of the Company may
make oral statements which contain forward-looking information.
Except for historical information, matters discussed in such oral
and written communications, including this report, are forward-
looking statements. 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 as 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, natural disasters, competitive factors, risk of
non-payment of accounts receivable, the unanticipated loss of a
major customer, 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 financial, political or other 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.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The credit agreement entered into by the Company in November,
1999 provides for $125 million to finance repurchases of the
Company's common stock and a $75 million revolving credit
facility available for general corporate purposes. Borrowings
under this agreement bear interest at a variable rate, based on
the London Interbank Offered Rates. Accordingly, the Company is
affected by interest rate changes on its long-term debt.
Management monitors this risk by carefully analyzing the short-
term rates on its long-term debt portfolio and comparable long-
term interest rates. The Company does not presently hedge its
interest rate risk. With respect to this debt, a 1% change in
interest rates would not have a material impact on the Company's
interest expense for fiscal 2000.
Foreign Currency Risk
The Company contracts for the manufacture of apparel with
contractors in Asia, Central America, and Mexico. While these
contracts are stated in terms of U.S. dollars, there can be no
assurance that the cost for the production of the Company's
products will not be affected by exchange fluctuations between
the United States and the local currencies of these contractors.
Due to the number of currencies involved, the Company cannot
quantify the potential impact of future currency fluctuations on
net income in future years. The Company does not hedge its
exchange rate risk.
Inflation Risk
The Company manages its inflation risks by ongoing review of
product selling prices and production costs. Management does not
believe that inflation risks are material to the Company's
business, its consolidated financial position, results of
operations, or cash flows.
Investment Risk
The Company does not believe it has material exposure to market
risk with respect to any of its investments; the Company does not
utilize market rate sensitive instruments for trading or other
purposes.
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: 4/25/00 /S/DOUGLAS W. HYDE
Chairman of the Board, President
Chief Executive Officer and Director
Date: 4/25/00 /S/DAVID L. OMACHINSKI
Vice President-Finance, Treasurer
Chief Financial Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 4,476,000
<SECURITIES> 0
<RECEIVABLES> 30,430,000
<ALLOWANCES> 6,847,000
<INVENTORY> 45,041,000
<CURRENT-ASSETS> 88,825,000
<PP&E> 67,937,000
<DEPRECIATION> 36,996,000
<TOTAL-ASSETS> 128,089,000
<CURRENT-LIABILITIES> 60,619,000
<BONDS> 0
0
0
<COMMON> 124,000
<OTHER-SE> 23,063,000
<TOTAL-LIABILITY-AND-EQUITY> 128,089,000
<SALES> 95,051,000
<TOTAL-REVENUES> 97,128,000
<CGS> 54,464,000
<TOTAL-COSTS> 33,997,000
<OTHER-EXPENSES> (49,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,187,000
<INCOME-PRETAX> 7,690,000
<INCOME-TAX> 2,999,000
<INCOME-CONTINUING> 4,691,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,691,000
<EPS-BASIC> .37
<EPS-DILUTED> .37
</TABLE>
