10-Q 1 q103rd01.txt OSHKOSH B'GOSH, INC. THIRD QUARTER 10Q ENDED 9-29-01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-13365 OshKosh B'Gosh, Inc. A Delaware Corporation 39-0519915 (I.R.S. ID) 112 Otter Avenue Oshkosh, Wisconsin 54901 Telephone number: (920) 231-8800 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 15, 2001, there were outstanding 9,755,847 shares of Class A Common Stock and 2,214,548 shares of Class B Common Stock. FORM 10-Q OSHKOSH B'GOSH, INC. AND SUBSIDIARIES INDEX Page Part I. Financial Information 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets- September 29, 2001 and December 30, 2000 3 Unaudited Condensed Consolidated Statements of Income-Three Month and Nine Month Periods Ended September 29, 2001 and September 30, 2000 4 Unaudited Condensed Consolidated Statements of Cash Flow- Nine Month Periods Ended September 29, 2001 and September 30, 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures Part I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) September 29, December 30, 2001 2000* (unaudited) Assets Current assets Cash and cash equivalents $ 22,043 $ 19,839 Investments -- 511 Accounts receivable 33,698 30,166 Inventories 63,663 53,185 Prepaid expenses and other current assets 1,797 1,882 Deferred income taxes 12,450 13,800 Total current assets 133,651 119,383 Property, plant and equipment 68,896 68,295 Less accumulated depreciation and amortization 39,129 36,010 Net property, plant and equipment 29,767 32,285 Non-current deferred income taxes 4,800 4,950 Other assets 2,169 1,638 Total assets $ 170,387 $ 158,256 Liabilities and shareholders' equity Current liabilities Current portion of long-term debt $ 3,000 $ 10,000 Accounts payable 10,459 14,840 Accrued liabilities 47,696 39,942 Total current liabilities 61,155 64,782 Long-term debt 34,000 34,000 Employee benefit plan liabilities 14,830 15,001 Shareholders' equity Preferred stock -- -- Common stock: Class A 97 99 Class B 22 22 Additional paid-in capital -- -- Retained earnings 60,757 45,054 Unearned compensation under restricted stock plan (474) (702) Total shareholders' equity 60,402 44,473 Total liabilities and shareholders' equity $ 170,387 $ 158,256 *Condensed from audited financial statements. See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (In thousands, except per share amounts) (Unaudited) Three Month Period Ended Nine Month Period Ended September September September September 29, 2001 30, 2000 29, 2001 30, 2000 Net sales $147,488 $142,339 $337,878 $324,890 Cost of products sold 83,824 81,360 194,983 185,887 Gross profit 63,664 60,979 142,895 139,003 Selling, general and administrative expenses 38,061 36,461 109,267 104,707 Royalty income, net (2,945) (2,668) (7,128) (6,344) Operating income 28,548 27,186 40,756 40,640 Other income (expense): Interest expense (628) (1,697) (2,022) (4,102) Interest income 176 131 648 554 Miscellaneous 35 1,105 69 1,160 Other income (expense)-net (417) (461) (1,305) (2,388) Income before income taxes 28,131 26,725 39,451 38,252 Income taxes 10,802 10,423 15,149 14,918 Net income $ 17,329 $ 16,302 $ 24,302 $ 23,334 Net income per common share Basic $ 1.42 $ 1.34 $ 1.99 $ 1.89 Diluted $ 1.37 $ 1.33 $ 1.93 $ 1.86 Weighted average common shares outstanding Basic 12,226 12,169 12,226 12,369 Diluted (including share equivalents) 12,643 12,304 12,598 12,526 Cash dividends per common share Class A $ 0.0600 $ 0.0500 $ 0.1600 $ 0.1500 Class B $ 0.0525 $ 0.0425 $ 0.1375 $ 0.1275 See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (In thousands) (Unaudited) Nine Month Period Ended September 29, September 30, 2001 2000 Cash flows from operating activities Net income for the period $ 24,302 $ 23,334 Depreciation and amortization 5,987 5,978 Deferred income taxes 1,500 1,000 Income tax benefit from stock option exercises 1,023 325 Items in net income not affecting cash and cash equivalents 46 (503) Changes in current assets (13,925) (31,219) Changes in current liabilities 3,373 6,805 Net cash provided by operating activities 22,306 5,720 Cash flows from investing activities Additions to property, plant and equipment (3,024) (4,896) Proceeds from disposal of assets 84 1,591 Sale of short-term investments, net 511 -- Changes in other assets (1,049) 428 Net cash used in investing activities (3,478) (2,877) Cash flows from financing activities Borrowings under revolving credit agreement -- 125 Payment on long-term debt (7,000) -- Dividends paid (1,907) (1,805) Net proceeds from issuance of common shares 2,627 579 Repurchase of common shares (10,344) (9,863) Net cash used in financing activities (16,624) (10,964) Net increase (decrease) in cash and cash equivalents 2,204 (8,121) Cash and cash equivalents at beginning of period 19,839 9,093 Cash and cash equivalents at end of period $ 22,043 $ 972 See notes to condensed consolidated financial statements.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Basis of Preparation The condensed consolidated financial statements included herein have been prepared by the Company without audit. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the financial position as of September 29, 2001, and the results of operations and cash flows for the nine-month periods ended September 29, 2001 and September 30, 2000. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 2000 Annual Report. Note 2. Inventories A summary of inventories follows: September 29, 2001 December 30, 2000 (Dollars in thousands) Finished goods $ 52,519 $ 37,398 Work in process 10,069 12,595 Raw materials 1,075 3,192 Total $ 63,663 $ 53,185
The replacement cost of inventory exceeds the above LIFO costs by $11,983 at September 29, 2001 and December 30, 2000, respectively. Note 3. Segment Reporting The Company designs, sources, and markets apparel products using primarily the OshKosh B'Gosh brand. The apparel products are primarily marketed in two distinct distribution channels: domestic wholesale and through Company owned retail stores. The Company designs and sources product to meet the needs of these distribution channels through a single procurement business unit. Certain operations are classified as 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 For the three months ended September 29, 2001 Net sales $ 69,561 $ 76,623 $ 3 $ 1,301 $147,488 Income before income taxes 10,909 12,975 2,949 1,298 28,131 Assets 68,950 46,530 21,543 33,364 170,387 Depreciation expense 407 895 280 217 1,799 For the three months ended September 30, 2000 Net sales $ 70,107 $ 71,140 $ -- $ 1,092 $142,339 Income before income taxes 12,109 11,848 1,120 1,648 26,725 Assets 71,330 40,795 23,068 14,526 149,719 Depreciation expense 410 888 281 192 1,771 For the nine months ended September 29, 2001 Net sales $162,554 $171,528 $ 3 $ 3,793 $337,878 Income before income taxes 17,186 16,517 3,073 2,675 39,451 Assets 68,950 46,530 21,543 33,364 170,387 Depreciation expense 1,260 2,721 841 647 5,469 For the nine months ended September 30, 2000 Net sales $156,291 $163,215 $ -- $ 5,384 $324,890 Income before income taxes 18,147 16,215 945 2,945 38,252 Assets 71,330 40,795 23,068 14,526 149,719 Depreciation expense 1,206 2,369 1,013 664 5,252 For the year ended 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
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected Company income statement data expressed as a percentage of net sales. As a Percentage of Net Sales for the Three Month Period Ended Nine Month Period Ended September September September September 29, 2001 30, 2000 29, 2001 30, 2000 Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 56.8% 57.2% 57.7% 57.2% Gross profit 43.2% 42.8% 42.3% 42.8% Selling, general and Administrative expenses 25.8% 25.6% 32.3% 32.2% Royalty income, net (2.0%) (1.9%) (2.1%) (1.9%) Operating income 19.4% 19.1% 12.1% 12.5% Other income (expense) - net (.3%) (.3%) (.4%) (.7%) Income before income taxes 19.1% 18.8% 11.7% 11.8% Income taxes 7.3% 7.3% 4.5% 4.6% Net income 11.8% 11.5% 7.2% 7.2%
Net Sales Consolidated net sales for the three month period ended September 29, 2001 were $147.5 million, a $5.2 million increase (3.7%) over 2000 third quarter net sales of $142.3 million. Consolidated net sales for the nine month period ended September 29, 2001 were $337.9 million, a $13.0 million increase (4.0%) from net sales of $324.9 million for the first nine months of 2000. The Company's net sales for the three month and nine month periods ended September 29, 2001 and September 30, 2000 are summarized as follows: Net Sales (in millions) Domestic Wholesale Retail Other Total Three month period ended: September 29, 2001 $ 69.6 $ 76.6 $ 1.3 $ 147.5 September 30, 2000 70.1 71.1 1.1 142.3 Increase (decrease) $ (.5) $ 5.5 $ .2 $ 5.2 Percent increase (decrease) (.7%) 7.7% 18.2% 3.7% Nine month period ended: September 29, 2001 $ 162.6 $ 171.5 $ 3.8 $ 337.9 September 30, 2000 156.3 163.2 5.4 324.9 Increase (decrease) $ 6.3 $ 8.3 $ (1.6) $ 13.0 Percent increase (decrease) 4.0% 5.1% (29.6)% 4.0%
The Company's domestic wholesale unit shipments from continuing businesses (footwear and outerwear were licensed effective May 1, 2001) for the three month period ended September 29, 2001 increased approximately 5.1% as compared to the corresponding three month period of 2000. Wholesale net sales for the third quarter of 2001 of $69.6 million were approximately 6.9% over third quarter 2000 net wholesale sales of $65.1 million (which excludes approximately $5.0 million of footwear and outerwear net sales). These increases resulted from a combination of higher booked orders for the Fall back-to-school season along with more timely shipment of late Fall orders to the Company's wholesale customers. For the first nine months of 2001, wholesale unit shipments from continuing businesses were approximately 9.5% ahead of the corresponding period in 2000. Net sales for the first three quarters of 2001 of $162.6 million were approximately 7.5% over 2000 net sales of approximately $151.3 million exclusive of footwear and outerwear. Year-to-date increases in unit shipments and net sales dollars are primarily the result of higher booked orders for the period. The Company's booked orders for the 2001 Holiday season (shipped primarily in the fourth quarter) were below orders booked for the Holiday 2000 season. The Company believes that this reduction is due primarily to the significant economic slowdown experienced in the U.S. and the cautious approach to inventory management by many of the Company's wholesale customers. The Company currently anticipates that its fourth quarter 2001 wholesale net sales will be approximately $12 to $14 million below the fourth quarter of 2000. Of this amount, approximately $3 million represents net sales of footwear and outerwear in the fourth quarter of 2000 which are now licensed products. Included in the Company's estimate of fourth quarter 2001 wholesale net sales is approximately $3-$4 million of sales of Spring 2002 product to a new customer, Kohl's Department Stores. Beginning with the Spring 2002 season, the Company will be selling its product offering to Kohl's Department Stores. The Company currently believes its net sales to Kohl's in 2002 will approximate $40 to $45 million. The Company currently anticipates its first quarter 2002 net wholesale sales to be up approximately 12%-18% over the first quarter of 2001. The Company's third quarter 2001 retail sales increase resulted from a comparable store sales increase of 5.0% and from sales volume from stores opened subsequent to September 30, 2000. (For the period July 1 through September 10, 2001, the Company experienced a comparable store sales increase of 6.7%. For the period September 11 through September 29, 2001, comparable store sales decreased 1.8%). The third quarter 2001 comparable store sales increase was favorably impacted by more aggressive promotional pricing, which had an adverse impact on gross profit margins. The Company's increase in retail sales for the first nine months of 2001 resulted from sales volume from newly opened stores and a comparable store sales increase of 1.0% (as compared to a .7% increase in 2000). Company management believes that the year to date comparable store sales were impacted by lower customer store traffic during the first quarter, due in part to adverse weather conditions, a generally negative economic environment and current events in the U.S. creating economic uncertainty. For the remainder of 2001, the Company currently anticipates a comparable store sales gain in the low single digit range. At September 29, 2001 the Company operated 137 domestic OshKosh retail stores, including 130 outlet stores, two showcase stores, and five strip mall stores. During the third quarter of 2001, the Company opened two new outlet stores. At September 30, 2000 the Company operated a total of 130 domestic OshKosh retail stores. Current Company plans for the remainder of 2001 call for the addition of four outlet stores. Preliminary plans for 2002 call for the opening of ten new outlet stores. Gross Profit The Company's gross profit margin as a percent of net sales was 43.2% in the third quarter of 2001, compared to 42.8% in the third quarter of 2000. For the three month period ended September 29, 2001, the increase in gross margin percentage is primarily attributable to an increased proportion of sales from the Company's retail stores. For the nine month period ended September 29, 2001 gross profit margin as a percent of net sales was 42.3%, compared to 42.8% for the first nine months of 2000. The modest decrease in gross margin percentage for the nine month period was due to increased wholesale customer sales allowances and a more aggressive promotional pricing strategy at the Company's retail stores. The Company currently anticipates a modest increase in its gross profit margin in the fourth quarter of 2001 as compared to 2000, which should result from an increased proportion of sales from the Company's retail stores relative to its wholesale net sales which are projected to be lower than the fourth quarter of 2000. Fourth quarter 2001 gross profit margins will be adversely impacted by a more aggressive pricing strategy at Company retail stores and increased sales allowances and related support to the Company's wholesale customers. The Company is currently on target with its 2001 sourcing plan which calls for approximately 90% of units to be produced in off-shore venues as compared to approximately 75% in 2000. Selling, General, and Administrative Expenses (S,G&A) S,G&A expenses for the three month and nine month periods ended September 29, 2001 increased $1.6 million and $4.6 million over the three and nine month periods ended September 30, 2000, respectively. As a percentage of net sales, S,G&A expenses were 25.8% and 32.3% for the three month and nine month periods ended September 29, 2001 as compared to 25.6% and 32.2% in the comparable periods of 2000. The increase in S,G&A expenses in dollars relates primarily to continued expansion of the Company's retail operations. Royalty Income The Company licenses the use of its trade name to selected licensees in the U.S. and in foreign countries. Royalty income for the three month period ended September 29, 2001 was $2.9 million compared to $2.7 million in the third quarter of 2000. Royalty income for the nine month period ended September 29, 2001 was $7.1 million compared with $6.3 million in the comparable period of 2000. The increase is primarily attributable to increased business levels by the Company's Japanese licensees for the nine month period ending September 29, 2001, and royalty income from new licenses for outerwear and footwear. Operating Income As a result of the factors described above, the Company's operating income for the three month and nine month periods ended September 29, 2001 amounted to $28.5 million and $40.8 million as compared to $27.2 million and $40.6 million for the comparable periods in 2000. Other Income (Expense) - Net The Company's third quarter 2001 net other income (expense) was a $.4 million expense compared to $.5 million in 2000. Interest expense was lower for the third quarter and nine month period ending September 29, 2001 compared to 2000 due to lower interest rates and prepayment of $7 million of the Company's long-term debt in the first quarter. Net other income (expense) in the third quarter of 2000 included a $1.1 million gain on sale of a previously closed manufacturing facility. Income Taxes The Company's effective tax rate for the three month and nine month periods ended September 29, 2001, was approximately 38.4% compared to 39.0% in 2000. The Company currently anticipates an effective income tax rate of approximately 38.4% for the remainder of 2001. Net Income Net income for the three months ended September 29, 2001 of $17.3 was a $1.0 million increase (6.1%) compared to net income for the three months ended September 30, 2000 of $16.3 million. Net income for the nine months ended September 29, 2001 of $24.3 million was a $1.0 million increase compared with net income for the nine months ended September 30, 2000 of $23.3 million. Diluted earnings per share for the quarter ended September 29, 2001 was $1.37, a $.04 (3.0%) increase over the comparable period in 2000. SEASONALITY OF BUSINESS The Company's business is seasonal, with highest sales and income in the third quarter, which is the Company's peak wholesale shipping period and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest, both because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2001 quarterly sales and income. Third quarter 2001 operating results are not necessarily indicative of anticipated quarterly results throughout the balance of the year. FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY At September 29, 2001, the Company's cash, cash equivalents and short-term investments were $22.0 million, compared to $20.4 million at the end of 2000 and $1.5 million at September 30, 2000. Net working capital at September 29, 2001 was $72.5 million compared to $54.6 million at December 30, 2000, and $57.0 million at September 30, 2000. The increase in cash and working capital compared to September 30, 2000 is primarily attributable to net income for the period. Cash provided by operations amounted to approximately $22.3 million in the first nine months of 2001, compared to $5.7 million in the first nine months of 2000. Accounts receivable at September 29, 2001 were $33.7 million compared to $30.2 million at December 30, 2000, and $39.4 million at September 30, 2000. Inventories at September 29, 2001, were $63.7 million, compared to $53.2 million at December 30, 2000, and $55.1 million at September 30, 2000. The increases in inventory levels over 2000 are the result of a management decision to accelerate production to help ensure the Company's ability to timely deliver customer orders and maintain fully merchandised Company retail stores. Management believes that September 29, 2001, inventory levels are generally appropriate for anticipated ongoing 2001 business activities. Investing activities used $3.5 million of cash in the first nine months of 2001, compared to $2.9 million in 2000. Capital expenditures were $3.0 million in the first nine months of 2001, compared with $4.9 million in 2000 and are currently estimated to be $7.0 million for all of 2001. Capital expenditures in both years relate primarily to expansions and upgrades of the Company's retail stores. Depreciation and amortization are currently budgeted at $8.0 million for 2001. Cash used in financing activities totaled $16.6 million in the first nine months of 2001, compared to $11.0 million in the first nine months of 2000. In 2001, cash generated by the Company was sufficient to finance all working capital needs and to prepay $7.0 million of the Company's long-term debt. Financing activities also included stock repurchase transactions and dividends in both periods. On December 6, 1999, the Company's Board of Directors authorized a 1.5 million share repurchase program of the Company's Class A common stock. On December 11, 2000, the Company's Board of Directors authorized an additional 1.0 million shares to this repurchase program. During the first nine months of 2001, the Company repurchased 397,300 shares of its Class A common stock under this program for approximately $10.3 million. The Company has repurchased a total of 1,236,400 shares of its Class A common stock under its current repurchase programs for approximately $25.3 million. The Company's unsecured credit agreement, as amended, with a number of banks provided for $44 million in borrowings for the repurchase of shares of its common stock, and provides a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires November 3, 2002. The Company had $37 million of outstanding long-term debt at September 29, 2001 and $44 million at December 30, 2000 and September 30, 2000 under the share repurchase component of the credit agreement. The term loan is due in annual installments of $10.0 million and cannot be reborrowed. At September 29, 2001, the Company had no outstanding borrowings on the revolving credit facility. 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. INFLATION The effects of inflation on the Company's operating results and financial condition were not significant. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 31, 2001. Under these Statements, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to periodic impairment tests and all business combinations initiated after June 30, 2001 must be accounted for using the purchase method of accounting. The Company currently believes that these Statements will not have an impact on the Company's results of operations or financial position. In 2001, the Emerging Issues Task Force (EITF) issued EITF No. 00- 14 "Accounting for Certain Sales Incentives" and EITF No. 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products," which are effective for the first quarter beginning after December 15, 2001. These EITF's prescribe guidance regarding the timing of recognition and income statement classification of costs incurred for certain sales incentive programs to retailers and end consumers. These EITF's had no impact on the Company as the Company currently recognizes these costs and classifies them in accordance with the prescribed rules. 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 sales, gross profit expectations, planned store expansions and store closings, future comparable store net sales, future product sourcing plans, 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 introduction of new products or pricing changes by the Company's competitors or other competitive factors, the financial strength of the retail industry, including, but not limited to, business conditions and the general economy, natural disasters, risk of non-payment of accounts receivable, the unanticipated loss of a major customer, failure of Company suppliers to timely deliver needed raw materials, the Company's ability to correctly balance the level of its commitments with actual orders, risks associated with terrorist activities, 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 or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The credit agreement entered into by the Company in November, 1999, as amended, provided for $44 million to finance repurchases of the Company's common stock (of which $37 million is outstanding) 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 as the Company does not utilize market rate sensitive instruments for trading or other purposes. Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K On August 8, 2001, the Company filed an 8-K to disclose a change in the Company's Certifying Accountant. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OSHKOSH B'GOSH, INC. Date: 10/24/2001 /s/DOUGLAS W. HYDE Chairman of the Board, President Chief Executive Officer and Director Date: 10/24/2001 /s/DAVID L. OMACHINSKI Vice President-Finance, Treasurer Chief Financial Officer and Director