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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 July 5, 2003, the last day of the Company's fiscal second quarter, there were outstanding 9,680,444 shares of Class A Common Stock and 2,192,961 shares of Class B Common Stock, of which 8,214,298 shares and 122,651 shares, respectively, were held by non-affiliates of the Company. Based upon the closing sales price as of July 5, 2003, the aggregate market value of the Class A Common Stock held by non-affiliates was $232,218,204. 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 $3,467,344.

As of February 16, 2004, there were outstanding 9,559,719 shares of Class A Common Stock and 2,184,236 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 4, 2004 (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 2004, as the Company introduces The OshKosh Company Store - family lifestyle retail stores carrying a collection of OshKosh apparel for both adults and children, as well as items for the home.

The success of the children's wear business can be attributed to the Company's core themes: quality, durability, style, trust and its heartland image. These themes have propelled the Company to the position of a 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 sub-brand, Genuine Kids from OshKosh, that was 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 efficiently utilize working capital, the Company continues to take steps to improve its product value proposition, by revitalizing the OshKosh brand, while maintaining its cost structure. 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 OshKosh B'Gosh and related trademark 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 successfully leverages its design talent and overall brand recognition through use of the Genuine Kids from Oshkosh sub-brand. Company personnel design Genuine Kids product, including fabrication, trim accessories, use of screen prints or embroidery and manufacturing design specifications. This product design package is provided to Target to arrange for the product sourcing. While the Company is responsible for the design element, the Company does not currently source or arrange for the manufacture of this product.

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. Licensing activities are currently combined in the "All Other" category. See Note entitled "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 an assortment of mens and womens 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 bringing new luster to our product offering to reinforce our reputation for style and quality and has had complete responsibility for designing the Company's Holiday 2003 and subsequent seasons' fashion offerings.

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.

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 facilities inclu de Company-operated facilities in Mexico and in Honduras, as well as unrelated third-party contractors. In 2003, approximately 28% of the Company's sourced units were from these Company-operated offshore facilities, with the remaining units sourced from third-party contractors. Approximately 28% of total units sourced from unrelated contractors in 2003 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 2003, approximately 56% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 19% 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. These guidelines include on-site facility evaluations for all new suppliers, an expectation that the third-party manufacturers become WRAP certified and allow for random on-site facility inspections to observe working conditions. The Company 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, periodically observing working conditions and reviewing 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 prior to receipt of customer orders. Inventory levels therefore depend on Company judgment of market demand.

In 2003, the Company's products were sold to approximately 400 wholesale customers with over 4,100 retail store locations throughout the United States. The Company's wholesale customers included 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 accounted for approximately 66% 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 2003 total net sales, the Company's largest ten and largest 100 customers accounted for approximately 34% and 39% of 2003 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 has been restructured to meet the demands of its customer base. A centralized sales management team focuses on the unique requirements of each major customer. 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 165 retail stores under four formats: factory outlet stores, showcase stores, strip mall stores and Lifestyle stores. The Company operates 157 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 also operates five strip mall stores. These strip mall stores feature a large selection of OshKosh B'Gosh products that are consistently value-priced. During the fourth quarter of 2003, the Company opened its first childrens only family lifestyle store. Further development of this concept will take place in 2004.

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 37 trademark registrations and 42 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 2004 quarterly sales and income.

Working capital needs are affected primarily by inventory levels, outstanding accounts receivable, trade payables and the level of other current liabilities. 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 28, 2004. The Company intends to renew this revolving credit before its expiration. There were no outstanding borrowings against the revolving credit arrangement at January 3, 2004.

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 2003, the Company had outstanding customer orders of approximately $44 million, compared to approximately $65 million of such orders at the end of 2002. 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.

Wholesale net sales for 2003 of $165.7 million were approximately 9.3% less than 2002 net wholesale sales of $182.7 million. The Company's 2003 domestic wholesale unit shipments increased approximately 2.5% as compared to 2002. The 2003 increase in unit shipments is primarily the result of an increase in the number of "close-out" units sold offset, in part, by lower seasonal booked orders. Overall price reductions in the Company's Spring and Summer '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 margin support to assist in more effective flow of Company products through the retail channels.

The Company's 2003 retail sales decrease resulted from a comparable store sales decrease of 6.3% compared to 2002, offset by sales volume generated from newly opened stores and an additional week of retail sales due to our 53 week fiscal year. The comparable store sales decrease resulted from a combination of our decision to lower retail price points, a more promotional sales environment and a general decline in store traffic reflecting the challenging retail environment. During 2003, the Company opened ten factory outlet stores and its first Lifestyle store. At January 3, 2004, the Company operated 165 domestic OshKosh B'Gosh retail stores, including 157 factory outlet stores, two showcase stores, five strip mall stores and a children's only Lifestyle store.

The Company's SG&A expenses for 2003 of $151.3 million were $2.4 million over 2002 SG&A expenses of $148.9 million. As a percentage of net sales, SG&A expenses were 36.2% in 2003 as compared to 34.1% in 2002. 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, including approximately $4.7 million in costs incurred to develop our Family Lifestyle store concept, approximately $1.0 million in severance related costs for personnel reductions and the further development of our OshKosh brand and Genuine Kids from OshKosh brand design teams. These cost increases are offset in part by the effects of cost cutting measures taken to align our corporate support functions with current business activities. SG&A expenses as a percentage of sales are also directly impacted by our sales decreases.

The Company licenses a childrens apparel line under the Genuine Kids from OshKosh trademark which is available exclusively in Target stores. The Company is responsible for all product design activities associated with this product. Genuine Kids product was introduced in Target stores in July 2003. The Company earned royalty income of $2.7 million based on sales from the product launch through the end of the year.

Internationally, the Company receives royalty income for the use of its trademarks in key international markets, including Japan, Europe, Australia and Canada. Royalty income of $6.0 million is a small decrease compared to $6.3 million in 2002. The reduction is primarily attributable to a strategic change in licensee for menswear in Japan.

The combined effect of reduced sales, a significantly lower gross margin percentage and a modest increase in SG&A costs contributed to a significant decline in operating income in 2003 compared to 2002.

The Company's 2003 net other income (expense) was a $.4 million expense compared to a $.6 million expense in 2002. This decrease was primarily due to a decrease in interest expense during 2003. The Company's interest expense decreased as a result of prepayment of all of the Company's long-term debt in mid 2002.

The Company's 2003 effective income tax rate was approximately 36.0% as compared to 37.0% in 2002. A reduced level of taxable income reduced the Company's effective federal statutory income tax rate. Substantially all income is subject to taxation in the United States, and various state and local jurisdictions.

Net income for the year ended January 3, 2004 of $7.2 million was down $24.8 million (77.5%) from net income for the year ended December 28, 2002 of $32.0 million. Diluted earnings per share of $.60 were 76.4% less than 2002 diluted earnings per share of $2.54.

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's business continues to be seasonal, with highest sales and income in the second half of the year, which includes significant wholesale shipping periods and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest of the year 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 2004 quarterly sales and income.

At January 3, 2004, the Company's cash and cash equivalents were $23.9 million, compared to $36.2 million at the end of 2002. Net working capital at January 3, 2004 was $69.9 million compared to $71.0 million at December 28, 2002. Accounts receivable at January 3, 2004 and December 28, 2002 were $16.7 million.

Inventories at January 3, 2004 were $61.4 million, compared to $57.1 million at the end of 2002. The increase in inventories relates primarily to finished goods. Year end 2003 inventory levels slightly exceed inventory levels needed to fulfill Spring '04 product shipments as a result of order cancellations. Excess inventory has been written down to the lower of cost or net realizable value on a season by season basis. Inventory levels at the Company's retail stores exceed prior year levels due in part to an expansion of the Company's product offering of adult product.

Cash provided by operations amounted to approximately $3.6 million in 2003, compared to $54.1 million in 2002 and $42.9 million in 2001. The decrease in cash provided by operating activities in 2003 compared to 2002 is primarily attributable to reduced net income and to a lesser degree, changes in operating assets and liabilities. Compared to 2002 levels, the Company experienced an increase in inventory levels and prepaid expenses, which used operating cash flow. In addition, cash provided by operations in 2002 included cash flows related to a $9.0 million reduction in accounts receivable as the Company's wholesale business contracted. Accounts receivable levels at the end of 2003 were very comparable with levels as of the end of 2002 and, accordingly, did not provide comparable cash flows in 2003. 2003 cash flows from operations were also affected by minimal stock option transactions in 2003, compared to positive cash flows in 2002 and 2001. 2002 operating cash flows also benefited from the reversal of certain temporary differences, reducing the cash payments for income taxes. The increase in cash provided by operating activities in 2002 compared to 2001 is primarily attributable to changes in items of working capital.

Cash used in investing activities totaled $3.6 million in 2003, compared to $5.4 million in 2002 and $5.6 million in 2001. Capital expenditures were $3.7 million in 2003, compared with $5.4 million in 2002 and $5.1 million in 2001. Capital expenditures in each year related primarily to retail store expansions and remodeling.

Cash used in financing activities totaled $12.2 million in 2003, compared to $41.8 million in 2002 and $27.7 million in 2001. 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.

Cash dividends on the Company's Class A and Class B common stock totaled $.36 per share and $.31 per share, respectively, in 2003, $.26 per share and $.225 per share, respectively, in 2002, and $.22 per share and $.19 per share, respectively, in 2001. The Company's current quarterly cash dividend on its Class A and Class B Common stock is $.11 and $.095, respectively.

Returns The Company determines the amount of 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.

Margin Support In the apparel industry, a supplier often faces pressure from its customers to support retail margins on the sale of the supplier's product. The Company has periodically provided allowances to its customers to assist the customer in meeting its margin expectations, and to maintain or establish long-term customer relationships. To determine the adequacy of its support, as reflected on the financial statements, the Company periodically reviews potential customer support obligations for all product shipped through the date of the financial statements. These amounts are evaluated on a customer-by-customer basis based on an evaluation of product sell-through results, retailer performance, current market conditions, the strategic importance of the customer's ongoing business relationship and any unauthorized deductions taken by the customer. Settlements of margin support arrangements are periodically compared to the Company's original estimates to enhance the Compan y's ability to predict support levels in subsequent seasons. Margin support arrangements are recorded as a reduction of sales.

Advertising Support Support for customers' advertising activities, product presentation or other promotions are considered reductions of revenue unless such support relates to advertising material the Company could obtain independently, which is recorded as advertising expense provided it does not exceed the fair value of such services. The Company records advertising commitments during the year as they are formalized, considering the Company's prior history in dealing with customer advertising support.

The retail climate, particularly in many of the channels in which the Company's products are sold, remains challenging. The Company currently projects 2004 net sales will be in the range of $390 million to $410 million. The Company's booked orders in dollars for the 2004 Spring and Summer seasons were below orders booked in dollars for the comparable 2003 season. The Company believes that this reduction is due primarily to lower unit price points, the economic pressure being placed on the Company's wholesale customers for market share and the cautious approach to inventory management by many of the Company's wholesale customers. The promotional environment that exists in our wholesale business is likely to continue well into 2004.

The Company is currently planning comparable store sales in our retail business unit to be flat for early 2004, gradually improving to low single digit increases over the remainder of 2004. Two new retail outlet stores are expected to be opened during 2004, and the Company expects to experience incremental sales in stores opened during 2003. Five under-performing retail stores were closed in early 2004. The impact of these closings is immaterial to the Company's consolidated financial statements.

The Company remains committed to its retail Family Lifestyle Store concept. The Company intends to open 14 Family Lifestyle Stores during 2004. Seven Family Lifestyle store locations are under lease, with six stores scheduled to open in the first half of the year.

The Company anticipates that royalty income from Domestic and International use of OshKosh B'Gosh and related trademarks for 2004 will be comparable with 2003 amounts. The Genuine Kids licensing arrangement will generate royalty income throughout the entire year 2004. However, due to the seasonal nature of children's apparel sales, we anticipate that this royalty income will be greater in the second half of the year.

For the entire year 2004, capital expenditures are expected to total $11.0 million, due primarily to anticipated Lifestyle store build-out costs. The Company is currently budgeting depreciation and amortization for 2004 of $7.0 million. The Company's effective tax rate is expected to be approximately 36.5% for 2004.

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 2004 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 assu mptions prove incorrect, actual results may vary materially from those anticipated, projected or estimated.

Among the factors that could cause actual results to materially differ include the level of consumer spending for apparel, particularly in the children's wear segment, the impact of deflation on children's wear apparel prices; risks associated with competition in the market place, including the financial condition of and consolidations, restructurings and other ownership changes in, the apparel and related products industry and the retail industry, the introduction of new products or pricing changes by the Company's competitors, and the Company's ability to remain competitive with respect to product, service and value; risks associated with the Company's dependence on sales to a limited number of large department and specialty store customers, including risks related to customer requirements for vendor margin support, as well as risks related to extending credit to large customers; risks associated with possible deterioration in the strength of the retail industry, including, but not limited to, business conditions and the economy, natural disasters, and the unanticipated loss of a major customer; risks related to the failure of Company suppliers to timely deliver needed raw materials, risks associated with importing its products into the United States under current and future customs and quota rules and regulations, risks associated with using a global transportation matrix and the Company's ability to correctly balance the level of its commitments with actual orders; risks associated with terrorist activities as well as risks associated with foreign operations; risks related to the Company's ability to defend and protect its trademarks and other proprietary rights and other risks related to managing intellectual property issues. In addition, the inability to ship Company products within agreed time frames due to unanticipated manufacturing, distribution system or freight carrier delays or the failure of Company contractors to deliver products within scheduled time frames are risk factors in ongoing busine ss. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico and Central America. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of product contracted for by the Company.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company has an unsecured $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 2003, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2004.

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 sheets of OshKosh B'Gosh, Inc. and subsidiaries (the "Company") as of January 3, 2004 and December 28, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the 2003 and 2002 consolidated financial statements and financial statement schedule based on our audits. The consolidated financial statements and financial statement schedule of the Company 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 and stated that such financial statement schedule, when considered in relation to the 2001 basic consolidated financial statements taken as a whole, presented fairly in all material respects the inf ormation set forth therein their report dated January 30, 2002.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2004 and December 28, 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2003 and 2002 financial statement schedule when considered in relation to the 2003 and 2002 basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

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

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

OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Amounts in thousands, except per share amounts)