10-K 1 dec0010k.txt OSHKOSH B'GOSH FORM 10-K FPR 12/30/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Mark One [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File No. 0-13365 OshKosh B'Gosh, Inc. A DELAWARE Corporation 39-0519915 (I.R.S. ID) 112 Otter Avenue Oshkosh, Wisconsin 54901 Telephone number: (920) 231-8800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Par Value $.01 per share 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 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. [X] As of March 15, 2001, there were outstanding 9,977,068 shares of Class A Common Stock and 2,227,201 shares of Class B Common Stock, of which 9,461,377 shares and 981,490 shares, respectively, were held by non-affiliates of the Company. Based upon the closing sales price as of March 15, 2001, the aggregate market value of the Class A Common Stock held by non-affiliates was $214,654,991. 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 right, the value of Class B Common Stock held by non-affiliates was $22,267,554. DOCUMENTS INCORPORATED BY REFERENCE OshKosh B'Gosh, Inc. definitive Proxy Statement for its annual meeting to be held on May 4, 2001 (or such later date as the directors may determine), incorporated into Part III INDEX PART I PAGE Item 1. Business 2 (a) General Development of Business 2 (b) Financial Information About Industry Segments 2 (c) Narrative Description of Business 2 Products 2 Raw Materials, Manufacturing and Sourcing 3 Sales and Marketing 4 International Licensing and Distribution 5 Trademarks 5 Seasonality 5 Working Capital 5 Backlog 5 Competitive Conditions 6 Environmental Matters 6 Employees 6 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 8 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12 Item 8. Financial Statements and Supplementary Data 13 Item 9. Disagreements on Accounting and Financial Disclosure 27 PART III Item 10. Directors and Executive Officers of the Company 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 28 PART I ITEM 1. BUSINESS (a) General Development of Business 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 through leverage of the existing brand franchise in OshKosh B'Gosh and utilization of the Company's core competencies to supply the market with all appropriate products for children where quality, durability, and fashion innovation are important. The Company is also pursuing niche opportunities in adult apparel, where the Company's century old heritage can provide meaningful differential advantage to address the needs of the marketplace. 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. In addition to the Company's wholesale business, the Company also operates a chain of 137 domestic OshKosh B'Gosh branded stores, including 129 factory outlet stores, three showcase stores, and five strip mall stores. The Company operates an OshKosh B'Gosh showcase store in New York City to feature a full line of OshKosh products in a signature environment designed to reinforce brand awareness among consumers. The Company's retail product line in its OshKosh B'Gosh branded stores 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 8-16). 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 product marketability, streamline operations, reduce its capital base and cost structure, and improve delivery performance. These actions include an analysis of product extensions, commitment to the wholesale customer base, 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 in Company-owned manufacturing facilities or at third party contractor locations worldwide. Product sourcing is based predominantly on manufacturing capacity, quality, and lead times, in addition to 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 hats, socks, sleepwear and eyewear, bedding and other nursery decor and juvenile products including car seats, strollers, luggage and developmental toys. During 2000, the Company made strategic decisions to license its existing children's outerwear and footwear beginning with the Fall 2001 season. 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. (b) Financial Information About Industry Segments The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale and through Company owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. 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. (c) Narrative Description of Business Products 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 products are distributed primarily through better quality department and specialty stores, Company owned retail stores, 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 apparel that is classic in design and of 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. Children's wear is marketed in size ranges from layette/newborn and infant/toddler to girls 6X and boys 7. Youth wear is in size ranges girls 7 to 16 and boys 8 to 16. 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 Classics. 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. The Company also offers a Classics 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 retail customers for replenishment throughout the year. Some Classics 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. Most products are designed by an in-house staff. Product design requires long lead times, with products generally being designed a year in advance of the time they actually reach the retail market. While the Company's products are generally traditional in nature and not intended to be "designer" items, the Company attempts to incorporate current trends and consumer preferences in its designs. 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. Raw Materials, Manufacturing, and Sourcing All raw materials used in the manufacture of Company products are purchased from unaffiliated suppliers. The Company purchases its raw materials directly for its owned 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 2000, approximately 90% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 59% 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 market 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. Product development and administration are primarily coordinated from the Company's headquarters facility in Oshkosh, WI. The majority of the product engineering and sample making, allocation of production among plants and independent contractors, material purchasing, and invoice payments is done through the Company's Oshkosh headquarters. Substantially all designs and specifications utilized by independent manufacturers are provided by the Company. In 2000, approximately 75% of the Company's product line (excluding footwear) was sourced from off-shore Company-operated facilities and numerous third party contractors throughout the world, in accordance with the Company's specifications. Most domestic sewing production for 2000 took place in the Company's two Tennessee and two Kentucky plants. However, the Company closed one Tennessee facility in July 2000 and intends to close the remaining Tennessee plant in early 2001, leaving two operating plants in Kentucky. Due in part to changes in import duty regulations under the North American Free Trade Act and the United States-Caribbean Basin Trade Partnership Act, which became effective October 1, 2000, the Company has taken an increasingly global view of its entire manufacturing process. The North American Free Trade Act and the United States-Caribbean Basin Trade Partnership Act have significantly reduced the requirements that certain manufacturing processes be performed in the United States to receive preferential duty treatment. The Company has expanded its base of contractors outside of the U.S. with expertise in any of the five major manufacturing functions - cutting fabric, screenprinting, embroidery, sewing and finishing. These changes are consistent with the Company's direction over the last several years to review its internal manufacturing capacity and utilization, close or downsize domestic facilities, and expand the use of offshore manufacturing capabilities. These offshore manufacturing capabilities include two company-operated facilities in Mexico and one in Honduras, as well as unrelated third-party contractors. These changes are part of the Company's ongoing strategic initiatives to improve its product cost structure. 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 believes that its overall global manufacturing strategy gives the Company maximum 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 become 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. 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 has 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. In order to realize economies of operation within the domestic production facilities, cutting operations are located in one of the Company's domestic plants, with all domestic product washing, pressing, and finishing done in one facility in Tennessee and all screenprint and embroidery done in one facility in Kentucky. Quality control inspections of both semi-finished and finished products are required at each plant, including those of independent manufacturers, to assure compliance. Customer orders for Fashion products are booked from three to six months in advance of shipping. Because most Company 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 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. Sales and Marketing In order to meet the diverse needs of its broad customer base, the Company uses a wide variety of distribution channels to market its products. Wholesale distribution is made primarily through better quality department and specialty stores, although sales are also made through direct mail catalog companies, foreign retailers, and other outlets. In 2000, the Company's products were sold to approximately 900 wholesale customers (approximately 5800 stores) throughout the United States, and a sizable number of international accounts. Product sales to better quality department and specialty stores are made primarily by the Company's sales force. In addition to the central sales office in Oshkosh, the Company maintains a sales office in New York. A portion of the Company's sales force is assigned specific large national accounts, while others are assigned to defined geographic territories. In sparsely populated areas and new markets, manufacturer's representatives represent the Company on a non-exclusive basis. In addition to its wholesale activities, OshKosh B'Gosh products are also sold through 137 Company-owned domestic retail stores, operating under three formats: factory outlet stores, showcase stores, and strip mall stores. The Company operates 129 domestic factory outlet stores, which carry a large selection of first quality Company branded apparel at a discount to conventional retail prices. The factory outlet stores also provide a means of distributing excess and out-of-season product, reducing the amount of such product sold to discounters at excessively low prices. The three showcase stores are full service stores featuring a complete line of OshKosh B'Gosh product in a signature environment designed to convey the total OshKosh image and build brand recognition among customers. The stores are also used to test new styles and merchandising strategies. The Company also began testing a new strip center retail prototype by opening two strip mall stores in 1999 and an additional three strip mall stores in 2000. These strip mall stores feature a large selection of OshKosh B'Gosh products that are consistently value priced. In late 1999, the Company launched an e-commerce site (oshkoshbgosh.com), offering a comprehensive collection of the Company's current product at pricing comparable to its outlet stores. The Company's broad distribution base insulates the Company from reliance on any one customer. The Company's largest wholesale customer, Kids "R" Us, accounted for 13% of the Company's 2000 sales, while the Company's largest ten and largest 100 customers accounted for approximately 45.6% and 53.1% of 2000 sales, respectively. Domestic marketing programs are aimed at both the Company's retail 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 is partnering with department store customers to enhance brand presentation and availability of the OshKosh B'Gosh brand through the creation of "showcase" environments. The showcase environment is a focused merchandising strategy that creates a high impact retail presentation of the OshKosh brand. By the use of custom fixtures, comprehensive in-store merchandising support, focused advertising, and promotions, the Company, along with its key customers, is able to communicate a powerful and consistent brand presence to the consumer. International Licensing and Distribution 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 either purchase fabric or 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. Trademarks The Company utilizes the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered), or Genuine Blues(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 38 trademark registrations and seven pending trademark applications in the United States and has trademark registrations in approximately 115 countries outside the U.S. These trademarks and universal 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 material infringing uses. Seasonality Products are designed and marketed primarily for three principal selling seasons: RETAIL PRIMARY SALES SEASON BOOKING PERIOD SHIPPING PERIOD Spring/Summer August-September January-May Fall/Back-to-School January-February June-August Winter/Holiday April-May September-December 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 2001 quarterly sales and income. Working Capital 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, as amended, provides for a five year $60 million term loan for the repurchase of shares of its common stock, and a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The remaining availability on the $60 million term loan will expire March 31, 2001. The revolving credit facility expires November 3, 2002. There were no outstanding borrowings against the revolving credit arrangement at December 30, 2000, with $44 million outstanding on the term loan. 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 days terms only. The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound, like sized apparel companies. Backlog The dollar amount of the backlog of orders believed to be firm as of the end of the Company's fiscal year and as of the preceding fiscal year end is not material for an understanding of the business of the Company taken as a whole. Competitive Conditions The apparel industry is highly competitive and consists of a number of domestic and foreign companies. Some competitors have assets and sales greater than those of the Company. In addition, the Company competes with a number of firms that produce and distribute only a limited number of products similar to those sold by the Company, or sell only in certain geographic areas being supplied by the Company. 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 quality, price, service, style, and with respect to branded product lines, consumer recognition, and to a lesser extent on the basis of service and price. The Company is focusing attention on the issues of price and service, 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. 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 distribution, department and specialty stores, it holds the largest share of the branded children's wear market. Environmental Matters The Company's compliance with Federal, State, and local environmental laws and regulations in recent years had no material effect 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. Employees At December 30, 2000, the Company employed approximately 5,100 persons. Approximately 14% of the Company's personnel are covered by collective bargaining agreements with the United Food and Commercial Workers Union. ITEM 2. PROPERTIES Approximate Floor Area in Location Square Feet Principal Use Albany, KY 20,000 Manufacturing Byrdstown, TN (5) 32,000 Manufacturing Celina, TN 38,250 Laundering/Pressing Choloma, Honduras (2) 47,000 Manufacturing Gainesboro, TN 61,000 Sample Production/Distribution Liberty, KY 218,000 Manufacturing/Warehousing New York City, NY (1) 18,255 Sales Offices/Showroom Oshkosh, WI 99,000 Exec. & Operating Offices Oshkosh, WI 128,000 Vacant Uman, Mexico (3) 134,000 Manufacturing Merida, Mexico (4) 29,000 Manufacturing White House, TN 284,000 Distribution/Warehousing All properties are owned by the Company with the exception of: (1) Lease expiration date--2007, (2) Lease expiration date--2001, (3) Lease expiration date--2006, (4) Lease expiration date--2006, (5) To be closed in March 2001. The Company believes that its properties are well maintained and its manufacturing equipment is in good operating condition and adequate for current production. The Company's retail stores occupy leased premises, with lease terms generally in the range of 5 - 7 years. These leasehold interests are generally well suited for the Company's retail operations. For information regarding the terms of the leases and rental payments thereunder, refer to Note 6 to the consolidated financial statements of this Form 10-K. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Quarterly Common Stock Data 2000 1999 Stock price Dividends Stock price Dividends High Low per share High Low Per share Class A Common Stock 1st $19-27/32 $15-1/2 $0.05 $20-1/4 $14-15/16 $0.05 2nd 19-1/2 13-15/16 0.05 22-3/4 17-1/8 0.05 3rd 16-5/8 13-11/16 0.05 20-7/8 14-1/4 0.05 4th 20-3/8 14-1/16 0.05 22-3/8 18-7/8 0.05 Class B Common Stock 1st - - $0.0425 - - $0.0425 2nd - - 0.0425 - - 0.0425 3rd - - 0.0425 - - 0.0425 4th - - 0.0425 - - 0.0425
The Company's Class A common stock trades on the Over-The-Counter market and is quoted on NASDAQ under the symbol GOSHA. The table reflects the "last" price quotation on the NASDAQ National Market System and does not reflect mark-ups, mark-downs, or commissions and may not represent actual transactions. The Company's Class B common stock is not publicly traded. As of February 28, 2001, there were approximately 4550 Class A common stock beneficial owners and shareholders of record and 123 Class B common stock shareholders of record. ITEM 6. SELECTED FINANCIAL DATA Financial Highlights (Dollars in thousands, except per share amounts) Year Ended December 30, January 1, January 2, December 31, December 31, 2000 2000 1999 1997 1996 Financial results Net sales $ 453,062 $ 429,786 $423,232 $ 395,196 $444,766 Net income 32,217 32,448 29,335 22,558 1,119 Return on sales 7.1% 7.5% 6.9% 5.7% 0.3% Financial condition Working capital $ 54,601 $ 27,342 $ 76,876 $ 82,762 $104,641 Total assets 158,256 129,699 162,568 174,788 196,033 Long term debt (including current portion) 44,000 44,000 -- -- -- Shareholders'equity 44,473 23,439 103,017 113,157 138,077 Data per common share Net income Basic $ 2.61 $ 2.01 $ 1.54 $ 1.02 $ .05 Diluted 2.58 1.99 1.52 1.02 .05 Cash dividends declared Class A .20 .20 .17 .14 .14 Class B .17 .17 .145 .12 .12 Shareholders'equity 3.65 1.86 5.75 5.74 5.86
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected Company income statement data expressed as a percentage of net sales. As a Percentage of Net Sales for the Year Ended December 30, January 1, January 2, 2000 2000 1999 Net sales 100.0% 100.0% 100.0% Cost of products sold 58.0% 58.1% 60.9% Gross profit 42.0% 41.9% 39.1% Selling, general and administrative expenses 31.6% 31.2% 29.5% Royalty income, net (1.8%) (1.7%) (2.0%) Operating income 12.2% 12.4% 11.6% Other income (expense) - net (.6%) (0.1%) 0.1% Income before income taxes 11.6% 12.3% 11.7% Income taxes 4.5% 4.8% 4.8% Net income 7.1% 7.5% 6.9% 2000 COMPARED TO 1999 Net Sales Net sales in 2000 were $453.1 million, a $23.3 million (5.4%) increase over 1999 net sales of $429.8 million. A summary of the Company's net sales for the years ended December 30, 2000 and January 1, 2000 follows: Net Sales (in millions) Domestic Wholesale Retail International Total 2000 $ 216.0 $ 230.8 $ 6.3 $ 453.1 1999 212.3 210.4 7.1 429.8 Increase (decrease) $ 3.7 $ 20.4 $ (.8) $ 23.3 Percent increase (decrease) 1.7% 9.7% (11.3%) 5.4% The Company's 2000 domestic wholesale unit shipments were approximately 9.0% higher than in 1999. This increase in unit shipments resulted from a combination of a higher level of closeout merchandise sold during the year and an earlier start to the Company's shipment of Spring 2001 season fashion merchandise (which increased December 2000 unit shipments). The wholesale sales dollar increase of 1.7% was significantly lower than the 9.0% unit increase as a result of a combination of slightly lower average unit selling prices, higher customer sales allowances, and the higher level of "closeout" unit sales. During 2000, the Company made the strategic decisions to license its children's outerwear and footwear businesses (beginning with the Fall 2001 season). 2000 wholesale sales of outerwear and footwear, which will not reoccur in 2001, were approximately $10 million. The Company currently anticipates children's apparel (excluding outerwear) wholesale unit shipments and net sales dollars for 2001 to be up approximately 2-5% as compared to 2000. The Company's 2000 increased retail sales resulted from a combination of a 1.7% comparable store sales gain and sales volume from newly opened stores. During 2000, the Company opened ten factory outlet stores, closed five factory outlet stores, and closed one showcase store. The Company also continued testing a new store concept by opening three strip mall stores in 2000. At December 30, 2000, the Company operated 137 domestic OshKosh B'Gosh retail stores, including 129 factory outlet stores, three showcase stores and five strip mall stores. Current Company plans for 2001 call for the addition of approximately six new OshKosh B'Gosh factory outlet stores and the closing of two factory outlet stores. For 2001, the Company currently anticipates low single digit comparable store sales gains. Gross Profit The Company's gross profit margin as a percentage of net sales was 42.0% in 2000 compared with 41.9% in 1999. Substantially all of the Company's inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) basis. As a result of a substantial reduction of the Company's inventory levels at January 1, 2000, the 1999 gross profit margin was favorably impacted by an approximate $2.2 million benefit related to the liquidation of certain LIFO layers. No such benefit occured in 2000 and the Company does not currently anticipate further significant liquidation of LIFO layers in the foreseeable future. Excluding the $2.2 million LIFO benefit, the 1999 gross profit margin as a percent of sales was 41.4%. The 2000 gross profit margin improvement was due primarily to continued implementation and execution of the Company's global sourcing strategy. During 2000, approximately 75% of units sourced were from off-shore venues as compared to 64% in 1999. The Company's current 2001 sourcing plan indicates that approximately 90% of units will be sourced outside of the United States. The Company currently anticipates modest improvement in its gross profit margin as a percent of sales in 2001. Selling, General and Administrative Expenses (S,G&A) The Company's S,G&A expenses for 2000 of $143.0 million were $9.0 million over 1999 S,G&A expenses of $134.0 million. As a percent of net sales, S,G&A expenses were 31.6% in 2000 as compared to 31.2% in 1999. The primary reasons for these increased expenses relate to a combination of continued expansion of the Company's retail operations, higher product distribution expenses associated with the Company's transition to an updated distribution system and related processes, and expansion of the Company's brand enhancing activities. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $8.3 million in 2000, a $.9 million increase compared to 1999 net royalty income of $7.4 million. Royalty income from domestic licensees was approximately $2.9 million in 2000 as compared to $2.3 million in 1999. Royalty income from foreign licensees was approximately $5.4 million in 2000 as compared to $5.1 million in 1999. As a result of the Company's decisions to license its outerwear and footwear businesses for 2001, domestic royalty income is currently anticipated to increase approximately 30-35% in 2001. International royalty income is currently planned to be up moderately. Operating Income As a result of the factors described above, the Company's 2000 operating income improved to $55.7 million. This represents a 3.8% increase over 1999 operating income of $53.7 million. Other Income (Expense) -Net The Company's 2000 net other income (expense) was a $2.9 million expense compared to $.5 million expense in 1999. Interest expense increased by approximately $3.7 million in 2000 as a result of borrowings to help finance the Company's Dutch Auction tender offer in November, 1999 and subsequent open market stock repurchase transactions along with higher seasonal borrowings for working capital requirements. During 2000, the Company also recognized a gain on the sale of a previously closed manufacturing facility of approximately $1.1 million. Income Taxes The Company's 2000 and 1999 effective income tax rates were approximately 39.0%. The Company currently anticipates an effective income tax rate of approximately 38.4% for 2001. This anticipated reduction is due primarily to the implementation of certain planned income taxation strategies. Net Income Net income for the year ended December 30, 2000 of $32.2 million represented a $.2 million (.7%) decrease from net income for the year ended January 1, 2000 of $32.4 million. The Company's ongoing stock repurchase programs and Dutch Auction tender offer resulted in a significant reduction in its weighted- average diluted shares outstanding during 2000. This decrease resulted in a 29.6% increase in diluted earnings per share for 2000 of $2.58 as compared to $1.99 in 1999. 1999 COMPARED TO 1998 Net Sales Net sales in 1999 were $429.8 million, a $6.6 million (1.5%) increase over 1998 net sales of $423.2 million. A summary of the Company's net sales for the years ended January 1, 2000 and January 2, 1999 follows: Net Sales (in millions) Domestic Wholesale Retail International Total 1999 $ 212.3 $ 210.4 $ 7.1 $ 429.8 1998 226.1 191.4 5.7 423.2 Increase (decrease) $ (13.8) $ 19.0 $ 1.4 $ 6.6 Percent increase (decrease) (6.1%) 9.9% 24.6% 1.5% The Company's 1999 domestic wholesale unit shipments were down approximately 0.3% compared to 1998. The decrease in unit shipments resulted from a combination of less closeout merchandise sold during the year and lower demand for the Company's classics product offering. The decrease in wholesale sales dollars resulted from a combination of lower average selling prices, increased promotional programs, and product mix (a higher mix of lighter weight, lower unit cost garments). The Company's 1999 increased retail sales resulted from a combination of a 4.5% comparable store sales gain and sales volume from newly opened stores. During 1999, the Company opened 11 factory outlet stores, closed 4 factory outlet stores, and closed 1 showcase store. The Company also began testing a new store concept by opening 2 strip mall stores in 1999. At January 1, 2000, the Company operated 130 domestic OshKosh B'Gosh retail stores, including 124 factory outlet stores, 4 showcase stores and 2 strip mall stores. Gross Profit The Company's gross profit margin as a percentage of net sales increased to 41.9% in 1999 compared with 39.1% in 1998. This gross profit margin improvement was due primarily to continued implementation and execution of the Company's global sourcing strategy, operating efficiencies at the Company's domestic sewing facilities, the Company's ongoing focus on product design and development activities, and the favorable impact of liquidation of certain LIFO inventory layers. During 1999, approximately 64% of units sourced were from off-shore venues as compared to 58% in 1998. Substantially all of the Company's inventories are stated at the lower of cost or market using the LIFO basis. As a result of a substantial reduction of the Company's inventory levels at January 1, 2000, the 1999 gross profit margin was favorably impacted by an approximate $2.2 million benefit related to the liquidation of certain LIFO layers. This compares with an approximate $.6 million benefit in 1998. Selling, General and Administrative Expenses (S,G&A) The Company's S,G&A expenses for 1999 of $134.0 million were $9.2 million over 1998 S,G&A expenses of $124.8 million. As a percent of net sales, S,G&A expenses were 31.2% in 1999 as compared to 29.5% in 1998. The primary reasons for these increased expenses relate to a combination of continued expansion of the Company's retail operations, costs associated with the Company's transition to an updated product distribution system and related processes, and expansion of the Company's brand enhancing activities. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $7.4 million in 1999, a $.8 million decrease compared to 1998 net royalty income of $8.2 million. Royalty income from domestic licensees was approximately $2.3 million in 1999 as compared to $2.8 million in 1998 and reflects the Company's decision not to renew its domestic outerwear license (which expired in May, 1998). Royalty income from foreign licensees was approximately $5.1 million in 1999 as compared to $5.4 million in 1998. The Company's 1999 foreign licensee royalty income was negatively impacted by adverse economic conditions in Latin America and the Company's decision not to renew the Japanese license agreement (which ended in March, 1998). Operating Income As a result of the factors described above, the Company's 1999 operating income improved to $53.7 million. This represents a 9.7% increase over 1998 operating income of $48.9 million. Other Income (Expense) -Net The Company's 1999 net other income (expense) was a $.5 million expense compared to $.4 million income in 1998. Interest expense increased by approximately $1.1 million in 1999 as a result of borrowings to help finance the Company's Dutch Auction tender offer in November, 1999 and other stock repurchase transactions. Income Taxes The Company's 1999 effective income tax rate was approximately 39.0% as compared to approximately 40.5% in 1998. The rate reduction in 1999 compared to 1998 is due primarily to the implementation of certain income taxation strategies. Net Income Net income for the year ended January 1, 2000 of $32.4 million represented a $3.1 million (10.6%) increase over net income for the year ended January 2, 1999 of $29.3 million. The Company's ongoing stock repurchase programs and Dutch Auction tender offer resulted in a significant reduction in its weighted-average diluted shares outstanding during 1999. This decrease, combined with the 10.6% increase in net income, resulted in a 30.9% increase in diluted earnings per share for 1999 of $1.99 as compared to $1.52 in 1998. SEASONALITY OF BUSINESS 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 both because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2001 quarterly sales and income. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY At December 30, 2000, the Company's cash, cash equivalents, and investments were $20.4 million, compared to $9.6 million at the end of 1999. This increase is attributable to cash generated from operations offset in part by the Company's stock repurchases. Net working capital at December 30, 2000 was $54.6 million compared to $27.3 million at January 1, 2000, and $76.9 million at January 2, 1999. Accounts receivable at December 30, 2000 were $30.2 million compared to $16.5 million at January 1, 2000. The increase in accounts receivable is attributable to increased wholesale shipments in the fourth quarter of 2000. Inventories at December 30, 2000 were $53.2 million, compared to $48.5 million at the end of 1999. Management believes that December 30, 2000 inventory levels are generally appropriate for anticipated 2001 business activities. The increase in working capital is attributable to increases in cash and cash equivalents, accounts receivable and inventories, and a reduced current portion of long term debt due to the amended maturity schedule. Cash provided by operations amounted to approximately $28.6 million in 2000, compared to $70.6 million in 1999 and $42.8 million in 1998. The decrease in cash provided by operating activities in 2000 compared to 1999 is primarily attributable to increased accounts receivable and inventory levels. The increase in cash provided by operating activities in 1999 over 1998 is primarily attributable to reduced accounts receivable and inventory levels. Cash used in investing activities totaled $6.0 million in 2000, compared to $6.2 million in 1999, and $2.2 million in 1998. Capital expenditures were $8.6 million in 2000, compared with $7.1 million in 1999, and $11.4 million in 1998, and are currently budgeted at $9.0 million for 2001. Capital expenditures in 2000 and 1999 related primarily to retail store expansions and remodeling. Depreciation and amortization are currently budgeted at $8.0 million for 2001. Cash used in financing activities totaled $11.8 million in 2000, compared to $69.7 million in 1999, and $40.0 million in 1998. The Company's primary financing activities consisted of stock repurchase transactions, dividends, and borrowings under the Company's credit agreement in 1999. On December 6, 1999, the Company's Board of Directors authorized a repurchase program for up to 1.5 million shares of its Class A common stock. On December 11, 2000, the Company's Board of Directors authorized an addition of 1.0 million shares to this repurchase program. During 2000 and 1999, the Company repurchased 585,200 and 253,900 shares, respectively, of its Class A common stock under this program for approximately $10.2 million and $4.8 million, respectively. For all of 1999, the Company repurchased a total of 5,446,642 shares of its Class A common stock and 6,805 shares of its Class B common stock under its current and prior repurchase programs and Dutch Auction tender offer for approximately $110.4 million. During 1998, the Company repurchased 1,888,500 shares of its Class A common stock for approximately $37.6 million. Dividends on the Company's Class A and Class B common stock totaled $.20 per share and $.17 per share, respectively, in 2000 and 1999 and $.17 per share and $.145 per share, respectively, in 1998. The Company's unsecured credit agreement, as amended, with a number of banks provides for a $60 million term loan for the repurchase of shares of its common stock through March 31, 2001 and 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 November 3, 2002. There were no outstanding borrowings against the revolving credit arrangement at December 30, 2000, with $44 million outstanding on the term loan. The Company believes that these credit facilities, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs as well as its capital expenditures, required payments on long term debt, and business development needs. FORWARD-LOOKING STATEMENTS This report contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding future unit shipments, future sales, planned store expansions and store closings, future comparable store net sales, future inventory levels and valuation implications, future growth in royalty income, future effective income tax rate, planned capital expenditures and depreciation and amortization expenses, and future cash needs. In addition, from time to time, the Company may issue press releases and other written communications, and representatives of the Company may make oral statements which contain forward- looking information. Except for historical information, matters discussed in such oral and written communications, including this report, are forward- looking statements. Such forward-looking statements are based on current assumptions and expectations that involve risks and uncertainties. Actual results may differ materially. The Company's future results of operations and financial position can be influenced by such factors as the level of consumer spending for apparel, particularly in the children's wear segment, overall consumer acceptance of the Company's product styling, the financial strength of the retail industry, including, but not limited to, business conditions and the general economy, natural disasters, competitive factors, risk of non-payment of accounts receivable, the unanticipated loss of a major customer, failure of Company suppliers to timely deliver needed raw materials, as well as risk associated with foreign operations. In addition, the inability to ship Company products within agreed timeframes due to unanticipated manufacturing and/or distribution system delays or the failure of Company contractors to deliver products within scheduled timeframes are risk factors in ongoing business. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, 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 products contracted for by the Company. The forward-looking statements included herein are only made as of the date of this report. The Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The credit agreement entered into by the Company in November, 1999, as amended, provides for $60 million to finance repurchases of the Company's common stock and a $75 million revolving credit facility available for general corporate purposes. Borrowings under this agreement bear interest at a variable rate, based on the London Interbank Offered Rates. Accordingly, the Company is affected by interest rate changes on its long-term debt. Management monitors this risk by carefully analyzing the short-term rates on its long-term debt portfolio and comparable long-term interest rates. The Company does not presently hedge its interest rate risk. With respect to this debt, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2001. Foreign Currency Risk The Company contracts for the manufacture of apparel with contractors in Asia, Central America, and Mexico. While these contracts are stated in terms of U.S. dollars, there can be no assurance that the cost for the production of the Company's products will not be affected by exchange fluctuations between the United States and the local currencies of these contractors. Due to the number of currencies involved, the Company cannot quantify the potential impact of future currency fluctuations on net income in future years. The Company does not hedge its exchange rate risk. Inflation Risk The Company manages its inflation risks by ongoing review of product selling prices and production costs. Management does not believe that inflation risks are material to the Company's business, its consolidated financial position, results of operations, or cash flows. Investment Risk The Company does not believe it has material exposure to market risk with respect to any of its investments; the Company does not utilize market rate sensitive instruments for trading or other purposes. For information regarding the Company's investments, refer to the Cash equivalents and Investments portion of Note 1 to the consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Report of Independent Auditors 14 Consolidated Balance Sheets - December 30, 2000 and January 1, 2000 15 Consolidated Statements of Income - years ended December 30, 2000, January 1, 2000, and January 2, 1999 16 Consolidated Statements of Changes in Shareholders' Equity - years ended December 30, 2000, January 1, 2000, and January 2, 1999 17 Consolidated Statements of Cash Flows - years ended December 30, 2000, January 1, 2000 and January 2, 1999 18 Notes to Consolidated Financial Statements 19 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors 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 December 30, 2000 and January 1, 2000 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 30, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 30, 2000 and January 1, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, 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) December 30, 2000 January 1, 2000 ASSETS Current assets Cash and cash equivalents $ 19,839 $ 9,093 Investments 511 511 Accounts receivable, less allowances of $5,510 in 2000 and $3,790 in 1999 30,166 16,514 Inventories 53,185 48,495 Prepaid expenses and other current assets 1,882 774 Deferred income taxes 13,800 14,200 Total current assets 119,383 89,587 Property, plant and equipment, net 32,285 31,648 Deferred income taxes 4,950 5,400 Other assets 1,638 3,064 Total assets $ 158,256 $ 129,699 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 10,000 $ 15,000 Accounts payable 14,840 10,269 Accrued liabilities 39,942 36,976 Total current liabilities 64,782 62,245 Long-term debt 34,000 29,000 Employee benefit plan liabilities 15,001 15,015 Commitments -- -- Shareholders' equity Preferred stock, par value $.01 per share: Authorized-1,000,000 shares; Issued and outstanding-None -- -- Common stock, par value $.01 per share: Class A, authorized-30,000,000 shares; Issued and outstanding- 9,943,762 shares in 2000, 10,361,189 shares in 1999 99 104 Class B, authorized-3,750,000 shares; Issued and outstanding- 2,228,707 shares in 2000, 2,240,605 shares in 1999 22 23 Retained earnings 45,054 23,312 Unearned compensation under restricted stock plan (702) -- Total shareholders' equity 44,473 23,439 Total liabilities and shareholders' equity $ 158,256 $ 129,699 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollars in thousands, except per share amounts) For the Year Ended December 30, January 1, January 2, 2000 2000 1999 Net sales $ 453,062 $ 429,786 $ 423,232 Cost of products sold 262,638 249,592 257,700 Gross profit 190,424 180,194 165,532 Selling, general and administrative expenses 143,012 133,977 124,798 Royalty income, net (8,257) (7,435) (8,186) Operating income 55,669 53,652 48,920 Other income (expense): Interest expense (5,148) (1,469) (399) Interest income 946 1,092 871 Miscellaneous 1,326 (88) (67) Other income (expense) - net (2,876) (465) 405 Income before income taxes 52,793 53,187 49,325 Income taxes 20,576 20,739 19,990 Net income $ 32,217 $ 32,448 $ 29,335 Net income per common share Basic $ 2.61 $ 2.01 $ 1.54 Diluted 2.58 1.99 1.52 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity (Dollars and shares in thousands, except per share amounts) Unearned Common Stock Additional Compensation Class A Class B Paid-In Retained Under Restricted Shares Amount Shares Amount Capital Earnings Stock Plan Balance - December 31, 1997 17,346 $173 2,364 $24 $ -- $112,960 $ -- Net income -- -- -- -- -- 29,335 -- Dividends -Class A ($.17 per share) -- -- -- -- -- (2,850) -- -Class B ($.145 per share) -- -- -- -- -- (337) -- Conversions of common shares 104 1 (104) (1) -- -- -- Stock options exercised 110 1 -- -- 779 -- -- Income tax benefit from stock options exercised (2) -- -- -- 550 -- -- Repurchase and retirement of common shares, net (1,889) (18) -- -- (1,329) (36,271) -- Balance - January 2, 1999 15,669 157 2,260 23 -- 102,837 -- Net income -- -- -- -- -- 32,448 -- Dividends -Class A ($.20 per share) -- -- -- -- -- (2,730) -- -Class B ($.17 per share) -- -- -- -- -- (383) -- Conversions of common shares 13 -- (13) -- -- -- -- Stock options exercised 126 1 -- -- 812 -- -- Income tax benefit from stock options exercised -- -- -- -- 650 -- -- Repurchase and retirement of common shares, net (5,447) (54) (6) -- (1,462) (108,860) -- Balance - January 1, 2000 10,361 104 2,241 23 -- 23,312 -- Net income -- -- -- -- -- 32,217 -- Dividends -Class A ($.20 per share) -- -- -- -- -- (2,016) -- - Class B ($.17 per share) -- -- -- -- -- (381) -- Conversions of common shares 12 1 (12) (1) -- -- -- Stock options exercised 101 -- -- -- 767 -- -- Income tax benefit from stock options exercised -- -- -- -- 432 -- -- Award of restricted stock 55 -- -- -- 935 -- (935) Compensation earned under restricted stock plan -- -- -- -- -- -- 233 Repurchase and retirement of common shares, net (585) (6) -- -- (2,134) (8,078) -- Balance - December 30, 2000 9,944 $ 99 2,229 $22 $ -- $ 45,054 $ (702) See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands) For the Year Ended December 30, January 1, January 2, 2000 2000 1999 Cash flows from operating activities Net income $ 32,217 $ 32,448 $ 29,335 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation 7,154 7,093 8,776 Amortization 834 965 630 (Gain) loss on disposal of assets (1,195) 96 160 Deferred income taxes 850 2,000 (300) Compensation earned under restricted stock plan 233 -- -- Income tax benefit from stock option exercises 432 650 550 Benefit plan expense, net of contributions (14) 2,550 (880) Changes in operating assets and liabilities: Accounts receivable (13,652) 7,494 (730) Inventories (4,690) 17,089 2,642 Prepaid expenses and other current assets (1,108) 88 403 Accounts payable 4,571 2,631 (2,635) Accrued liabilities 2,966 (2,472) 4,840 Net cash provided by operating activities 28,598 70,632 42,791 Cash flows from investing activities Additions to property, plant and equipment (8,550) (7,148) (11,420) Proceeds from disposal of assets 1,954 691 3,054 Sale of investments, net -- 1,989 6,200 Changes in other assets 592 (1,703) (71) Net cash used in investing activities (6,004) (6,171) (2,237) Cash flows from financing activities Principal from long-term borrowings -- 44,000 -- Dividends paid (2,397) (3,113) (3,187) Net proceeds from issuance of common shares 767 813 780 Repurchase of common shares (10,218) (110,376) (37,618) Other -- (1,000) -- Net cash used in financing activities (11,848) (69,676) (40,025) Net increase (decrease) in cash and cash equivalents 10,746 (5,215) 529 Cash and cash equivalents at beginning of year 9,093 14,308 13,779 Cash and cash equivalents at end of year $ 19,839 $ 9,093 $ 14,308 Supplementary disclosures Cash paid for interest $ 4,105 $ 512 $ 224 Cash paid for income taxes $ 16,630 $ 19,182 $ 20,112 See notes to consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Business OshKosh B'Gosh, Inc. and its wholly-owned subsidiaries (the Company) are engaged primarily in the design, sourcing, and marketing of apparel to wholesale customers and through Company owned retail stores. Principles of consolidation The consolidated financial statements include the accounts of all wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents Cash equivalents consist of highly liquid debt instruments such as money market accounts and commercial paper with original maturities of three months or less. The Company's policy is to invest cash in conservative instruments as part of its cash management program and to evaluate the credit exposure of any investment. Cash equivalents are stated at cost, which approximates market value. Investments Investments are classified as available-for-sale securities and are highly liquid debt instruments. These investments are stated at cost, which approximates market value. Inventories Inventories are stated at the lower of cost or market. Inventories stated on the last-in, first-out (LIFO) basis represent 99.6% of total 2000 and 99.5% of total 1999 inventories. Remaining inventories are valued using the first-in, first-out (FIFO) method. Property, plant and equipment Property, plant and equipment are carried at cost or at management's estimate of fair market value if considered impaired under the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Depreciation and amortization for financial reporting purposes are calculated using the straight- line method based on the following useful lives: Years Land improvements 10 to 15 Buildings 10 to 40 Leasehold improvements 5 to 10 Machinery and equipment 3 to 10 Revenue recognition Revenue within wholesale operations is recognized at the time merchandise is shipped and title is transferred to customers. Retail store revenues are recognized at the time of sale. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Advertising Advertising costs are expensed as incurred and totaled $16,318, $13,803, and $12,377 in 2000, 1999, and 1998, respectively. Earnings per share The numerator for the calculation of basic and diluted earnings per share is net income. The denominator is computed as follows (in thousands): 2000 1999 1998 Denominator for basic earnings per share- weighted average shares 12,321 16,112 19,072 Employee stock options (treasury stock method) 157 208 289 Denominator for diluted earnings per share 12,478 16,320 19,361 The Company had 639,450 and 361,000 employee stock options that are antidilutive in 2000 and 1999, respectively, and, accordingly, are not included in the diluted earnings per share calculations. No options were antidilutive in 1998. Fiscal year The Company's fiscal year is a 52/53 week year ending on the Saturday closest to December 31. Fiscal 2000 ended on December 30, 2000 and fiscal 1999 ended on January 1, 2000, both of which were 52 week years. Fiscal 1998 included 52 weeks plus three days due to the transition from a calendar year in 1997 and ended on January 2, 1999. All references to years in this report refer to the fiscal years described above. Comprehensive income Comprehensive income equaled net income in 2000, 1999 and 1998. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE 2. INVENTORIES A summary of inventories follows: December 30, January 1, 2000 2000 Finished goods $ 37,398 $ 37,262 Work in process 12,595 9,352 Raw materials 3,192 1,881 Total $ 53,185 $ 48,495 The replacement cost of inventory exceeds the above LIFO costs by $11,983 and $11,381 at December 30, 2000 and January 1, 2000, respectively. Partial liquidation of certain LIFO layers in 1999 and 1998 increased net income by approximately $1,338 and $391, respectively. NOTE 3. PROPERTY, PLANT AND EQUIPMENT A summary of property, plant and equipment follows: December 30, January 1, 2000 2000 Land and improvements $ 2,869 $ 3,191 Buildings 13,994 13,972 Leasehold improvements 18,120 15,613 Machinery and equipment 33,233 34,342 Construction in progress 79 -- Total 68,295 67,118 Less: accumulated depreciation and amortization 36,010 35,470 Property, plant and equipment, net $ 32,285 $ 31,648 NOTE 4. CREDIT AGREEMENTS The Company's unsecured credit agreement, as amended, with a number of banks provides a $60,000 term loan for the repurchase of shares of its common stock through March 31, 2001, and a $75,000 revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. Under the terms of the agreement, interest rates are determined at the time of borrowing and are based on London Interbank Offered Rates plus additional basis points based on the Company's financial ratios (effectively 8.0% at December 30, 2000). Commitment fees of .225% are required on the unused revolving credit facility and term loan. The Company is required to maintain certain financial ratios in connection with this agreement. There were no outstanding borrowings against the revolving credit arrangement at December 30, 2000 or January 1, 2000. $44,000 was outstanding on the term loan at December 30, 2000 and January 1, 2000 and is due in $10,000 annual repayments with a final maturity in 2004. Letters of credit of approximately $23,700 were outstanding at December 30, 2000, with $51,300 of the unused revolving credit facility available for borrowing. Annual maturities of principal on long-term debt are as follows: Fiscal Year 2001 $10,000 2002 10,000 2003 10,000 2004 14,000 Total $44,000 NOTE 5. ACCRUED LIABILITIES A summary of accrued liabilities follows: December 30, January 1, 2000 2000 Compensation $ 6,190 $ 5,780 Workers' compensation 9,000 9,550 Income taxes 8,375 5,468 Other 16,377 16,178 Total $ 39,942 $ 36,976 NOTE 6. LEASES The Company leases certain property and equipment including retail sales facilities, manufacturing facilities, and regional sales offices under operating leases. Certain leases provide the Company with renewal options. Leases for retail sales facilities provide for minimum rentals plus contingent rentals based on sales volume. Minimum future rental payments under noncancellable operating leases are as follows: Fiscal Year 2001 $ 13,732 2002 11,768 2003 10,224 2004 7,438 2005 3,757 Thereafter 2,687 Total minimum lease payments $ 49,606 Total rent expense charged to operations for all operating leases is as follows: 2000 1999 1998 Minimum rentals $17,778 $15,754 $16,352 Contingent rentals 1,187 1,191 961 Total rent expense $18,965 $16,945 $17,313 NOTE 7. INCOME TAXES Income tax expense (benefit) is comprised of the following: 2000 1999 1998 Current: Federal $16,664 $15,322 $16,666 State and local 3,062 3,417 3,624 Deferred 850 2,000 (300) Total $20,576 $20,739 $19,990 Deferred tax assets and liabilities relate to temporary differences between the financial reporting and income tax basis of Company assets and liabilities and include the following components: December 30, January 1, 2000 2000 [Assets (Liabilities)] Current deferred taxes Accounts receivable allowances $ 1,921 $ 1,274 Inventory valuation 4,012 3,841 Accrued liabilities 6,309 7,322 Valuation reserves and other 1,558 1,763 Total net current deferred tax assets $ 13,800 $ 14,200 Non-current deferred taxes Depreciation $ (805) $ (195) Deferred employee benefits 5,883 5,758 Trademark 499 478 Other (627) (641) Total net non-current deferred tax assets $ 4,950 $ 5,400 Substantially all income is subject to United States taxation. A reconciliation of the federal statutory income tax rate to the effective tax rates reflected in the consolidated statements of income follows: 2000 1999 1998 Federal statutory tax rate 35.0% 35.0% 35.0% Differences resulting from: State and local income taxes, net of federal income tax benefit 4.3 4.5 4.6 Other (.3) (.5) .9 Total 39.0% 39.0% 40.5% NOTE 8. RETIREMENT PLANS The Company has defined contribution and defined benefit pension plans covering substantially all employees. Charges to operations by the Company for these plans totaled $2,193, $3,454 and $3,017 for 2000, 1999, and 1998, respectively. Defined benefit plans The Company sponsors several defined benefit pension plans covering certain hourly and salaried employees. The Company also sponsors an unfunded defined benefit postretirement life and health insurance plan that covers qualifying salaried employees. The actuarial computations utilized the following assumptions as applicable for the most significant plans: 2000 1999 1998 Discount rate 7.5% 7.5% 6.5% Expected long-term rate of return on assets 9.0% 9.0% 9.0% Rates of increase in compensation levels 0-4.5% 0-4.5% 0-4.5% Net periodic pension cost was comprised of: 2000 1999 1998 Service cost $ 1,937 $ 2,276 $ 2,052 Interest cost 2,358 2,248 2,006 Expected return on plan assets (3,555) (2,841) (2,531) Amortization of prior service cost 585 468 347 Amortization of transition obligation (146) (156) (156) Recognized actuarial gain (897) (313) (401) Net periodic pension cost $ 282 $ 1,682 $ 1,317 A reconciliation of changes in pension benefit obligation and plan assets follows: 2000 1999 Change in benefit obligation Benefit obligation at beginning of year $32,274 $34,501 Service cost 1,937 2,276 Interest cost 2,358 2,248 Amendments 37 270 Actuarial (gain) loss 9 (5,850) Benefits paid (1,279) (1,171) Benefit obligation at end of year 35,336 32,274 Change in plan assets Fair value of plan assets at beginning of year 34,820 28,865 Actual return on plan assets 9,755 4,592 Company contributions 899 2,534 Benefits paid (1,279) (1,171) Fair value of plan assets at end of year 44,195 34,820 Funded status Funded status of plan 8,859 2,546 Unrecognized net actuarial gain (18,239) (12,944) Unrecognized prior service cost 1,768 2,316 Unrecognized transition obligation (469) (615) Accrued benefit cost $ (8,081)$ (8,697) Amounts recognized in the Consolidated Balance Sheets: 2000 1999 Accrued benefit liability $(9,288) $ (9,217) Prepaid benefit cost 1,207 520 $(8,081) $ (8,697) Amounts applicable to the Company's pension plans with projected benefit obligations (PBO) or accumulated benefit obligation (ABO) in excess of plan assets are as follows: PBO and ABO PBO and ABO > Assets > Assets December 30, January 1, 2000 2000 Projected benefit obligations $ 4,274 $ 5,293 Accumulated benefit obligations 3,399 4,524 Fair value of plan assets 1,939 2,523 Defined contribution plans The Company maintains a defined contribution retirement plan covering certain salaried employees. Annual contributions are discretionary and are determined by the Company's Executive Committee. Charges to operations by the Company for contributions under this plan totaled $1,168, $1,125 and $1,179, for 2000, 1999 and 1998, respectively. The Company maintains a retirement plan covering certain salaried and hourly employees pursuant to Section 401(k) of the Internal Revenue Code, whereby participants may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. The plan provides for a matching contribution by the Company which amounted to approximately $506, $427 and $413, for 2000, 1999 and 1998, respectively. The Company also has a supplemental retirement program for designated employees. Annual provisions to this unfunded plan are discretionary and are determined by the Company's Executive Committee. Charges to operations by the Company for additions to this plan totaled $237, $220 and $108 for 2000, 1999 and 1998, respectively. Deferred employee benefit plans The Company has deferred compensation and supplemental retirement arrangements with certain key officers. NOTE 9. COMMON STOCK The Company maintains a stock conversion plan whereby shares of Class B common stock may be converted to an equal number of Class A common shares. The Company's common stock authorization provides that dividends be paid on both the Class A and Class B common stock at any time that dividends are paid on either. Whenever dividends (other than dividends of Company stock) are paid on the common stock, each share of Class A common stock is entitled to receive 115% of the dividend paid on each share of Class B common stock. The Class A common stock shareholders are entitled to receive a liquidation preference of $1.875 per share before any payment or distribution to holders of the Class B common stock. Thereafter, holders of the Class B common stock are entitled to receive $1.875 per share before any further payment or distribution to holders of the Class A common stock. Thereafter, holders of the Class A common stock and Class B common stock share on a pro rata basis in all payments or distributions upon liquidation, dissolution, or winding up of the Company. The Class A common stock shareholders have the right to elect or remove, as a class, 25% of the entire board of directors of the Company. Class B common stock shareholders are entitled to elect or remove, as a class, the other 75% of the directors (subject to any rights granted to any series of preferred stock) and are entitled to one vote per share on all matters (including an increase or decrease in the unissued authorized capital stock of any class) presented to the shareholders for vote. On December 6, 1999, the Company's Board of Directors authorized a repurchase program for up to 1.5 million shares of its Class A common stock. On December 11, 2000, the Company's Board of Directors authorized an addition of 1.0 million shares to this repurchase program. During 2000 and 1999, the Company repurchased 585,200 and 253,900 shares, respectively of its Class A common stock under this program for approximately $10,218 and $4,800, respectively. Accordingly, at December 30, 2000 the Company is authorized to repurchase 1,660,900 additional shares. For all of 1999, the Company repurchased a total of 5,446,642 shares of its Class A common stock and 6,805 shares of its Class B common stock under its current and prior repurchase programs and Dutch Auction tender offer for approximately $110,400. During 1998, the Company repurchased 1,888,500 shares of its Class A common stock for approximately $37,600. On August 10, 1998, the Company's Board of Directors declared a two- for-one stock split for Class A and Class B common stock, effected in the form of a stock dividend. Shareholders' equity and all share and per share data have been restated to reflect this dividend. Options The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant and the number of shares granted is fixed, no compensation expense is recognized. The Company's 1994 Incentive Stock Option Plan has authorized the grant of options to management personnel and directors for up to 2,940,000 of the Company's Class A common stock. As of December 30, 2000, 914,300 shares are available for grant. Options granted generally have 10 year terms and vest ratably over a four year period following date of grant. The following pro forma information regarding net income and net income per share required by SFAS No. 123, "Accounting for Stock Based Compensation," has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 6.47%, 5.10% and 5.57%; annual dividends of $.20; volatility factors of the expected market price of the Company's common stock of .533, .575 and .472; and a weighted-average expected life of the option of approximately 8 years. Changes in these subjective assumptions can significantly affect the fair value calculations. The estimated fair value of the options is amortized to expense over the options' vesting period: 2000 1999 1998 Net income as reported $ 32,217 $ 32,448 $ 29,335 Pro forma net income 31,204 31,947 28,560 Net income per common share as reported Basic 2.61 2.01 1.54 Diluted 2.58 1.99 1.52 Pro forma net income per common share Basic 2.53 1.98 1.50 Diluted 2.52 1.97 1.48 A summary of the Company's stock option activity and related information follows: 2000 1999 1998 Weighted- Weighted- Weighted- Options average Options average Options average (000) exercise price (000) exercise price (000) exercise price Outstanding- beginning of year 1,193 $ 14 1,082 $ 11 864 $ 8 Granted 349 16 342 19 347 19 Exercised (101) 8 (207) 8 (110) 8 Forfeited (101) 17 (24) 14 (19) 13 Outstanding- end of year 1,340 $ 15 1,193 $ 14 1,082 $ 11 Exerciseable at end of year 667 $ 13 448 $ 11 370 $ 8 Weighted- average fair value of options granted during year $6.39 $7.70 $7.25
Options outstanding Options exerciseable Weighted- average Weighted- Weighted- Range of Number remaining Average Number average exercise prices outstanding contract life excercise price Outstanding exercise price $ 7 to $ 9 422 5.5 $ 8 361 $ 8 $15 to $17 309 9.2 $16 30 $17 $18 to $21 609 7.7 $19 275 $19 1,340 667
Restricted Stock On February 15, 2000, the Company issued 55,000 shares of restricted stock to certain key employees. The restrictions lapse over four years based on attainment of certain financial performance targets and continued employment. Under APB No. 25, compensation expense is reflected over the period in which services are performed, and when the financial performance targets have been met. NOTE 10. BUSINESS AND CREDIT CONCENTRATIONS Operations of the Company occur primarily within the United States and its customers are not concentrated in any geographic region. The Company provides credit, in the normal course of business, to department and specialty stores. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. In 2000, 1999 and 1998, sales to a wholesale customer, as a percentage of net sales, amounted to approximately 13%, 12% and 12%, respectively. NOTE 11. LITIGATION 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. NOTE 12. SEGMENT REPORTING The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale and through Company owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. In conjunction with a realignment of the Company's management reporting system at the beginning of 2000, certain operations have been segregated into segments as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company manages its business operations by periodic analysis of business unit operating results. For this purpose, domestic wholesale, retail, and procurement are separately identified for management reporting and are considered segments as defined by SFAS No. 131. Management evaluates the operating performance of each of its business units based on income from operations as well as return on net assets. For this purpose, product is transferred from procurement to the domestic wholesale and retail business units at cost. However, procurement receives a markup on product sold by the Company's wholesale and retail business units. Accounting policies used for segment reporting are consistent with the Company's overall accounting policies, except that inventories are valued on a FIFO basis. In addition, interest income, interest expense, certain corporate office expenses, and the effects of the LIFO inventory valuation method are not allocated to individual business units, and are included in the All Other/Corporate column below. Segment assets include all assets used in the operation of each business unit, including accounts receivable, inventories, and property, plant and equipment. Certain other corporate assets that cannot be specifically identified with the operation of a business unit are not allocated. Financial information for the Company's reportable segments follows: All Domestic Other/ Wholesale Retail Procurement Corporate Total December 30, 2000 Net sales $215,982 $230,774 $ -- $ 6,306 $453,062 Income before income taxes 22,794 25,505 824 3,670 52,793 Assets 62,140 36,216 25,160 34,740 158,256 Depreciation expense 1,612 3,319 1,357 866 7,154 January 1, 2000 Net sales $212,371 $210,350 $ -- $ 7,065 $429,786 Income before income taxes 21,896 18,278 10,556 2,457 53,187 Assets 52,580 31,922 19,796 25,401 129,699 Depreciation expense 1,570 3,107 1,222 1,194 7,093 January 2, 1999 Net sales $226,157 $191,420 $ -- $ 5,655 $423,232 Income before income taxes 19,606 10,691 16,318 2,710 49,325 Assets 80,111 30,705 20,748 31,004 162,568 Depreciation expense 921 4,018 1,763 2,074 8,776 NOTE 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 2000 Quarter Ended April 1, July 1, September 30, December 30, 2000 2000 2000 2000 Net sales $ 95,051 $ 87,500 $142,339 $128,172 Gross profit 40,587 37,437 60,979 51,421 Net income 4,691 2,341 16,302 8,883 Net income per common share: Basic .37 .19 1.34 .73 Diluted .37 .19 1.33 .72 1999 Quarter Ended April 3, July 3, October 2, January 1, 1999 1999 1999 1999 Net sales $101,933 $ 82,516 $140,831 $104,506 Gross profit 40,142 34,376 57,939 47,737 Net income 6,508 2,787 14,694 8,459 Net income per common share: Basic .37 .17 .90 .61 Diluted .36 .17 .89 .60 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 4, 2001. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 4, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 4, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the definitive Proxy Statement of OshKosh B'Gosh, Inc. for its annual meeting to be held on May 4, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1) Financial Statements Financial statements for OshKosh B'Gosh, Inc. listed in the Index to Financial Statements and Supplementary Data are filed as part of this Annual Report. (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts Schedules not included have been omitted because they are not applicable, immaterial, or the required information is included in the consolidated financial statements or notes thereto. (3) Index to Exhibits (b) Reports on Form 8-K None (c) Exhibits 3.1 Certificate of Incorporation of OshKosh B'Gosh, Inc., as restated, May 7, 1993, previously filed as Exhibit 99.3 to the Company's Current Report on Form 8-K dated October 25, 1995, Commission File Number 0-13365,is incorporated herein by reference. 3.2 By-laws of OshKosh B'Gosh, Inc., as amended, previously filed as exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File Number 0-13365, is incorporated herein by reference. *10.1 OshKosh B'Gosh, Inc. Profit Sharing Plan, as amended, previously filed as exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.2 OshKosh B'Gosh, Inc. Pension Plan, as amended, previously filed as exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.3 OshKosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan, as amended, previously filed as exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.4 OshKosh B'Gosh, Inc. Excess Benefit Plan, as amended, previously filed as exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.5 OshKosh B'Gosh, Inc. Executive Deferred Compensation Plan, as amended, previously filed as exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000, Commission File Number 0-13365, is incorporated herein by reference. *10.6 OshKosh B'Gosh, Inc. Officers Medical and Dental Reimbursement Plan, as amended. *10.7 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan, as amended. 10.8 OshKosh B'Gosh, Inc. 1995 Outside Director's Stock Option Plan, as amended, previously filed as exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File Number 0-13365, is incorporated herein by reference. *10.9 OshKosh B'Gosh, Inc. Flexible Nonstandardized 401(k) Adoption Agreement and Smith Barney Prototype Defined Contribution Plan Document #05, as amended. 10.10 Credit agreement between OshKosh B'Gosh, Inc. and Firstar Bank Milwaukee, N.A. and participating banks, dated as of November 3, 1999, as amended. 21. The following is a list of subsidiaries of the Company as of December 30, 2000. The consolidated financial statements reflect the operations of all subsidiaries as they existed on December 30, 2000. State or Other Jurisdiction of Incorporation or Name of Subsidiary Organization OBG Sales, Inc. (f/k/a Grove Industries, Inc.) Delaware Manufacturera International Apparel, S.A. Honduras OshKosh B'Gosh International Sales, Inc. Virgin Islands OshKosh B'Gosh Asia/Pacific Ltd. (Inactive) Hong Kong OshKosh B'Gosh Deutschland GmbH (Inactive) Germany OshKosh B'Gosh Investments, Inc. Nevada Oshkosh B'Gosh Retail, Inc. Delaware OBG Distribution Company, LLC Wisconsin OBG Manufacturing Company Kentucky OshKosh B'Gosh Operations, LLC Wisconsin Millennia Manufacturing SRL de CV Mexico 23. Consent of Ernst & Young LLP, Independent Auditors *Represents a plan that covers compensation, benefits and/or related arrangements for executive management. SIGNATURES Date: March 28, 2001 Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OSHKOSH B'GOSH, INC. By: /S/ DOUGLAS W. HYDE Chairman of the Board, President and Chief Executive Officer By: /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title /S/ DOUGLAS W. HYDE Chairman of the Board, President and Chief Executive Officer /S/ MICHAEL D. WACHTEL Executive Vice President, Chief Operating Officer /S/ DAVID L. OMACHINSKI Vice President-Finance, Treasurer and Chief Financial Officer /S/ STEVEN R. DUBACK Secretary and Director /S/ WILLIAM F. WYMAN Vice President Domestic Licensing /S/ ORREN J. BRADLEY Chairman, Audit Committee Date: March 28, 200 OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in Thousands) 2000 1999 1998 Accounts receivable - allowances: Balance at beginning of period $ 3,790 $ 4,240 $ 4,225 Charged to costs and expenses 22,314 17,437 15,997 Deductions - bad debts and other allowances written off, net of recoveries (20,594) (17,887) (15,982) Balance at end of period $ 5,510 $ 3,790 $ 4,240 2000 1999 1998 Restructuring costs: Balance at beginning of period $ 2,976 $ 4,032 $ 7,938 Actual restructuring costs incurred (28) (1,056) (3,906) Recorded to net income (948) -- -- Balance at end of period $ 2,000 $ 2,976 $ 4,032 EXHIBIT 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 333-01051 and No. 333-01053) of OshKosh B'Gosh, Inc. of our report dated January 26, 2001, with respect to the consolidated financial statements and schedule of OshKosh B'Gosh, Inc. and Subsidiaries included in this Annual Report (Form 10-K) for the year ended December 30, 2000. ERNST & YOUNG LLP Milwaukee, Wisconsin March 26, 2001