Back to GetFilings.com

OshKosh B'Gosh, Inc.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No

As of June 29, 2002, there were outstanding 10,455,921 shares of Class A Common Stock and 2,205,699 shares of Class B Common Stock, of which 10,178,280 shares and 1,273,928 shares, respectively, were held by non-affiliates of the Company. Based upon the closing sales price as of June 29, 2002, the aggregate market value of the Class A Common Stock held by non-affiliates was $442,551,614. The Class B Common Stock is no longer listed or quoted on any established trading market, but it is convertible into Class A Common Stock on a share-for-share basis. Based on that conversion rate, the value of Class B Common Stock held by non-affiliates was $55,390,389.

As of February 14, 2003, there were outstanding 9,708,994 shares of Class A Common Stock and 2,192,961 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the OshKosh B'Gosh, Inc. Proxy Statement for its annual meeting to be held on May 6, 2003 (or such later date as the directors may determine), have been incorporated by reference into Part III.

OshKosh B'Gosh, Inc. (together with its subsidiaries, the "Company") was founded in 1895 and was incorporated in the state of Delaware in 1929. The Company designs, sources and markets apparel primarily for the children's wear and youth wear markets. While its heritage began in the men's work wear market, the Company is currently best known for its line of high quality children's wear. It is the Company's vision to become the dominant global marketer of branded products for children ages newborn to ten while also pursuing opportunities in lifestyle adult apparel, leveraging our rich heritage of workwear and heartland American spirit. This concept will be further developed in 2003, as the Company introduces pilot Family Lifestyle retail stores carrying a full collection of OshKosh apparel from adult to infant.

The success of the children's wear business can be attributed to the Company's core themes: quality, durability, style, trust and Americana. These themes have propelled the Company to the position of market leader in the branded children's wear industry. The Company strategically extends the product line and also leverages the economic value of the OshKosh B'Gosh name via both domestic and international licensing agreements, including a new sub-brand, Genuine Kids from OshKosh, that will be introduced in Target stores as a licensed product in the third quarter of 2003.

The Company's comprehensive strategic planning initiative guides the Company's business focus. Under this initiative, combined with management's commitment to more efficiently utilize working capital, the Company continues to take steps to improve its product value proposition, reduce its cost structure and improve delivery performance. These actions include analysis of product extensions, commitment to the wholesale customer base, strategic retail growth, periodic review of significant licensee arrangements and continued development of an effective global sourcing strategy.

The Company designs and sources substantially all of its non-licensed apparel products marketed and sold in the United States. Company designers develop fabrication, trim accessories and detailed manufacturing specifications. The product is then manufactured according to detailed Company specifications and production schedules at third-party contractor locations worldwide or in Company-operated manufacturing facilities. Product sourcing is based predominantly on manufacturing capacity, quality and lead times, in addition to cost and capabilities of specific manufacturing facilities.

The Company leverages its name and brand equity into a wide variety of children's products including children's apparel accessory items such as socks, sleepwear, footwear and outerwear, as well as non apparel brand extensions including eyewear, bedding and other nursery décor and juvenile products including car seats, strollers, books and luggage. The Company regularly reviews the seasonal offerings of all related products both locally and internationally for consistency, brand image and quality. The Company earns royalties for use of its name on children's and men's wear products throughout the world, and from related accessories distributed in the United States and worldwide.

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 business segments. See Note 12 "Segment Reporting" in the Notes to the Consolidated Financial Statements for additional information about the Company's business segments.

The Company designs, sources and markets a broad range of children's clothing as well as lines of youth wear under the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered) and Genuine Blues(Registered) labels. The Company's product line includes OshKosh B'Gosh branded product in sizes from newborn to girls 6X and boys 7, and youth wear for girls and boys under the trade names Genuine Girl (girls sizes 7-16) and Genuine Blues (boys sizes 8-20). The Company's product offering also includes a limited assortment of mens products which are only sold through Company-owned retail stores and its internet site. All other products are distributed primarily through department and specialty stores, Company-owned retail stores, the internet and foreign retailers.

The children's wear and youth wear business is targeted to reach the middle to upper middle segment of the sportswear market through the use of innovative designs, quality fabrics and classic styling. The Company believes that its trade name is a valuable asset in the marketing of its apparel, signifying classic design and high quality construction. The Company tradename and trademarks are generally displayed on OshKosh product or on the hang tags accompanying the product on the retail shelves.

The Company's children's wear and youth wear business includes a broad range of product categories, which are offered in two main groups: Fashion and Replenishment. The Fashion group is organized primarily in a collection format of seasonal themes, developed by an in-house product development staff. The products in a collection share a primary design theme which is carried out through fabric design and the distinctive use of colors, screenprint, embroidery and trim applications. These collections are generally presented as three to five small groups within each merchandising season. During 2002, the Company revitalized its design effort by assembling an experienced and talented new design team in New York. This team is charged with the goal of bringing new luster to our product offering to reinforce our reputation for style and quality.

The Company also offers a Replenishment product line, consisting primarily of staple denim products with multiple wash treatments and coordinating garments. This product line is developed to be somewhat less seasonal, with signature OshKosh B'Gosh classic styling. These styles are available to retailers for replenishment throughout the year. Some Replenishment items are also designed to serve as a foundation for the Fashion group, with seasonal colors and styles to complement the Company's Fashion product offering.

In selecting fabric and prints for its products, the Company seeks, where possible, to obtain exclusive rights to unique fabric designs from its suppliers in order to provide the Company, for a limited period of time, with some protection from imitation by competitors.

In 2002, substantially all of the Company's product line was sourced from numerous third-party contractors throughout the world and off-shore Company-operated facilities in accordance with the Company's specifications. Due in part to import duty regulations under the North American Free Trade Act, the United States-Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act, the Company takes a global view of its entire manufacturing process. The North American Free Trade Act, the United States-Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act, have significantly reduced the requirements that certain manufacturing processes be performed in the United States to receive preferential duty treatment. The Company utilizes contractors outside of the U.S. with expertise in any of the five major manufacturing functions -- cutting fabric, screenprinting, embroidery, sewing and finishing. These offshore manufacturing facilit ies include Company-operated facilities in Mexico and in Honduras, as well as unrelated third-party contractors. In 2002, approximately 28% of the Company's units sourced were from Company-operated offshore facilities, with the remaining units sourced from third-party contractors. During 2002, 31% of total units sourced were from the Company's largest five contractors, with the largest contractor accounting for approximately 7% of total units sourced.

For product sourced in Mexico or Central America, the Company generally arranges for the purchase of necessary raw materials. All raw materials used in the manufacture of Company products are purchased from unaffiliated suppliers. The Company purchases its raw materials directly for its manufacturing facilities and may also procure and retain ownership of fabric related to garments cut and assembled by contract manufacturers. In other circumstances, fabric is procured by the contract manufacturer directly but in accordance with the Company's specifications. In 2002, approximately 78% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 36% of total raw material expenditures. Fabric and various non-fabric items such as thread, zippers, rivets, buckles and snaps are purchased from a variety of domestic and foreign sources based on quality, pricing and availability. The fabric and accessory marke t in which OshKosh B'Gosh purchases its raw materials is composed of a substantial number of suppliers with similar products and capabilities, and is characterized by a high degree of competition. As is customary in its industry, the Company has no long-term contracts with its suppliers. To date, the Company has experienced little difficulty in satisfying its requirements for raw materials, considers its sources of supply to be adequate and believes that it would be able to obtain sufficient raw materials should any one of its product suppliers becomes unavailable.

The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. It also employs agents based in regional locations abroad to monitor compliance with design specifications and quality standards. The Company has a quality department which is responsible for reviewing product manufacturing processes at third-party contractor locations, as well as the quality of incoming products at the Company's distribution center. This quality team is responsible for ensuring that all product arriving at the distribution center meets the Company's strict quality standards. The Company believes that its overall global manufacturing strategy gives the Company reasonable flexibility to properly balance the need for timely shipments, high quality products and competitive pricing.

While no long-term formal arrangements exist with its third-party manufacturers, the Company considers these relationships to be satisfactory. The Company believes it could, over a period of time, obtain adequate alternative production capacity if any of its independent manufacturers becomes unavailable. As part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico and Central America and has also used contractors in Europe and Africa. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of products contracted for by the Company. A sustained disruption of such sources of supply could, particularly on a short-term basis, have an adverse impact on the Company's operations.

Because higher quality apparel manufacturing is generally labor intensive (sewing, pressing, finishing and quality control), the Company and its contract manufacturers have continually sought to take advantage of time saving technical advances in areas like computer-assisted design, computer-controlled fabric cutting, computer evaluation and matching of fabric colors, automated sewing processes and computer-assisted inventory control and shipping. Quality control inspections of both semi-finished and finished products are required at manufacturing locations to assure compliance.

Customer orders for Fashion products are booked from three to six months in advance of shipping. Because a majority of the Company's production of styled products is scheduled to fill orders already booked, the Company believes that it is better able to plan its production and delivery schedules than would be the case if production were in advance of actual orders. In order to secure necessary fabrics on a timely basis and to obtain manufacturing capacity from independent suppliers, the Company must, in certain instances, make substantial advance commitments, sometimes as much as five to seven months prior to receipt of customer orders. Inventory levels therefore depend on Company judgment of market demand.

In 2002, the Company's products were sold to approximately 500 wholesale customers with over 4,600 retail store locations throughout the United States. The Company's wholesale customers include national chain retailers (Kohl's, Kids R Us, JC Penney, Mervyn's and Babies R Us), national department stores (May Company, Federated Department Stores and Saks Inc.), regional department stores and specialty stores. National chain retailers and national department stores currently account for approximately 80% of the Company's wholesale unit shipments.

The Company's broad distribution base insulates the Company from reliance on any one customer. While no single customer accounted for more than 10% of the Company's 2002 total Company sales, the Company's largest ten and largest 100 customers accounted for approximately 36% and 41% of 2002 total Company sales, respectively.

The Company maintains an active marketing program aimed at both wholesale accounts and ultimate consumers, with a main goal of increasing overall brand awareness. A national marketing program includes advertising in both consumer and trade publications, local cooperative advertising, promotions and in-store merchandising.

The Company's sales force is structured to meet the demands of its customer base. In addition to a centralized sales management team that operates out of New York, regional account executive representation is found in geographic areas populated by key customers. The Company's sales force is supported by a product planning team located in Oshkosh that monitors current product sell-through as a basis for future demand planning at the account level. This type of planning helps to ensure that the proper product will be placed with the correct customer at the optimum time to increase sell-through. This sales planning process also lends discipline and accuracy to the forecasting required for raw material commitments and production capacity.

The Company currently operates 154 retail stores under three formats: factory outlet stores, showcase stores, and strip mall stores. The Company operates 147 domestic factory outlet stores located throughout the United States in outlet malls. These stores carry a wide assortment of OshKosh product that is consistently value-priced. The two showcase stores are full service stores featuring a comprehensive line of OshKosh B'Gosh product in a signature environment designed to convey the total OshKosh image and build brand recognition among customers. The Company continues to test its strip center retail prototype by operating five strip mall stores in 2002. These strip mall stores feature a large selection of OshKosh B'Gosh products that are consistently value-priced.

The Company maintains an e-commerce site www.oshkoshbgosh.com, offering a comprehensive collection of the Company's current product at pricing comparable to its outlet stores. The Company is also affiliated with Amazon.com as an alternative e-commerce location.

The Company's products are distributed worldwide through approximately 32 licensees and distributors in over 50 countries. Licensing and distribution agreements allow the Company to develop international markets without the need to maintain a capital commitment in localized warehousing, offices, personnel and inventory.

The Company provides design assistance to its licensees to ensure products are appropriate to each foreign market and consistent with the Company's brand image. The licensees and distributors may purchase finished product directly from the Company, manufacture their own product or contract the production of the product from third-party manufacturers. Each licensee and distributor is responsible for the marketing and distribution of specific product categories within defined regions specified in the licensing or distribution agreement. Distribution must be through marketing channels consistent with the Company's domestic operations and as approved by the Company. The Company also provides advertising guidelines and support in the development of localized marketing programs.

The Company utilizes the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered), Genuine Blues(Registered) or Genuine Kids(Registered) trademarks on most of its products. Other significant trademarks include a white triangular patch on the back of bib garments and the Genuine Article(Registered). The Company currently has approximately 41 trademark registrations and 11 pending trademark applications in the United States and has trademark registrations in approximately 115 countries outside the U.S. These trademarks and awareness of the OshKosh B'Gosh name are significant in marketing the products. Therefore, it is the Company's policy to vigorously defend its trademarks against infringement under the laws of the U.S. and other countries. The Company is not aware of any current material infringement.

Products are designed and marketed primarily for four principal selling seasons:

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 the lowest because of both 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 2003 quarterly sales and income.

Working capital needs are affected primarily by inventory levels, outstanding accounts receivable and trade payables. The Company's unsecured credit agreement with a number of banks provides a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires October 30, 2003. The Company intends to renew this revolving credit before its expiration. There were no outstanding borrowings against the revolving credit arrangement at December 28, 2002.

Inventory levels are affected by order backlog and anticipated sales. Accounts receivable are affected by payment terms offered. It is general practice in the apparel industry to offer payment terms of ten to sixty days from date of shipment. The Company generally offers net 30 day terms.

The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound, like-sized apparel companies.

As of the end of 2002, the Company had outstanding customer orders of approximately $65 million, compared to approximately $67 million of such orders at the end of 2001. These amounts include orders that are confirmed or based on industry practice and prior experiences will be confirmed. The amount of outstanding customer orders at a particular time is influenced by numerous factors, including the product mix, timing of the receipt and processing of customer orders, shipping schedules for the product and specific customer shipping windows. Due to these factors, a comparison of outstanding customer orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments.

The children's apparel industry is highly competitive and consists of a number of branded products in addition to private labels. The Company's primary branded competitors include Carters, Healthtex, Baby Gap, Gap Kids, Gymboree, Old Navy, The Children's Place and Disney licensed apparel products, in addition to private label product offerings carried by certain retailers, including our customers.

A characteristic of the apparel industry is the requirement that a marketer recognize fashion trends and adequately provide products to meet such trends. Competition within the apparel industry is generally in terms of consumer brand recognition, quality, price, service and style. The Company is focusing attention on each of these issues and has taken, and will continue to take steps to reduce costs, become more competitive in the eyes of value conscious consumers and deliver the service expected by its customers while maintaining the quality, style and consumer recognition our product is known for.

The Company's share of the overall children's wear market is quite small. This is due to the diverse structure of the market where there is no truly dominant producer of children's garments across all size ranges and garment types. The Company believes that in its primary channel of wholesale distribution, department and specialty stores, it holds the largest share of the branded children's wear market.

The Company's compliance with Federal, State and local environmental laws and regulations in recent years had no material affect upon its capital expenditures, earnings, or competitive position. The Company does not anticipate any material capital expenditures for environmental control in either the current or succeeding fiscal years.

All properties are owned by the Company with the exception of:

The Company is subject to various legal actions and proceedings in the normal course of business. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome will have a significant effect on the consolidated financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The Company licensed its footwear and outerwear products effective May 1, 2001. The Company's wholesale sales of footwear and outerwear for 2001 were approximately $1.8 million.

Excluding its footwear and outerwear products, wholesale net sales for 2002 of $182.7 million were approximately 13.7% less than 2001 net wholesale sales of $211.8 million. The Company's 2002 domestic wholesale unit shipments decreased approximately 7.7% as compared to 2001. The 2002 decrease in unit shipments is primarily the result of lower booked orders for the year reflecting broad based weakness in the apparel industry along with a reduction in the number of "close-out" units sold. In addition to the unit decreases, overall price reductions in the Company's Fall/Back-to-School, Holiday and Spring '03 product offering (which averaged approximately 10%) had a significant impact on net sales in dollars. Net sales were also affected by a highly promotional market, which resulted in increased customer support to assist in more effective flow of Company products through the retail channels. Sales to Kohl's Department Stores, a major new customer, were $36.5 million.

The Company's 2002 increased retail sales resulted from sales volume generated from newly opened stores, offset in part by a comparable store sales decrease of 5.0% compared to 2001. The comparable store sales decrease resulted from a combination of lower retail price points, a more promotional sales environment and a general decline in store traffic reflecting the challenging retail environment. During 2002, the Company opened 13 factory outlet stores. At December 28, 2002, the Company operated 154 domestic OshKosh B'Gosh retail stores, including 147 factory outlet stores, two showcase stores and five strip mall stores.

The Company's SG&A expenses for 2002 of $148.9 million were $.6 million over 2001 SG&A expenses of $148.3 million. As a percentage of net sales, SG&A expenses were 34.1% in 2002 as compared to 32.0% in 2001. The increase in SG&A expenses in both dollars and as a percentage of sales relates primarily to continued expansion of the Company's retail operations and the development of our New York design team, offset in part by employee reductions in certain support functions as well as other cost containment initiatives. SG&A expenses as a percentage of sales is also directly impacted by our sales decreases.

The Company licenses the use of its trade names to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $10.2 million in 2002, a $.9 million increase compared to 2001 net royalty income of $9.3 million. Royalty income from domestic licensees was approximately $3.9 million in 2002 as compared to $3.6 million in 2001. This increase was due primarily to the licensing of the Company's footwear and outerwear businesses which was effective May 1, 2001. Royalty income from foreign licensees was approximately $6.3 million in 2002 as compared to $5.7 million in 2001. The increase was due primarily to increased business levels by the Company's Japanese and Australian licensees.

As a result of the factors described above, the Company's 2002 operating income was $51.5 million, a decrease of $3.2 million (5.9%) from 2001 operating income of $54.7 million.

The Company's 2002 net other income (expense) was a $.6 million expense compared to a $1.5 million expense in 2001. This decrease was due to an approximate $1.2 million decrease in interest expense during 2002. The Company's interest expense decreased substantially as a result of lower interest rates and prepayment of all of the Company's long-term debt in 2002.

The Company's 2002 effective income tax rate was approximately 37.0% as compared to 38.4% in 2001. Substantially all income is subject to taxation in the United States, and various state and local jurisdictions.

Net income for the year ended December 28, 2002 of $32.0 million represented a $.8 million (2.3%) decrease compared to net income for the year ended December 29, 2001 of $32.8 million. Diluted earnings per share of $2.54 (including $.08 per share relating to use of the LIFO inventory accounting method) were 2.7% less than 2001 diluted earnings per share of $2.61.

The Company licensed its footwear and outerwear products effective May 1, 2001. The Company's 2000 wholesale sales of footwear and outerwear totaled approximately $12.0 million. The Company's wholesale sales of footwear and outerwear for 2001 were approximately $1.8 million.

Excluding its footwear and outerwear products, wholesale net sales for 2001 of $211.8 million were approximately 3.8% over 2000 net wholesale sales of $204.0 million. The Company's 2001 domestic wholesale unit shipments increased approximately 5.8% as compared to 2000. The 2001 increase in unit shipments and net sales dollars are primarily the result of higher booked orders for the year. The lower wholesale sales dollar increase relative to the percent unit increase for 2001 was the result of a combination of slightly lower average unit selling prices, and higher customer sales allowances.

The Company's 2001 increased retail sales resulted from a combination of a 2.4% comparable store sales gain and sales volume from newly opened stores. During 2001, the Company opened six factory outlet stores, closed one factory outlet store and closed one showcase store. At December 29, 2001, the Company operated 141 domestic OshKosh B'Gosh retail stores, including 134 factory outlet stores, two showcase stores and five strip mall stores.

The Company's SG&A expenses for 2001 of $148.3 million were $5.3 million over 2000 SG&A expenses of $143.0 million. As a percentage of net sales, SG&A expenses were 32.0% in 2001 as compared to 31.6% in 2000. The increase in SG&A expenses in both dollars and as a percentage of sales relates primarily to continued expansion of the Company's retail operations.

The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $9.3 million in 2001, a $1.0 million increase compared to 2000 net royalty income of $8.3 million. Royalty income from domestic licensees was approximately $3.6 million in 2001 as compared to $2.9 million in 2000. This increase was due primarily to the licensing of the Company's footwear and outerwear businesses which was effective May 1, 2001. Royalty income from foreign licensees was approximately $5.7 million in 2001 as compared to $5.4 million in 2000. The increase was due primarily to increased business levels by the Company's Japanese licensees.

As a result of the factors described above, the Company's 2001 operating income was $54.7 million, a slight decrease from 2000 operating income of $55.7 million.

The Company's 2001 net other income (expense) was a $1.5 million expense compared to a $2.9 million expense in 2000. This decrease was due to an approximate $2.9 million decrease in interest expense during 2001 offset in part by a nonrecurring gain on sale of a previously closed manufacturing facility of approximately $1.1 million during 2000. The Company's interest expense decreased substantially as a result of lower interest rates, lower levels of seasonal borrowings and prepayment of a portion of the Company's long-term debt.

The Company's 2001 effective income tax rate was approximately 38.4% as compared to 39.0% in 2000.

Net income for the year ended December 29, 2001 of $32.8 million represented a $.6 million (1.8%) increase over net income for the year ended December 30, 2000 of $32.2 million. Diluted earnings per share of $2.61 were 1.2% higher than 2000 diluted earnings per share of $2.58.

At December 28, 2002, the Company's cash and cash equivalents were $36.2 million, compared to $29.3 million at the end of 2001. Net working capital at December 28, 2002 was $71.0 million compared to $75.4 million at December 29, 2001. Accounts receivable at December 28, 2002 were $16.7 million compared to $25.7 million at December 29, 2001. The decrease in accounts receivable is primarily attributable to lower fourth quarter wholesale net sales and increased customer promotional allowances.

Inventories at December 28, 2002 were $57.1 million, compared to $55.4 million at the end of 2001. Management believes that December 28, 2002 inventory levels are generally appropriate for anticipated 2003 business activities.

Cash provided by operations amounted to approximately $54.1 million in 2002, compared to $42.9 million in 2001 and $28.6 million in 2000. The increase in cash provided by operating activities in 2002 compared to 2001 is primarily attributable to reduced accounts receivable levels. The Company made cash contributions of $6.0 million to its defined benefit pension plans covering hourly and salaried employees during the year to maintain a funding status in excess of accumulated benefits obligation. After evaluating current market conditions and future expectations, the Company lowered its discount rate to 6.5% and lowered its expected long-term rate of return to 8.0% to more closely reflect current market expectations. The increase in cash provided by operating activities in 2001 compared to 2000 is primarily attributable to reduced accounts receivable in 2001 compared to a significant increase in 2000.

Cash used in investing activities totaled $5.4 million in 2002, compared to $5.6 million in 2001, and $6.0 million in 2000. Capital expenditures were $5.4 million in 2002, compared with $5.1 million in 2001, and $8.6 million in 2000. Capital expenditures in each year related primarily to retail store expansions and remodeling.

Cash used in financing activities totaled $41.8 million in 2002, compared to $27.7 million in 2001, and $11.8 million in 2000. The Company's primary financing activities consisted of long-term debt prepayments, ongoing stock repurchase transactions, cash dividends and issuances of common shares through stock option exercises.

Dividends on the Company's Class A and Class B common stock totaled $.26 per share and $.225 per share, respectively, in 2002, $.22 per share and $.19 per share, respectively, in 2001 and $.20 per share and $.17 per share, respectively, in 2000.

Returns The Company periodically estimates potential returns of unsaleable products, and reduces sales for the full amount of the credit that is anticipated will be issued or has been issued to its wholesale customers.

Promotional Support In accordance with long-standing programs with many of the Company's wholesale customers, the Company provides allowances to effectively flow products through the retail channels. The Company periodically performs a review of its outstanding customer support obligations for all product shipped through the date of the financial statements. These amounts are evaluated on a customer by customer basis and consider any unauthorized deductions taken by the customer. Settlements of promotional support payments are periodically compared to the Company's original estimates to enhance the Company's ability to predict the support level in subsequent seasons. Promotional support arrangements are recorded as a reduction of sales.

Co-op Advertising In accordance with the Financial Accounting Standard Board's Emerging Issues Task Force issue number 01-09 (EITF 01-09, "Accounting for Consideration Given by a Vendor to a Customer"), the Company carefully evaluates the substance of any co-op advertising support. To the extent that the co-op advertising support relates to the acquisition of advertising material which the Company could obtain independently, these costs are considered advertising expense. To the extent that they relate to promotional support for the Company's customers' advertising activities, they are considered reductions of revenue, in accordance with the EITF 01-09. The Company evaluates co-op advertising commitments on a customer by customer basis considering actions taken throughout the course of the year, and the Company's prior history in dealing with customer co-op advertising issues.

The retail climate, particularly in many of the channels in which the Company's products are sold, remains challenging. Our previously announced decision to lower price points approximately 10% will continue on our 2003 Spring and Summer season product offerings. The promotional environment that exists in our wholesale business is likely to continue into 2003.

We are currently planning comparable store sales decreases in our retail business unit in the high single digit range for the first half of 2003, primarily as a result of lower retail selling prices to our consumers. We are also planning two new retail stores opening during the first quarter of 2003, and incremental sales by stores opened during 2002 in the first quarter of 2003.

The Company's booked orders in dollars for the 2003 Spring and Summer seasons were below orders booked in dollars for the comparable 2002 season. The Company believes that this reduction is due primarily to lower unit price points, the significant economic slowdown experienced in the U.S. and the cautious approach to inventory management by many of the Company's wholesale customers.

We anticipate that our royalty income for the first quarter will be comparable with 2002 amounts. The Company continues to make financial investments in the Family Lifestyle retail store concept and Target licensing arrangement. These initiatives will add $3.0-$3.5 million to the first quarter SG&A costs.

For the entire year 2003, we are planning capital expenditures of $9.0 million. We are currently budgeting depreciation and amortization for 2003 of $7.5 million.

The foregoing forward-looking statements are qualified in their entirety by the reference to the risks and uncertainties set forth under the heading "Forward-Looking Statements" below.

Statements contained herein and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in Company press releases and in oral statements made by, or with the approval of, authorized personnel that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated financial position, results of operations and level of business for 2003 or any other future period, are forward-looking statements within the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which are generally indicated by words or phrases such as "plan", "estimate", "project", "anticipate", "the Company believes", "management expects", "currently anticipates", "remains optimistic" and similar phrases are based on current expectations only and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, projected or estimated.

The new credit agreement entered into by the Company in October 2002 provides 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. The Company does not presently hedge its interest rate risk. Since the Company does not have any outstanding debt at the end of 2002, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2003.

The Company contracts for the manufacture of apparel with contractors primarily 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 rate fluctuations between the United States dollar 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 foreign currency exchange rate risk.

While the current deflationary environment, especially in the apparel industry, affects the Company's results of operations, the Company manages its inflation/deflation risks by ongoing review of product selling prices and production costs. Management believes the Company's ability to match product selling prices with production cost reduces these risks and their affect on the Company's business, its consolidated financial position, results of operations or cash flows.

The Company does not believe it has material exposure to market risk with respect to any of its investments, all of which are cash equivalents. The Company does not utilize market rate sensitive instruments for trading or other purposes. For information regarding the Company's investments, refer to the Cash and cash equivalents portion of Note 1 to the consolidated financial statements.

To the Board of Directors and Shareholders of
OshKosh B'Gosh, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of OshKosh B'Gosh, Inc. and subsidiaries (the "Company") as of December 28, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company as of and for the period ended December 29, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 30, 2002.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the financial position of OshKosh B'Gosh, Inc. and subsidiaries as of December 28, 2002 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic 2002 financial statements taken as a whole. The consolidated financial statement schedule listed in the Index at Item 15(a) is presented for the purpose of meeting the reporting requirements of the Securities and Exchange Commission and not a required part of the basic financial statements. This schedule is the responsibility of the Company's management. Such 2002 schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. The 2001 and 2000 schedule was subjected to auditing procedures by other auditors whose reports dated January 30, 2002 and January 26, 2001 stated that such information is fairly stated in all material respects when considered in relation to the basic 2001 and 2000 financial statements, respectively.

DELOITTE & TOUCHE LLP

Milwaukee, Wisconsin
January 31, 2003

The following is a copy of a report previously issued by Arthur Andersen LLP in connection with the Company's Annual Report on Form 10-K for the year ended December 29, 2001. This opinion has not been reissued by Arthur Andersen LLP.

To the Board of Directors and Shareholders of OshKosh B'Gosh, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of OshKosh B'Gosh, Inc. (a Delaware Corporation) and subsidiaries as of December 29, 2001 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and supplemental schedule based on our audit. The consolidated financial statements of OshKosh B'Gosh, Inc. and subsidiaries as of December 30, 2000 and for each of the two years in the period ended December 30, 2000 were audited by other auditors whose report dated January 26, 2001, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OshKosh B'Gosh, Inc. and subsidiaries as of December 29, 2001 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule listed in the index to Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The supplemental schedule for the year ended December 29, 2001 has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Milwaukee, Wisconsin
January 30, 2002

The Board of Directors
OshKosh B'Gosh, Inc. and Subsidiaries

We have audited the accompanying consolidated statements of income, changes in shareholders' equity and cash flows of OshKosh B'Gosh, Inc. and subsidiaries (the Company) for the year ended December 30, 2000. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the Company's operations and cash flows for the year ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended December 30, 2000, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

ERNST & YOUNG LLP

Milwaukee, Wisconsin
January 26, 2001

OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)