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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
For the Fiscal Year Ended January 3, 2004
OR
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
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OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _____ to ____
Commission file number 0-13365
OshKosh B'Gosh, Inc.
Delaware incorporation or organization) |
39-0519915 Identification Number) |
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112 Otter Avenue Oshkosh, Wisconsin 54901 |
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(920) 231-8800 |
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(Registrant's telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
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NONE |
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Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Par Value $.01 per share |
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Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No
As of July 5, 2003, the last day of the Company's fiscal second quarter, there were outstanding 9,680,444 shares of Class A Common Stock and 2,192,961 shares of Class B Common Stock, of which 8,214,298 shares and 122,651 shares, respectively, were held by non-affiliates of the Company. Based upon the closing sales price as of July 5, 2003, the aggregate market value of the Class A Common Stock held by non-affiliates was $232,218,204. The Class B Common Stock is no longer listed or quoted on any established trading market, but it is convertible into Class A Common Stock on a share-for-share basis. Based on that conversion rate, the value of Class B Common Stock held by non-affiliates was $3,467,344.
As of February 16, 2004, there were outstanding 9,559,719 shares of Class A Common Stock and 2,184,236 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the OshKosh B'Gosh, Inc. Proxy Statement for its annual meeting to be held on May 4, 2004 (or such later date as the directors may determine), have been incorporated by reference into Part III.
INDEX
Page |
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PART I |
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Item 1. |
Business |
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(a) General Development of Business |
2 |
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(b) Financial Information About Industry Segments |
2 |
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(c) Narrative Description of Business |
3 |
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Products |
3 |
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Product Design |
3 |
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Product Sourcing |
3 |
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Merchandise Distribution |
4 |
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Wholesale Business |
5 |
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Retail Business |
5 |
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International Licensing and Distribution |
6 |
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Trademarks |
6 |
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Seasonality |
6 |
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Working Capital |
7 |
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Backlog |
7 |
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Competitive Conditions |
7 |
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Environmental Matters |
7 |
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Business Risks |
7 |
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Employees |
10 |
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(d) |
Financial Information About Geographic Areas |
10 |
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(e) |
Available Information |
10 |
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Item 2. |
Properties |
11 |
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Item 3. |
Legal Proceedings |
11 |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
11 |
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PART II |
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Item 5. |
Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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Item 6. |
Selected Financial Data |
13 |
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Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
22 |
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Item 8. |
Financial Statements and Supplementary Data |
26 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
Controls and Procedures |
39 |
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PART III. |
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Item 10. |
Directors and Executive Officers of the Registrant |
39 |
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Item 11. |
Executive Compensation |
39 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
Certain Relationships and Related Transactions |
40 |
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Item 14. |
Principal Accountant Fees and Services |
40 |
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PART IV. |
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Item 15. |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K |
40 |
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Signatures |
41 |
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Exhibit Index |
42 |
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Financial Statement Schedule |
43 |
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 while also pursuing opportunities in lifestyle adult apparel, leveraging our rich heritage of workwear and heartland American spirit. This concept will be further developed in 2004, as the Company introduces The OshKosh Company Store - family lifestyle retail stores carrying a collection of OshKosh apparel for both adults and children, as well as items for the home.
The success of the children's wear business can be attributed to the Company's core themes: quality, durability, style, trust and its heartland image. These themes have propelled the Company to the position of a market leader in the branded children's wear industry. The Company strategically extends the product line and also leverages the economic value of the OshKosh B'Gosh name via both domestic and international licensing agreements, including a sub-brand, Genuine Kids from OshKosh, that was introduced in Target stores as a licensed product in the third quarter of 2003.
The Company's comprehensive strategic planning initiative guides the Company's business focus. Under this initiative, combined with management's commitment to efficiently utilize working capital, the Company continues to take steps to improve its product value proposition, by revitalizing the OshKosh brand, while maintaining its cost structure. These actions include analysis of product extensions, commitment to the wholesale customer base, strategic retail growth, periodic review of significant licensee arrangements and continued development of an effective global sourcing strategy.
The Company designs and sources substantially all of its OshKosh B'Gosh and related trademark apparel products marketed and sold in the United States. Company designers develop fabrication, trim accessories and detailed manufacturing specifications. The product is then manufactured according to detailed Company specifications and production schedules at third-party contractor locations worldwide or in Company-operated manufacturing facilities. Product sourcing is based predominantly on manufacturing capacity, quality and lead times, in addition to cost and capabilities of specific manufacturing facilities.
The Company leverages its name and brand equity into a wide variety of children's products including children's apparel accessory items such as socks, sleepwear, footwear and outerwear, as well as non apparel brand extensions including eyewear, bedding and other nursery décor and juvenile products including car seats, strollers, books and luggage. The Company regularly reviews the seasonal offerings of all related products both locally and internationally for consistency, brand image and quality. The Company earns royalties for use of its name on children's and men's wear products throughout the world, and from related accessories distributed in the United States and worldwide.
The Company successfully leverages its design talent and overall brand recognition through use of the Genuine Kids from Oshkosh sub-brand. Company personnel design Genuine Kids product, including fabrication, trim accessories, use of screen prints or embroidery and manufacturing design specifications. This product design package is provided to Target to arrange for the product sourcing. While the Company is responsible for the design element, the Company does not currently source or arrange for the manufacture of this product.
(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 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. Licensing activities are currently combined in the "All Other" category. See Note entitled "Segment Reporting" in the Notes to the Consolidated Financial Statements for additional information about the Company's business segments.
(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 Company's product line includes OshKosh B'Gosh branded product in sizes from newborn to girls 6X and boys 7, and youth wear for girls and boys under the trade names Genuine Girl (girls sizes 7-16) and Genuine Blues (boys sizes 8-20). The Company's product offering also includes an assortment of mens and womens products which are only sold through Company-owned retail stores and its internet site. All other products are distributed primarily through department and specialty stores, Company-owned retail stores, the internet and foreign retailers.
The children's wear and youth wear business is targeted to reach the middle to upper middle segment of the sportswear market through the use of innovative designs, quality fabrics and classic styling. The Company believes that its trade name is a valuable asset in the marketing of its apparel, signifying classic design and high quality construction. The Company tradename and trademarks are generally displayed on OshKosh product or on the hang tags accompanying the product on the retail shelves.
The Company's children's wear and youth wear business includes a broad range of product categories, which are offered in two main groups: Fashion and Replenishment. The Fashion group is organized primarily in a collection format of seasonal themes, developed by an in-house product development staff. The products in a collection share a primary design theme which is carried out through fabric design and the distinctive use of colors, screenprint, embroidery and trim applications. These collections are generally presented as three to five small groups within each merchandising season. During 2002, the Company revitalized its design effort by assembling an experienced and talented new design team in New York. This team is bringing new luster to our product offering to reinforce our reputation for style and quality and has had complete responsibility for designing the Company's Holiday 2003 and subsequent seasons' fashion offerings.
The Company also offers a Replenishment product line, consisting primarily of staple denim products with multiple wash treatments and coordinating garments. This product line is developed to be somewhat less seasonal, with signature OshKosh B'Gosh classic styling. These styles are available to retailers for replenishment throughout the year. Some Replenishment items are also designed to serve as a foundation for the Fashion group, with seasonal colors and styles to complement the Company's Fashion product offering.
Product Design
The Company made a strategic change to revitalize its design efforts in 2002. The Company opened a new design studio in New York City's SoHo neighborhood that allows the newly assembled design team direct access to the more creative and compelling trends in children's wear. This design team is responsible for identifying trends in the apparel industry which can be translated into fresh fashion-relevant designs for our children's wear product, expanding the Company's presence as a premier Heartland/Traditional lifestyle brand.
Once the design direction has been established by the creative design team, the OshKosh-based product development group is responsible for fabric development, pattern design, consistency of the merchandising plan with the Company's wholesale and retail customers and consideration of the financial viability of each product design. The merchandising process includes a detailed review of historical business performance by type of product, and considers the current style trends and creative designs developed by the design team. The product development team also works closely with the Company's sourcing department to identify cost-effective production capabilities for the manufacture of this product, while meeting Company quality and manufacturing specifications.
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.
Product Sourcing
Substantially all of the Company's product line was sourced from numerous third-party contractors throughout the world and off-shore Company-operated facilities in accordance with the Company's specifications. Due in part to import duty regulations under the North American Free Trade Act, the United States-Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act, the Company takes a global view of its entire manufacturing process. The North American Free Trade Act, the United States-Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act, have significantly reduced the requirements that certain manufacturing processes be performed in the United States to receive preferential duty treatment. The Company utilizes contractors outside of the U.S. with expertise in any of the five major manufacturing functions -- cutting fabric, screenprinting, embroidery, sewing and finishing. These offshore manufacturing facilities inclu de Company-operated facilities in Mexico and in Honduras, as well as unrelated third-party contractors. In 2003, approximately 28% of the Company's sourced units were from these Company-operated offshore facilities, with the remaining units sourced from third-party contractors. Approximately 28% of total units sourced from unrelated contractors in 2003 were from the Company's largest five contractors, with the largest contractor accounting for approximately 7% of total units sourced.
For product sourced in Mexico or Central America, the Company generally arranges for the purchase of necessary raw materials. All raw materials used in the manufacture of Company products are purchased from unaffiliated suppliers. The Company purchases its raw materials directly for its manufacturing facilities and may also procure and retain ownership of fabric related to garments cut and assembled by contract manufacturers. In other circumstances, fabric is procured by the contract manufacturer directly but in accordance with the Company's specifications. In 2003, approximately 56% of the Company's direct expenditures for raw materials (fabric) were from its five largest suppliers, with the largest such supplier accounting for approximately 19% of total raw material expenditures. Fabric and various non-fabric items such as thread, zippers, rivets, buckles and snaps are purchased from a variety of domestic and foreign sources based on quality, pricing and availability. The fabric and accessory marke t in which OshKosh B'Gosh purchases its raw materials is composed of a substantial number of suppliers with similar products and capabilities, and is characterized by a high degree of competition. As is customary in its industry, the Company has no long-term contracts with its suppliers. To date, the Company has experienced little difficulty in satisfying its requirements for raw materials, considers its sources of supply to be adequate and believes that it would be able to obtain sufficient raw materials should any one of its product suppliers becomes unavailable.
The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. These guidelines include on-site facility evaluations for all new suppliers, an expectation that the third-party manufacturers become WRAP certified and allow for random on-site facility inspections to observe working conditions. The Company also employs agents based in regional locations abroad to monitor compliance with design specifications and quality standards. The Company has a quality department which is responsible for reviewing product manufacturing processes at third-party contractor locations, periodically observing working conditions and reviewing the quality of incoming products at the Company's distribution center. This quality team is responsible for ensuring that all product arriving at the distribution center meets the Company's strict quality standards. The Company believes that its overall global manufacturing strategy gives the Company reasonable flexibility to properly balance the need for timely shipments, high quality products and competitive pricing.
While no long-term formal arrangements exist with its third-party manufacturers, the Company considers these relationships to be satisfactory. The Company believes it could, over a period of time, obtain adequate alternative production capacity if any of its independent manufacturers becomes unavailable. As part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico and Central America and has also used contractors in Europe and Africa. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of products contracted for by the Company. A sustained disruption of such sources of supply could, particularly on a short-term basis, have an adverse impact on the Company's operations.
Because higher quality apparel manufacturing is generally labor intensive (sewing, pressing, finishing and quality control), the Company and its contract manufacturers have continually sought to take advantage of time saving technical advances in areas like computer-assisted design, computer-controlled fabric cutting, computer evaluation and matching of fabric colors, automated sewing processes and computer-assisted inventory control and shipping. Quality control inspections of both semi-finished and finished products are required at manufacturing locations to assure compliance.
Customer orders for Fashion products are booked from three to six months in advance of shipping. Because a majority of the Company's production of styled products is scheduled to fill orders already booked, the Company believes that it is better able to plan its production and delivery schedules than would be the case if production were in advance of actual orders. In order to secure necessary fabrics on a timely basis and to obtain manufacturing capacity from independent suppliers, the Company must, in certain instances, make substantial advance commitments prior to receipt of customer orders. Inventory levels therefore depend on Company judgment of market demand.
Merchandise Distribution
The Company's product is primarily shipped in ocean containers arriving at a variety of ports in the United States. From these ports, it is shipped via rail or truck to the Company's distribution centers located in White House, Tennessee and Liberty, Kentucky. Contract manufacturers have specific shipping windows in which the product must be made available for ocean cargo to help ensure receipt at the distribution center in time for shipment of each month's product collection. This shipping schedule allows the Company to rely primarily on lower cost ocean freight transportation of product to the United States.
The Company's product clears customs upon entry into the United States. Upon receipt in the warehouse, product is stored until called for by the Company's warehouse management system. This warehouse management system matches outstanding customer purchase orders with available product to most efficiently support the Company's distribution process.
A significant portion of product destined for the Company's retail stores is sent directly to the Company's retail distribution center in Liberty, Kentucky in pre-packs for immediate distribution to the retail store. This pre-pack of product from the factory results in a reasonably efficient distribution network to the Company's retail stores. Additional orders are picked from available stock through the Company's warehouse management system in its White House, Tennessee facility.
Wholesale Business
In 2003, the Company's products were sold to approximately 400 wholesale customers with over 4,100 retail store locations throughout the United States. The Company's wholesale customers included national chain retailers (Kohl's, Kids R Us, JC Penney, Mervyn's and Babies R Us), national department stores (May Company, Federated Department Stores and Saks Inc.), regional department stores and specialty stores. National chain retailers and national department stores accounted for approximately 66% of the Company's wholesale unit shipments.
The Company's broad distribution base insulates the Company from reliance on any one customer. While no single customer accounted for more than 10% of the Company's 2003 total net sales, the Company's largest ten and largest 100 customers accounted for approximately 34% and 39% of 2003 total Company sales, respectively.
The Company maintains an active marketing program aimed at both wholesale accounts and ultimate consumers, with a main goal of increasing overall brand awareness. A national marketing program includes advertising in both consumer and trade publications, local cooperative advertising, promotions and in-store merchandising.
The Company's sales force has been restructured to meet the demands of its customer base. A centralized sales management team focuses on the unique requirements of each major customer. The Company's sales force is supported by a product planning team located in Oshkosh that monitors current product sell-through as a basis for future demand planning at the account level. This type of planning helps to ensure that the proper product will be placed with the correct customer at the optimum time to increase sell-through. This sales planning process also lends discipline and accuracy to the forecasting required for raw material commitments and production capacity.
Retail Business
The Company currently operates 165 retail stores under four formats: factory outlet stores, showcase stores, strip mall stores and Lifestyle stores. The Company operates 157 domestic factory outlet stores located throughout the United States in outlet malls. These stores carry a wide assortment of OshKosh product that is consistently value-priced. The two showcase stores are full service stores featuring a comprehensive line of OshKosh B'Gosh product in a signature environment designed to convey the total OshKosh image and build brand recognition among customers. The Company also operates five strip mall stores. These strip mall stores feature a large selection of OshKosh B'Gosh products that are consistently value-priced. During the fourth quarter of 2003, the Company opened its first childrens only family lifestyle store. Further development of this concept will take place in 2004.
The Company maintains an e-commerce site (www.oshkoshbgosh.com), offering a comprehensive collection of the Company's current product at pricing comparable to its outlet stores. The Company is also affiliated with Amazon.com as an alternative e-commerce location.
In evaluating potential retail store sites, the Company generally looks for 4,000-6,000 square foot locations in factory outlet centers or lifestyle centers across the country. The Company considers the surrounding trade area, location and visibility of the center, placement of the store within the center, tenant mix, performance of other tenants if the center has already opened, landlord reputation and the economic terms of the lease in making a determination of new store locations. The Company also considers lease renewals based on similar factors, in addition to its own performance in the location. The Company generally commits to five-year lease terms on its retail store leases across the country.
The Company's retail store strategy includes having a substantial collection of the Company's product offering available in all size ranges to meet the needs of our consumers. The retail store environment is designed for easy access for a mother with children, and displays the Company's fashion offerings along with classic products. Products are priced to clearly demonstrate the value proposition of obtaining the OshKosh B'Gosh product in an outlet environment. The Company's retail staff focuses on customer service to provide a level of assistance a shopper is requesting, with an aim of both satisfying the shopper and increasing the potential sale of coordinating pieces to enhance the Company's sales. Staff levels at stores are carefully monitored and correlated with anticipated sales to provide a cost efficient level of staffing in the store at all times with suitable sales staff available to assist all shoppers.
Family lifestyle stores will further develop the Brand's image as a heartland, family brand through a unique, pleasant, back to the basics store atmosphere that includes the use of picnic tables, wash boards, wardrobes, and other frequently updated store props to create a well organized and pleasant retail shopping atmosphere. Family Lifestyle stores will include childrens and adult apparel, as well as home accessories in product categories where the OshKosh label provides value. Family lifestyle stores will focus on customer service to convert customers' pleasant shopping experiences into product sales.
The Company spends considerable effort on the visual presentation of its products. The products are neatly and carefully displayed on retail fixtures to provide a positive brand image to the consumer. The Company uses a retail prototype directing the layout of each retail store so that every store across the country will have an inviting and pleasant appearance. The Company ensures that the retail store facilities are well-maintained to enhance the brand presentation. The Company also uses appropriate signage, graphics and other point of sale displays to highlight the Company's product offering on a seasonal basis.
The combination of a complete product offering, a pleasant store environment and an appropriate level of customer service creates the environment for enhanced success of a fashion-right product that is sold with a proper value equation to the primary consumer, a mother age 28-44. The Company's return and exchange policy eases the return process when the purchase of apparel does not meet the size requirements of the intended user.
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 may purchase finished product directly from the Company, manufacture their own product or contract the production of the product from third-party manufacturers. Each licensee and distributor is responsible for the marketing and distribution of specific product categories within defined regions specified in the licensing or distribution agreement. Distribution must be through marketing channels consistent with the Company's domestic operations and as approved by the Company. The Company also provides advertising guidelines and support in the development of localized marketing programs.
Trademarks
The Company utilizes the OshKosh(Registered), OshKosh B'Gosh(Registered), Genuine Girl(Registered), Genuine Blues(Registered) or Genuine Kids(Registered) trademarks on most of its products. Other significant trademarks include a white triangular patch on the back of bib garments and the Genuine Article(Registered). The Company currently has approximately 37 trademark registrations and 42 pending trademark applications in the United States and has trademark registrations in approximately 115 countries outside the U.S. These trademarks and awareness of the OshKosh B'Gosh name are significant in marketing the products. Therefore, it is the Company's policy to vigorously defend its trademarks against infringement under the laws of the U.S. and other countries. The Company is not aware of any current material infringement.
Seasonality
Products are designed and marketed primarily for four principal selling seasons:
RETAIL |
PRIMARY |
|
Spring |
August-September |
December-March |
Summer |
October-November |
April-May |
Fall/Back-to-School |
January-February |
June-August |
Winter/Holiday |
April-May |
September-November |
The Company's business is increasingly seasonal, with highest sales and income in the third quarter, which is the Company's peak wholesale shipping period and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest because of both relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2004 quarterly sales and income.
Working Capital
Working capital needs are affected primarily by inventory levels, outstanding accounts receivable, trade payables and the level of other current liabilities. The Company's unsecured credit agreement with a number of banks provides a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The revolving credit facility expires October 28, 2004. The Company intends to renew this revolving credit before its expiration. There were no outstanding borrowings against the revolving credit arrangement at January 3, 2004.
Inventory levels are affected by order backlog and anticipated sales. Accounts receivable are affected by payment terms offered. It is general practice in the apparel industry to offer payment terms of ten to sixty days from date of shipment. The Company generally offers net 30 day terms.
The Company believes that its working capital requirements and financing resources are comparable with those of other major, financially sound, like-sized apparel companies.
Backlog
As of the end of 2003, the Company had outstanding customer orders of approximately $44 million, compared to approximately $65 million of such orders at the end of 2002. These amounts include orders that are confirmed or based on industry practice and prior experiences will be confirmed. The amount of outstanding customer orders at a particular time is influenced by numerous factors, including the product mix, timing of the receipt and processing of customer orders, shipping schedules for the product and specific customer shipping windows. Due to these factors, a comparison of outstanding customer orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments.
Competitive Conditions
The children's apparel industry is highly competitive and consists of a number of branded products in addition to private labels. The Company's primary branded competitors include Carters, Healthtex, Baby Gap, Gap Kids, Gymboree, Old Navy, The Children's Place and Disney licensed apparel products, in addition to private label product offerings carried by certain retailers, including our customers.
A characteristic of the apparel industry is the requirement that a marketer recognize fashion trends and adequately provide products to meet such trends. Competition within the apparel industry is generally in terms of consumer brand recognition, quality, price, service and style. The Company is focusing attention on each of these issues and has taken, and will continue to take steps to reduce costs, become more competitive in the eyes of value conscious consumers and deliver the service expected by its customers while maintaining the quality, style and consumer recognition our product is known for.
The Company's share of the overall children's wear market is quite small. This is due to the diverse structure of the market where there is no truly dominant producer of children's garments across all size ranges and garment types. The Company believes that in its primary channel of wholesale distribution, department and specialty stores, it holds the largest share of the branded children's wear market.
Environmental Matters
The Company's compliance with Federal, State and local environmental laws and regulations in recent years had no material affect upon its capital expenditures, earnings, or competitive position. The Company does not anticipate any material capital expenditures for environmental control in either the current or succeeding fiscal years.
Business Risks
The following discussion highlights some of the risks that affect the financial success of the Company. Because it is not possible to determine the impact of these factors or changes in these factors, these risks and uncertainties may affect the Company's operating results in future periods.
Brand Risks
Wholesale customer and consumer tastes and preferences, along with fashion trends, will affect the acceptance of our product in the market place.
The OshKosh B'Gosh brand has represented quality, style and a proper value proposition to its consumers for over a century. We believe that continued success depends on our ability to deliver trend-relevant merchandise that embodies the OshKosh brand essence, and provides a unique and compelling value proposition for our consumers in the Company's distribution channels. The Company conducts its design activities from a design studio in New York. There can be no assurance that the demand for OshKosh B'Gosh product will not decline, or that we will be able to successfully evaluate and adapt our product to be aware of fashion trends in addition to wholesale customer and consumer preferences. A decline in the demand for our product would have a material adverse affect on our business, financial position and results of operations.
The Company's licensing income is greatly impacted by the Company's brand reputation.
The Company's brand image as a consumer product with outstanding quality and name recognition makes it valuable as a license source. The Company is able to license complementary products and obtain license income from use of the OshKosh, OshKosh B'Gosh and related trademarks. The Company is able to obtain substantial amounts of foreign license income as the OshKosh label carries an international reputation for quality and American style. While the Company takes significant steps to ensure the reputation of its brand is maintained through its license agreements, there can be no guarantee the Company's brand image will be enhanced or potentially be deteriorated through its association with products outside of the core OshKosh B'Gosh apparel products.
The Company's reputation may be severely harmed if contractors used to manufacture its clothing engage in practices that our consumers believe are unethical.
The Company regularly uses contractors located outside the United States. Accordingly, the labor laws and business practices in these countries may vary from those generally accepted in the United States. The Company requires its independent manufacturers to operate their businesses in compliance with local laws and regulations. However, due to their status as independent manufacturers, the Company cannot assure compliance with applicable local laws and cannot be certain that these laws are not different than those generally accepted in the United States. The Company could experience negative publicity as a result of media attention focused on international apparel manufacturing operations. Any negative publicity received by the Company could have a detrimental impact on its net sales and results of operations.
The Company licenses the Genuine Kids from OshKosh(Registered) label exclusively to Target(Registered).
The Company has licensed the Genuine Kids from OshKosh label exclusively to Target, for use in Target stores. The license agreement makes the Company responsible for substantially all design activities and Target responsible for sourcing and sales of this product in its stores. Due to the exclusive nature of this arrangement, the Company is dependent on the results of the sourcing, distribution and product presentation processes, which are done by Target. Further, the overall retail traffic and acceptance of this product offering by Target shoppers will have a significant impact on the Company's royalty income.
Sales Risks
The Company's wholesale distribution channel is dependent upon a number of key wholesale accounts.
The Company sells its products to a number of department stores, including Kohl's, Babies R Us, JC Penney, May Co., Mervyn's and Federated Department Stores. The success of the Company's wholesale business is, in part, aligned with the success of these retailers and the levels of customer traffic in these department stores. While the Company believes that its target consumers will stay aligned with target customers of these department stores, further prospects for growth of the Company's wholesale business depend upon the success of these companies. The inability of these distribution channels to grow or achieve sales targets for the Company's products may have a significant material adverse affect on the Company's sales and results of operations.
There are deflationary pressures on the selling price of apparel products.
In part due to the actions of discount retailers, and in part due to the worldwide supply of low cost garment sourcing, the average selling price of children's apparel continues to decrease. To the extent these deflationary pressures are offset by reductions in manufacturing costs, there is modest affect on the gross margin percentage. However, the inability to leverage certain fixed costs of the Company's design, sourcing, distribution, and support costs over a smaller gross sales base could have an adverse impact on the Company's operating income.
Our business is sensitive to overall levels of consumer spending, particularly in the apparel segment.
The Company believes that spending on children's apparel is somewhat discretionary. While certain apparel purchases are less discretionary due to size changes as children grow, the amount of clothing consumers desire to purchase, specifically name brand apparel products, is impacted by the overall level of consumer spending. Overall economic conditions that affect discretionary consumer spending include employment levels, business conditions, tax rates, interest rates, overall levels of consumer indebtedness and other factors that affect consumer spending. Reductions in the level of discretionary spending or shifts in consumer spending to other products may have a material adverse affect on the Company's sales and results of operations.
The children's wear apparel business is highly competitive.
The children's apparel segment of the retail business is highly competitive. There are a number of brands, including Baby Gap, Gap Kids, The Children's Place, Gymboree, Carters, Healthtex, Old Navy, Disney licensed apparel products and a variety of private label brands that compete with our product offering in the higher quality department store market. There are also a number of competitors in the private label and discount channels that indirectly compete with the Company's product. Increased competition may reduce our sales and gross margins, therefore impacting our Company's operating results.
The Company's sales are seasonal with the Fall/Back-to-School season as the key selling season.
A significant amount of our retail sales and shipments to wholesale customers for the Fall/Back-to-School season occur in the months of July, August and September. Changes in consumer spending or buying habits during key marketing periods could have a major impact on the Company's profitability. Consumer spending during any season may be influenced by weather conditions. For example, if the country were to experience unseasonably warm weather during the Fall/Back-to-School season, consumers may reduce their purchases of heavier and long-sleeve apparel. If the Company's product offering for a particular season was not well received due to consumer spending factors unforeseen by the Company, the Company would have a substantial increase in obsolete product which would require significant markdowns out of season. If the Company was unable to meet its forecasted sales levels for the Fall/Back-to-School season, this would have a material affect on the Company's sales, gross margin and results of operation s for the year.
Gross Margin Risks
The Company's gross margins are influenced by the success of its wholesale customers.
The retail industry is rapidly evolving due to the influences of discount retailers. As consumers place pressure on department store retailers to deliver quality products at a discount from traditional selling prices, the retailers' margins are adversely affected. The retailers, in turn, are placing significant pressure on their suppliers to support their margins through price discounts and negotiated margin support agreements. The Company is under constant pressure to support its wholesale customers, which causes the Company's gross margin to be reduced. The Company's ability to withstand these influences continues to relate to its ability to deliver market-right product at competitive selling prices. If the Company is unable to offer market-right product at compelling retail prices, the Company's margin and operating results will be adversely impacted.
The Company must continue to reduce the cost of it products.
Due to the impact of deflationary pressure on selling prices, the Company must continue to reduce or control the cost of sourcing or manufacturing its products. The cost of apparel products is influenced by many factors, including raw material cost (especially cotton), the availability of quota to access certain low cost global markets, the transportation infrastructure to import garments manufactured overseas, and the labor cost in worldwide labor markets. If any of these costs were to increase, the Company would find it difficult to increase its selling price to maintain its gross margin, resulting in reduced operating income.
The Company's products are imported into the United States in accordance with international trade and U.S. customs procedures.
The Company is dependent upon a variety of seaports for the importation of the Company's products, and is responsible for compliance with procedures established by U.S. customs for the importing of products. Changes in U.S. customs procedures concerning the importation of apparel products could have a material adverse impact on the Company's ability to utilize its global sourcing matrix. Further, the complications and stringent regulations that may be developed as part of the Homeland Security Program may result in delays or further costs in importing the Company's products. Unforeseen delays in customs clearance of any goods could have material adverse impact on our ability to deliver shipments in accordance with customer shipping specifications, resulting in material adverse affects on the Company's sales and profitability.
The majority of the Company's products are sourced outside of the United States. This sourcing matrix creates risks associated with international business.
The Company routinely sources its product in Asia, Mexico, Central America, and to a lesser degree, other areas of the world. Due to the inability of the Company to forecast or control these countries' political environments, labor climates or infrastructures, there is inherent risk associated with this product sourcing plan. Our business is subject to risks associated with foreign international business, including foreign governmental regulation and intervention, foreign currency fluctuation, social or political unrest, natural disasters, health and disease management, shipping and customs clearance in foreign countries and in the U.S., local business practices and economic conditions in countries outside of the United States. If any of these factors hinder the Company's ability to obtain products on a timely basis, there could be a significant disruption in the Company's operations.
The Company is dependent upon a global transportation network to import its products.
Since the majority of the Company's products are imported, the Company is dependent upon a fleet of international ocean carriers to deliver product on a timely basis. If this global transportation matrix were to be disrupted by factors such as a port strike, world trade restrictions or war, the Company would be unable to timely receive product sourced overseas. This could have a material adverse affect on the Company's sales and results of operations.
Operating Risks
The Company's retail success and future growth is dependent upon identifying locations and negotiating appropriate lease terms for retail stores.
The Company's retail stores are located in leased retail locations across the country. Successful operation of a retail store depends in part on the overall acceptance of the retail location to attract a customer base sufficient to make store sales volume profitable. If the Company is unable to identify new retail locations with anticipated consumer traffic sufficient to support a profitable sales level, retail growth may consequently be limited. This risk is magnified as the Company explores new retail venues with its Family Lifestyle concept stores. Further, if existing outlet centers do not attract a sufficient customer base to obtain a reasonable sales volume, that could have a material adverse impact on the Company's sales, gross margin and results of operations. Further, the Company invests in an initial build out at these retail locations. If the Company determined that a certain retail store location was not successful, additional impairment of the retail build out and related fixtures may be necessary to reflect the reduced ongoing market value of these improvements. This would have an adverse affect on the Company's results of operations and financial position.
The Company's success is dependent upon retaining key individuals within the organization to execute the Company's strategic direction.
The Company's ability to attract and retain qualified design, sourcing and sales personnel, executive management and support function staff is key to the Company's success. If the Company were unable to attract and retain qualified individuals in these areas, an adverse impact on the Company's growth and results of operations may result.
The Company has made significant financial commitments to the development of the Oshkosh Company Store, its family lifestyle concept.
In conjunction with the rollout of its family lifestyle concept store, the Company has made financial commitments including dedicated personnel, product design activities, leasehold commitments, and retail store build out costs. If this venture is not successful and the Company decides to curtail further development of this concept, the value of certain assets might be impaired and certain financial commitments will remain, having an adverse impact on operating profit.
Employees
At January 3, 2004, the Company employed approximately 4,690 persons. This includes approximately 1,500 production employees at the Company's manufacturing facilities in Mexico and Honduras, and 700 full time and 1,500 part-time retail store sales associates. Approximately 10% of the Company's personnel are covered by collective bargaining agreements with the United Food and Commercial Workers Union.
(d) Financial Information About Geographic Areas
Substantially all of the Company's sales are to customers located in the United States. As more fully described in the "International Licensing and Distribution" section of this report, the Company does export its product on a limited basis, and obtains licensing income from licenses throughout the world. OshKosh B'Gosh product is available in over 50 countries under this network of licensing and distribution agreements.
(e) Available Information
The Company maintains a website with the address www.oshkoshbgosh.com. The Company is not including the information contained on the Company's website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. The Company makes available free of charge (other than an investor's own Internet access charges) through its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, director and officer reports on Forms 3, 4 and 5 and amendments to these reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes such material to, the Securities and Exchange Commission.
ITEM 2. PROPERTIES
|
Approximate |
|
|
Albany, KY |
20,000 |
Sample Production Manufacturing Distribution Distribution/Warehousing Sales Offices/Showroom Design Center Exec. and Operating Offices Available for Sale Manufacturing Distribution/Warehousing |
|
All properties are owned by the Company with the exception of:
A portion of the 128,000 square foot Oshkosh, WI facility was occupied under a short-term lease. This facility was sold in early 2004.
The Company believes that its properties are well maintained and its manufacturing and distribution equipment is in good operating condition and adequate for current production and distribution requirements. The Company's retail store locations are leased with lease terms generally in the range of five to seven years, frequently with renewal options. The Company's retail stores have an average size of approximately 5,000 square feet. 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 the note to the consolidated financial statements of this Form 10-K entitled "Leases".
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal actions and proceedings in the normal course of business. Although litigation is subject to many uncertainties and the ultimate exposure with respect to these matters cannot be ascertained, management does not believe the final outcome will have a significant effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Quarterly Common Stock Data
2003 |
2002 |
|||||||||||
Stock price |
Dividends |
Stock price |
Dividends |
|||||||||
High |
Low |
per share |
High |
Low |
per share |
|||||||
Class A Common Stock |
||||||||||||
1st |
$ |
28.90 |
22.65 |
$ |
.07 |
$ |
42.86 |
$ |
36.50 |
$ |
.06 |
|
2nd |
30.38 |
23.95 |
.07 |
47.25 |
36.34 |
.06 |
||||||
3rd |
27.00 |
23.81 |
.11 |
44.78 |
29.85 |
.07 |
||||||
4th |
27.97 |
20.45 |
.11 |
34.46 |
26.67 |
.07 |
||||||
Class B Common Stock |
||||||||||||
1st |
- |
- |
$ |
.06 |
- |
- |
$ |
.0525 |
||||
2nd |
- |
- |
.06 |
- |
- |
.0525 |
||||||
3rd |
- |
- |
.095 |
- |
- |
.06 |
||||||
4th |
- |
- |
.095 |
- |
- |
.06 |
||||||
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, but it is convertible into Class A common stock on a one-for-one basis.
As of February 16, 2004, there were approximately 5,500 Class A common stock beneficial owners and shareholders of record and approximately 200 Class B common stock beneficial owners and shareholders of record.
Issuer Purchases of Equity Securities
Period |
Total |
Average |
Total Number |
Maximum |
October 5 through November 1, 2003 |
233,500 |
$ 21.41 |
233,500 |
156,200 |
November 2 through November 29, 2003 |
5,000 |
21.15 |
5,000 |
151,200 |
November 30, 2003 through January 3, 2004 |
-- |
-- |
-- |
151,200 |
Total |
238,500 |
$ 21.40 |
238,500 |
151,200 |
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.
ITEM 6. SELECTED FINANCIAL DATA
Financial Highlights
(Dollars in thousands, except per share amounts)
Year Ended |
||||||||||
January 3, |
December 28, |
December 29, |
December 30, |
January 1, |
||||||
2004 |
2002 |
2001 |
2000 |
2000 |
||||||
Financial results |
||||||||||
Net sales |
$ |
417,272 |
$ |
436,989 |
$ |
463,069 |
$ |
453,062 |
$ |
429,786 |
Net income |
7,189 |
32,045 |
32,808 |
32,217 |
32,448 |
|||||
Return on sales |
1.7% |
7.3% |
7.1% |
7.1% |
7.5% |
|||||
Financial condition |
||||||||||
Working capital |
$ |
69,861 |
$ |
71,023 |
$ |
75,423 |
$ |
54,601 |
$ |
27,342 |
Total assets |
151,925 |
155,754 |
161,340 |
158,256 |
129,699 |
|||||
Long-term debt |
|
|
|
|
|
|||||
Shareholders' equity |
87,765 |
92,389 |
73,700 |
44,473 |
23,439 |
|||||
Data per common share |
||||||||||
Net income |
||||||||||
Basic |
$ |
0.61 |
$ |
2.59 |
$ |
2.69 |
$ |
2.61 |
$ |
2.01 |
Diluted |
0.60 |
2.54 |
2.61 |
2.58 |
1.99 |
|||||
Cash dividends declared |
||||||||||
Class A |
.36 |
.26 |
.22 |
.20 |
.20 |
|||||
Class B |
.31 |
.225 |
.19 |
.17 |
.17 |
|||||
Shareholders' equity |
7.55 |
7.73 |
6.03 |
3.65 |
1.86 |
|||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our fiscal years are based on the 52 to 53 week period ended on the Saturday closest to December 31. Results for 2003 represent the 53 weeks ended January 3, 2004. Results for 2002 and 2001 represent the 52-week periods ended December 28, 2002 and December 29, 2001, respectively. During 2003, the Company experienced a reduction in net sales to its wholesale customers as well as lower net sales in our own retail stores. Both our wholesale and retail business units struggled with relatively weak product "sell-thru" which pressured our gross profit margins.
Our wholesale business was also adversely affected by reduced bookings as our customers remained cautious on their approach to managing their inventories. Significant increases in margin support to our wholesale customers along with liquidation of close-out merchandise through off-price channels had signficantly reduced selling prices which hurt both our net sales and gross profit margin.
We experienced a comparable store sales decrease at our outlet stores, as this distribution channel is maturing. Aggressive markdowns were needed to support our sales and to liquidate excess inventories, with a negative impact on gross margin. We expanded our store base to 165 stores, which added selling, general and administrative costs on a reduced level of gross margin, resulting in reduced operating income.
The Company saw a significant increase in its royalties, due to initial sales of the Genuine Kids from OshKosh product, sold exclusively at Target stores. Sales of licensed product began in July 2003 with the back-to-school season. Other license income from the OshKosh B'Gosh label both domestically and internationally was affected by the same pressures as our wholesale business, and was down from previous years.
Despite the decline in operating profit, the Company maintained a solid balance sheet, with no long-term debt and sufficient working capital to continue to invest in the development of new business ideas, including our OshKosh Company Stores family lifestyle store concept. The company increased its quarterly dividend in mid 2003 to $.11 per share, to return a larger portion of its income to shareholders.
A more detailed analysis of the Company's results of operation and financial condition follows.
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 |
|||||||||||||||||||
|
January 3, |
December 28, |
December 29, |
|||||||||||||||||
Net Sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
|||||||||||||
Cost of products sold |
|
63.8 |
% |
56.5 |
% |
58.2 |
% |
|||||||||||||
Gross profit |
|
36.2 |
% |
43.5 |
% |
41.8 |
% |
|||||||||||||
Selling, general and administrative |
|
|
|
|
|
|
|
|||||||||||||
Royalty income, net |
|
(2.8 |
%) |
(2.3 |
%) |
(2.0 |
%) |
|||||||||||||
Operating income |
|
2.8 |
% |
11.7 |
% |
11.8 |
% |
|||||||||||||
Other income (expense) -- net |
|
(0.1 |
%) |
(0.1 |
%) |
(0.3 |
%) |
|||||||||||||
Income before income taxes |
|
2.7 |
% |
11.6 |
% |
11.5 |
% |
|||||||||||||
Income taxes |
|
1.0 |
% |
4.3 |
% |
4.4 |
% |
|||||||||||||
Net income |
|
1.7 |
% |
7.3 |
% |
7.1 |
% |
|||||||||||||
2003 COMPARED TO 2002
Net Sales
Net sales in 2003 were $417.3 million, a $19.7 million (4.5%) decrease compared to 2002 net sales of $437.0 million. A summary of the Company's net sales for the years ended January 3, 2004 and December 28, 2002 follows:
Net Sales |
||||||||||||||||||||||
Domestic |
||||||||||||||||||||||
|
Wholesale |
Retail |
Other |
Total |
||||||||||||||||||
2003 |
$ |
165.7 |
$ |
248.7 |
$ |
2.9 |
$ |
417.3 |
||||||||||||||
2002 |
$ |
182.7 |
250.6 |
3.7 |
437.0 |
|||||||||||||||||
Increase (decrease) |
$ |
(17.0 |
) |
$ |
(1.9 |
) |
$ |
(0.8 |
) |
$ |
(19.7 |
) |
||||||||||
Percent increase (decrease) |
(9.3 |
%) |
(0.8 |
%) |
(21.6 |
%) |
(4.5 |
%) |
||||||||||||||
Wholesale net sales for 2003 of $165.7 million were approximately 9.3% less than 2002 net wholesale sales of $182.7 million. The Company's 2003 domestic wholesale unit shipments increased approximately 2.5% as compared to 2002. The 2003 increase in unit shipments is primarily the result of an increase in the number of "close-out" units sold offset, in part, by lower seasonal booked orders. Overall price reductions in the Company's Spring and Summer '03 product offering (which averaged approximately 10%) had a significant impact on net sales in dollars. Net sales were also affected by a highly promotional market, which resulted in increased customer margin support to assist in more effective flow of Company products through the retail channels.
The Company's 2003 retail sales decrease resulted from a comparable store sales decrease of 6.3% compared to 2002, offset by sales volume generated from newly opened stores and an additional week of retail sales due to our 53 week fiscal year. The comparable store sales decrease resulted from a combination of our decision to lower retail price points, a more promotional sales environment and a general decline in store traffic reflecting the challenging retail environment. During 2003, the Company opened ten factory outlet stores and its first Lifestyle store. At January 3, 2004, the Company operated 165 domestic OshKosh B'Gosh retail stores, including 157 factory outlet stores, two showcase stores, five strip mall stores and a children's only Lifestyle store.
Gross Profit
The Company's gross profit margin as a percentage of net sales was 36.2% in 2003 compared with 43.5% in 2002. The Company's gross margin declined for several reasons. In both our wholesale and retail businesses, the decision made in 2002 to reduce selling prices an average of ten percent implemented with our 2002 Fall/Back-to-School season had a continuing impact on our margins in 2003, particularly in the first half of the year. The Company also continued to support wholesale customers' margins through negotiated support payments. In addition, a substantial increase in the number of units sold as "close-outs", at substantially reduced selling prices, lowered our gross margin. The Company also recorded a charge of approximately $1.3 million against cost of sales to reduce excess inventory and related Spring 2004 purchase commitments resulting from the decision of a significant customer to close its children's apparel stores in early 2004 and cancel orders.
In the Company's retail stores, lower customer traffic and sluggish product "sell-thru" necessitated markdowns to effectively flow seasonal inventory through our retail stores.
The Company continues to evaluate and execute its sourcing strategy to reduce the overall cost of its product offering, considering production capacity in Mexico and Central America, the Far East and other regions of the world. However, pressures on selling prices could not be fully offset by product cost reductions. In addition, the Company's reinvigorated design direction is to add distinguishing features to its product which frequently results in incremental product costs. The Company makes its ultimate global sourcing decisions on the basis of quality, timeliness of delivery and price.
Finally, the comparable 2002 gross margin had a $1.5 million favorable pre-tax LIFO impact, due to the substantial deflationary affects of our product sourcing in 2002. The impact of LIFO inventory was insignificant on 2003 gross margin.
Selling, General and Administrative Expenses (SG&A)
The Company's SG&A expenses for 2003 of $151.3 million were $2.4 million over 2002 SG&A expenses of $148.9 million. As a percentage of net sales, SG&A expenses were 36.2% in 2003 as compared to 34.1% in 2002. The increase in SG&A expenses in both dollars and as a percentage of sales relates primarily to continued expansion of the Company's retail operations, including approximately $4.7 million in costs incurred to develop our Family Lifestyle store concept, approximately $1.0 million in severance related costs for personnel reductions and the further development of our OshKosh brand and Genuine Kids from OshKosh brand design teams. These cost increases are offset in part by the effects of cost cutting measures taken to align our corporate support functions with current business activities. SG&A expenses as a percentage of sales are also directly impacted by our sales decreases.
Royalty Income
The Company licenses a childrens apparel line under the Genuine Kids from OshKosh trademark which is available exclusively in Target stores. The Company is responsible for all product design activities associated with this product. Genuine Kids product was introduced in Target stores in July 2003. The Company earned royalty income of $2.7 million based on sales from the product launch through the end of the year.
The Company also continues to license the OshKosh B'Gosh and related trademarks, domestically and internationally.
Domestically, royalty income relates to product extensions including footwear, hosiery, underwear, juvenile products, and certain outerwear. Royalty income from domestic licenses totaled $3.0 million in 2003, a $.9 million (23.1%) decrease compared to $3.9 million in 2002. The reduction in domestic royalty income is primarily attributable to reduced sales of licensed products, which are generally distributed in the same channels as the OshKosh B'Gosh apparel product.
Internationally, the Company receives royalty income for the use of its trademarks in key international markets, including Japan, Europe, Australia and Canada. Royalty income of $6.0 million is a small decrease compared to $6.3 million in 2002. The reduction is primarily attributable to a strategic change in licensee for menswear in Japan.
Operating Income
The combined effect of reduced sales, a significantly lower gross margin percentage and a modest increase in SG&A costs contributed to a significant decline in operating income in 2003 compared to 2002.
Other Income (Expense) - Net
The Company's 2003 net other income (expense) was a $.4 million expense compared to a $.6 million expense in 2002. This decrease was primarily due to a decrease in interest expense during 2003. The Company's interest expense decreased as a result of prepayment of all of the Company's long-term debt in mid 2002.
Income Taxes
The Company's 2003 effective income tax rate was approximately 36.0% as compared to 37.0% in 2002. A reduced level of taxable income reduced the Company's effective federal statutory income tax rate. Substantially all income is subject to taxation in the United States, and various state and local jurisdictions.
Net Income
Net income for the year ended January 3, 2004 of $7.2 million was down $24.8 million (77.5%) from net income for the year ended December 28, 2002 of $32.0 million. Diluted earnings per share of $.60 were 76.4% less than 2002 diluted earnings per share of $2.54.
2002 COMPARED TO 2001
Net Sales
Net sales in 2002 were $437.0 million, a $26.1 million (5.6%) decrease compared to 2001 net sales of $463.1 million. A summary of the Company's net sales for the years ended December 28, 2002 and December 29, 2001 follows:
Net Sales |
||||||||||||||||||||||
Domestic |
||||||||||||||||||||||
|
Wholesale |
Retail |
Other |
Total |
||||||||||||||||||
2002 |
$ |
182.7 |
$ |
250.6 |
$ |
3.7 |
$ |
437.0 |
||||||||||||||
2001 |
213.6 |
245.1 |
4.4 |
463.1 |
||||||||||||||||||
Increase (decrease) |
$ |
(30.9 |
) |
$ |
5.5 |
$ |
(0.7 |
) |
$ |
(26.1 |
) |
|||||||||||
Percent increase (decrease) |
(14.5 |
%) |
2.2 |
% |
(15.9 |
%) |
(5.6 |
%) |
||||||||||||||
The Company licensed its footwear and outerwear products effective May 1, 2001. The Company's wholesale sales of footwear and outerwear for 2001 were approximately $1.8 million.
Excluding its footwear and outerwear products, wholesale net sales for 2002 of $182.7 million were approximately 13.7% less than 2001 net wholesale sales of $211.8 million. The Company's 2002 domestic wholesale unit shipments decreased approximately 7.7% as compared to 2001. The 2002 decrease in unit shipments is primarily the result of lower booked orders for the year reflecting broad based weakness in the apparel industry along with a reduction in the number of "close-out" units sold. In addition to the unit decreases, overall price reductions in the Company's Fall/Back-to-School, Holiday and Spring '03 product offering (which averaged approximately 10%) had a significant impact on net sales in dollars. Net sales were also affected by a highly promotional market, which resulted in increased customer support to assist in more effective flow of Company products through the retail channels. Sales to Kohl's Department Stores, a major new customer, were $36.5 million.
The Company's 2002 increased retail sales resulted from sales volume generated from newly opened stores, offset in part by a comparable store sales decrease of 5.0% compared to 2001. The comparable store sales decrease resulted from a combination of lower retail price points, a more promotional sales environment and a general decline in store traffic reflecting the challenging retail environment. During 2002, the Company opened 13 factory outlet stores. At December 28, 2002, the Company operated 154 domestic OshKosh B'Gosh retail stores, including 147 factory outlet stores, two showcase stores and five strip mall stores.
Gross Profit
The Company's gross profit margin as a percentage of net sales was 43.5% in 2002 compared with 41.8% in 2001. The increase in gross margin percentage for 2002 was due to the higher proportion of sales from the Company's retail business unit as compared to its wholesale business unit, more favorable production costs realized from offshore sourcing and a continued focus on inventory management, which resulted in lower off-price sales of "close-outs" to discounters, as well as the effects of the Company's LIFO inventory accounting method in a deflationary environment. The growth in the Company's retail business, which normally attains higher gross margins than the Company's wholesale business, had a positive impact on gross profit margin. Although the Company decreased selling prices in both its wholesale and retail businesses, efficient sourcing and a deflationary global sourcing environment allowed the Company to retain its normal margins. This deflationary sourcing environment resulted in additional L IFO income of approximately $1.5 million before income taxes, as the Company ended the year with lower-cost product in its ending inventory.
The Company continues to evaluate and execute its sourcing strategy to reduce the overall cost of its product offering, considering production capacity in Mexico and Central America, the Far East and other regions of the world. The Company makes its ultimate global sourcing decisions on the basis of quality, timeliness of delivery and price.
Selling, General and Administrative Expenses (SG&A)
The Company's SG&A expenses for 2002 of $148.9 million were $.6 million over 2001 SG&A expenses of $148.3 million. As a percentage of net sales, SG&A expenses were 34.1% in 2002 as compared to 32.0% in 2001. The increase in SG&A expenses in both dollars and as a percentage of sales relates primarily to continued expansion of the Company's retail operations and the development of our New York design team, offset in part by employee reductions in certain support functions as well as other cost containment initiatives. SG&A expenses as a percentage of sales is also directly impacted by our sales decreases.
Royalty Income
The Company licenses the use of its trade names to selected licensees in the U.S. and in foreign countries. The Company's net royalty income was $10.2 million in 2002, a $.9 million increase compared to 2001 net royalty income of $9.3 million. Royalty income from domestic licensees was approximately $3.9 million in 2002 as compared to $3.6 million in 2001. This increase was due primarily to the licensing of the Company's footwear and outerwear businesses which was effective May 1, 2001. Royalty income from foreign licensees was approximately $6.3 million in 2002 as compared to $5.7 million in 2001. The increase was due primarily to increased business levels by the Company's Japanese and Australian licensees.
Operating Income
As a result of the factors described above, the Company's 2002 operating income was $51.5 million, a decrease of $3.2 million (5.9%) from 2001 operating income of $54.7 million.
Other Income (Expense) - Net
The Company's 2002 net other income (expense) was a $.6 million expense compared to a $1.5 million expense in 2001. This decrease was due to an approximate $1.2 million decrease in interest expense during 2002. The Company's interest expense decreased substantially as a result of lower interest rates and prepayment of all of the Company's long-term debt in 2002.
Income Taxes
The Company's 2002 effective income tax rate was approximately 37.0% as compared to 38.4% in 2001. Substantially all income is subject to taxation in the United States, and various state and local jurisdictions.
Net Income
Net income for the year ended December 28, 2002 of $32.0 million represented a $.8 million (2.3%) decrease compared to net income for the year ended December 29, 2001 of $32.8 million. Diluted earnings per share of $2.54 (including $.08 per share relating to use of the LIFO inventory accounting method) were 2.7% less than 2001 diluted earnings per share of $2.61.
SEASONALITY OF BUSINESS
The Company's business continues to be seasonal, with highest sales and income in the second half of the year, which includes significant wholesale shipping periods and a major retail selling season at its retail stores. The Company's second quarter sales and income are the lowest of the year because of relatively low domestic wholesale unit shipments and relatively modest retail store sales during this period. The Company anticipates this seasonality trend to continue to impact 2004 quarterly sales and income.
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY
At January 3, 2004, the Company's cash and cash equivalents were $23.9 million, compared to $36.2 million at the end of 2002. Net working capital at January 3, 2004 was $69.9 million compared to $71.0 million at December 28, 2002. Accounts receivable at January 3, 2004 and December 28, 2002 were $16.7 million.
Inventories at January 3, 2004 were $61.4 million, compared to $57.1 million at the end of 2002. The increase in inventories relates primarily to finished goods. Year end 2003 inventory levels slightly exceed inventory levels needed to fulfill Spring '04 product shipments as a result of order cancellations. Excess inventory has been written down to the lower of cost or net realizable value on a season by season basis. Inventory levels at the Company's retail stores exceed prior year levels due in part to an expansion of the Company's product offering of adult product.
Cash provided by operations amounted to approximately $3.6 million in 2003, compared to $54.1 million in 2002 and $42.9 million in 2001. The decrease in cash provided by operating activities in 2003 compared to 2002 is primarily attributable to reduced net income and to a lesser degree, changes in operating assets and liabilities. Compared to 2002 levels, the Company experienced an increase in inventory levels and prepaid expenses, which used operating cash flow. In addition, cash provided by operations in 2002 included cash flows related to a $9.0 million reduction in accounts receivable as the Company's wholesale business contracted. Accounts receivable levels at the end of 2003 were very comparable with levels as of the end of 2002 and, accordingly, did not provide comparable cash flows in 2003. 2003 cash flows from operations were also affected by minimal stock option transactions in 2003, compared to positive cash flows in 2002 and 2001. 2002 operating cash flows also benefited from the reversal of certain temporary differences, reducing the cash payments for income taxes. The increase in cash provided by operating activities in 2002 compared to 2001 is primarily attributable to changes in items of working capital.
Cash used in investing activities totaled $3.6 million in 2003, compared to $5.4 million in 2002 and $5.6 million in 2001. Capital expenditures were $3.7 million in 2003, compared with $5.4 million in 2002 and $5.1 million in 2001. Capital expenditures in each year related primarily to retail store expansions and remodeling.
Cash used in financing activities totaled $12.2 million in 2003, compared to $41.8 million in 2002 and $27.7 million in 2001. The Company's primary financing activities consisted of long-term debt prepayments, ongoing stock repurchase transactions, cash dividends and issuances of common shares through stock option exercises.
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 2003, 2002 and 2001, the Company repurchased 400,400, 712,000 and 397,300 shares, respectively, of its Class A common stock under this program for approximately $8.9, $21.2 and $10.3 million, respectively.
Cash dividends on the Company's Class A and Class B common stock totaled $.36 per share and $.31 per share, respectively, in 2003, $.26 per share and $.225 per share, respectively, in 2002, and $.22 per share and $.19 per share, respectively, in 2001. The Company's current quarterly cash dividend on its Class A and Class B Common stock is $.11 and $.095, respectively.
The Company made cash contributions of $3.5 million and $6.0 million to its defined benefit pension plans covering hourly and salaried employees to maintain a funding status in excess of accumulated benefits obligation during 2003 and 2002, respectively. After evaluating current market conditions and future expectations, the Company lowered its discount rate again in 2003 to 6.0% and maintained its expected long-term rate of return of 8.0% to reflect current market expectations.
On October 30, 2003, the Company amended its unsecured credit agreement with a number of banks that provides a $75 million revolving credit facility available for general corporate purposes, including cash borrowings and issuances of letters of credit. The amended revolving credit facility expires October 28, 2004. There were no outstanding borrowings against the revolving credit arrangement at January 3, 2004 although the Credit Agreement is used to support merchandise letters of credit with its international vendors. The Company believes that this credit facility, along with cash generated from operations, will be sufficient to finance the Company's seasonal working capital needs as well as its capital expenditures for the Family Lifestyle stores and other business development needs.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following tables summarize our contractual and commercial obligations as of January 3, 2004:
Payment Due By Period |
||||||||||||||||
|
Less than |
1-3 |
4-5 |
After 5 |
||||||||||||
Contractual Obligations |
||||||||||||||||
Long-term debt |
$ |
-- |
$ |
-- |
$ |
-- |
$ |
-- |
$ |
-- |
||||||
Capital leases |
-- |
-- |
-- |
-- |
-- |
|||||||||||
Operating leases |
55,420 |
16,855 |
21,509 |
9,458 |
7,598 |
|||||||||||
Purchase obligations |
37,551 |
37,551 |
-- |
-- |
-- |
|||||||||||
Amounts of Commitment Expiration Per Period |
||||||||||||||||
Total |
Less than |
1-3 |
4-5 |
After 5 years |
||||||||||||
Other Commercial Commitments |
||||||||||||||||
Working capital facility |
$ |
-- |
$ |
-- |
$ |
-- |
$ |
-- |
$ |
-- |
||||||
Merchandise Letters of Credit |
16,190 |
16,190 |
-- |
-- |
-- |
|||||||||||
Standby Letters of Credit |
740 |
740 |
-- |
-- |
-- |
|||||||||||
Employee benefit plans |
3,448 |
575 |
983 |
1,027 |
863 |
|||||||||||
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, and revenues and expenses during the period. Significant accounting policies employed by the Company, including the use of estimates, are presented in the Notes to Consolidated Financial Statements of the Company's Annual Report.
Critical accounting policies are those that are most important to the presentation of the Company's financial condition and the results of operations, require management's most difficult, subjective and complex judgments, and involve uncertainties. The Company's most critical accounting policies, discussed below, pertain to revenue recognition, accounts receivable, net, inventories, accrued expenses, income taxes and stock-based compensation. Management must use informed judgments and best estimates to properly apply these critical accounting policies. Because of the uncertainty in these estimates, actual results could differ from estimates used in applying the critical accounting policies. The Company is not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect its financial condition or results of operations.
Revenue Recognition
Retail store revenue is recognized at the time of sale and is net of returns.
Revenue within the Company's wholesale business is recognized at the time merchandise is shipped from the Company's distribution centers, as this is when title and risk of loss passes to the customer. Revenue is reduced by provision for returns when the return is authorized by the Company. Revenue reductions related to margin support, allowances and advertising support are recorded when revenue from the related shipment of product is recognized.
Wholesale revenue is recorded net of returns, margin support, allowances and certain advertising support.
Returns The Company determines the amount of potential returns of unsaleable products, and reduces sales for the full amount of the credit that is anticipated will be issued or has been issued to its wholesale customers. |
Margin Support In the apparel industry, a supplier often faces pressure from its customers to support retail margins on the sale of the supplier's product. The Company has periodically provided allowances to its customers to assist the customer in meeting its margin expectations, and to maintain or establish long-term customer relationships. To determine the adequacy of its support, as reflected on the financial statements, the Company periodically reviews potential customer support obligations for all product shipped through the date of the financial statements. These amounts are evaluated on a customer-by-customer basis based on an evaluation of product sell-through results, retailer performance, current market conditions, the strategic importance of the customer's ongoing business relationship and any unauthorized deductions taken by the customer. Settlements of margin support arrangements are periodically compared to the Company's original estimates to enhance the Compan y's ability to predict support levels in subsequent seasons. Margin support arrangements are recorded as a reduction of sales. |
Advertising Support Support for customers' advertising activities, product presentation or other promotions are considered reductions of revenue unless such support relates to advertising material the Company could obtain independently, which is recorded as advertising expense provided it does not exceed the fair value of such services. The Company records advertising commitments during the year as they are formalized, considering the Company's prior history in dealing with customer advertising support. |
Accounts Receivable, Net
In the normal course of business, the Company extends credit to customers. Accounts receivable, as shown on the Consolidated Balance Sheets, is net of allowances for doubtful accounts and other allowances.
An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historic trends and an evaluation of the impact of economic conditions.
The Company regularly receives unauthorized charge backs from its customers for a variety of operational reasons. The Company periodically evaluates the adequacy of its reserve for such amounts by reviewing the historical collection of operational charge backs. The Company also considers likely charge backs that are anticipated to be taken in the foreseeable future based on historical charge back rates to properly match subsequent charge back activity with the revenue reflected in the Company's financial statements.
Allowances for returns of unsaleable products and margin support which reduce net sales are also reflected as a reduction to accounts receivable as they are generally settled upon payment of customer invoices.
Inventories
Inventories are stated at lower of cost (using the last-in, first-out method) or market. The Company continually evaluates the composition of its inventories by season to assess slow-turning, current season product as well as prior season fashion product. This analysis is significantly influenced by customer cancellations that occur after the Company has made commitments to produce its seasonal products. Due to a limited sales period for each fashion season, excess product from current and prior seasons has a diminished market value. The Company sells these units as "close-outs", generally at substantially reduced selling prices. Factors influencing net realizable value include desirability of the product, quantity and size range of each item available, the overall supply of close-out merchandise in the off-price market, recent negotiated selling prices and the seasonality of the product being sold. The Company evaluates the net realizable value of remaining inventory by season and records the inven tory at the lower of cost or net realizable value.
Accrued Expenses
Accrued expenses for employee health insurance, workers' compensation, profit sharing, contracted advertising, professional fees and other outstanding Company obligations are assessed based on statistical trends and estimates based on projections and current expectations, and are updated periodically as additional information becomes available.
Income Taxes
The Company estimates its current tax expense (state and federal), and identifies temporary and permanent differences resulting from different treatment of items for tax and financial reporting purposes. Temporary differences result in deferred tax assets, which are included on the Company's consolidated balance sheet. The Company's consistent history of taxable income makes the realization of the benefit of deferred tax assets probable. The Company also periodically evaluates and has sufficiently provided for potential assessments of additional tax and interest by federal and state governmental authorities based on the ultimate settlement of current or pending audits.
Stock-Based Compensation
The Company accounts for stock-based compensation on stock options and restricted stock grants under the intrinsic value method, as permitted by APB No. 25. Under this pronouncement, compensation expense is recorded based on the difference between the exercise price of stock options and the fair market value of the underlying stock on the date of the option grant. Under the Company's non-qualified stock option program, the exercise price has consistently been set at the fair value of the underlying stock on the date of the option grant, resulting in no additional compensation expense. For restricted stock grants, the Company calculates compensation expense based on the fair value of the stock on date of the restricted stock grant, and amortizes this amount over the vesting period of the underlying restricted stock grant.
SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and Disclosure" requires proforma disclosure concerning the impact on net income had fair value accounting called for under SFAS No. 123 been applied.
The Company utilizes the Black-Sholes method to determine the fair market value of non-qualified stock option grants, and discloses all relevant assumptions inherent in this valuation model and the proforma information required under SFAS No. 148 in a footnote to its financial statements. The Company updates the assumptions necessary to properly value stock options on the date of non-qualified stock option grants or restricted stock grants.
Application of Critical Accounting Policies AND ESTIMATES
The Company makes certain judgements and uses estimates and assumptions when applying significant accounting policies in the preparation of the Company's consolidated financial statements in accordance with accounting principles generally accepted in the United States. The development and selection of critical accounting policies and the related disclosures have been reviewed with the Audit Committee of the Board of Directors. While there have not been any changes in the selection or application of significant accounting policies during the year, the Company utilizes critical estimates and assumptions relating to the application of its provision for obsolete inventory, as described below.
In evaluating the need for a valuation allowance to reduce the carrying value of inventory to net realizable value, the Company estimates what portion of its seasonal inventory, including non-cancelable inventory commitments, may ultimately become obsolete. Obsolete inventory is generally sold as "close-outs", generally at substantially reduced selling prices. In applying this accounting principle, the Company must estimate the portion of each season's inventory that may result in excess or obsolete inventory, and further must estimate the net realizable value of this inventory. Net realizable value is affected by the timing of product availability, quantities of product available, and overall market conditions including the availability of similar product. Changes in the assumptions regarding what portion of seasonal inventory will be obsolete, or the net realizable value of obsolete inventory could have a significant impact on the Company's results of operations and financial position. For example, if the Company were to over-estimate the net realizable value of its obsolete inventory by 10%, the impact on cost of goods sold, gross margin and operating income would be approximately $600,000. While the Company uses historic information and carefully analyzes current market conditions in making these estimates, it cannot be assured that the ultimate liquidation of this inventory or the actual amount of obsolete inventory that must be sold through off-price channels will correspond with its estimates as of January 3, 2004.
FORWARD OUTLOOK
The retail climate, particularly in many of the channels in which the Company's products are sold, remains challenging. The Company currently projects 2004 net sales will be in the range of $390 million to $410 million. The Company's booked orders in dollars for the 2004 Spring and Summer seasons were below orders booked in dollars for the comparable 2003 season. The Company believes that this reduction is due primarily to lower unit price points, the economic pressure being placed on the Company's wholesale customers for market share and the cautious approach to inventory management by many of the Company's wholesale customers. The promotional environment that exists in our wholesale business is likely to continue well into 2004.
The Company is currently planning comparable store sales in our retail business unit to be flat for early 2004, gradually improving to low single digit increases over the remainder of 2004. Two new retail outlet stores are expected to be opened during 2004, and the Company expects to experience incremental sales in stores opened during 2003. Five under-performing retail stores were closed in early 2004. The impact of these closings is immaterial to the Company's consolidated financial statements.
The Company remains committed to its retail Family Lifestyle Store concept. The Company intends to open 14 Family Lifestyle Stores during 2004. Seven Family Lifestyle store locations are under lease, with six stores scheduled to open in the first half of the year.
The Company anticipates that royalty income from Domestic and International use of OshKosh B'Gosh and related trademarks for 2004 will be comparable with 2003 amounts. The Genuine Kids licensing arrangement will generate royalty income throughout the entire year 2004. However, due to the seasonal nature of children's apparel sales, we anticipate that this royalty income will be greater in the second half of the year.
For the entire year 2004, capital expenditures are expected to total $11.0 million, due primarily to anticipated Lifestyle store build-out costs. The Company is currently budgeting depreciation and amortization for 2004 of $7.0 million. The Company's effective tax rate is expected to be approximately 36.5% for 2004.
The foregoing forward-looking statements are qualified in their entirety by the reference to the risks and uncertainties set forth under the heading "Forward-Looking Statements" below.
FORWARD-LOOKING STATEMENTS
Statements contained herein and in future filings by the Company with the Securities and Exchange Commission (the "SEC"), in Company press releases and in oral statements made by, or with the approval of, authorized personnel that relate to the Company's future performance, including, without limitation, statements with respect to the Company's anticipated financial position, results of operations and level of business for 2004 or any other future period, are forward-looking statements within the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which are generally indicated by words or phrases such as "plan", "estimate", "project", "anticipate", "the Company believes", "management expects", "currently anticipates", "remains optimistic" and similar phrases are based on current expectations only and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assu mptions prove incorrect, actual results may vary materially from those anticipated, projected or estimated.
Among the factors that could cause actual results to materially differ include the level of consumer spending for apparel, particularly in the children's wear segment, the impact of deflation on children's wear apparel prices; risks associated with competition in the market place, including the financial condition of and consolidations, restructurings and other ownership changes in, the apparel and related products industry and the retail industry, the introduction of new products or pricing changes by the Company's competitors, and the Company's ability to remain competitive with respect to product, service and value; risks associated with the Company's dependence on sales to a limited number of large department and specialty store customers, including risks related to customer requirements for vendor margin support, as well as risks related to extending credit to large customers; risks associated with possible deterioration in the strength of the retail industry, including, but not limited to, business conditions and the economy, natural disasters, and the unanticipated loss of a major customer; risks related to the failure of Company suppliers to timely deliver needed raw materials, risks associated with importing its products into the United States under current and future customs and quota rules and regulations, risks associated with using a global transportation matrix and the Company's ability to correctly balance the level of its commitments with actual orders; risks associated with terrorist activities as well as risks associated with foreign operations; risks related to the Company's ability to defend and protect its trademarks and other proprietary rights and other risks related to managing intellectual property issues. In addition, the inability to ship Company products within agreed time frames due to unanticipated manufacturing, distribution system or freight carrier delays or the failure of Company contractors to deliver products within scheduled time frames are risk factors in ongoing busine ss. As a part of the Company's product sourcing strategy, it routinely contracts for apparel products produced by contractors in Asia, Mexico and Central America. If financial, political or other related difficulties were to adversely impact the Company's contractors in these regions, it could disrupt the supply of product contracted for by the Company.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company has an unsecured $75 million revolving credit facility available for general corporate purposes. Borrowings under this agreement bear interest at a variable rate, based on the London Interbank Offered Rates. The Company does not presently hedge its interest rate risk. Since the Company does not have any outstanding debt at the end of 2003, a 1% change in interest rates would not have a material impact on the Company's interest expense for fiscal 2004.
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 foreign currency risk.
Inflation Risk
While the current deflationary environment, especially in the apparel industry, affects the Company's results of operations, the Company manages its inflation/deflation risks by ongoing review of product selling prices and production costs. Management believes the Company's ability to match product selling prices with production cost reduces these risks and their affect on the Company's business, its consolidated financial position, results of operations or cash flows.
Investment Risk
The Company does not believe it has material exposure to market risk with respect to any of its investments, all of which are cash equivalents. The Company does not utilize market rate sensitive instruments for trading or other purposes. For information regarding the Company's investments, refer to the Cash and cash equivalents portion of Note 1 to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page |
||||
Report of Independent Auditors |
24 |
|||
Report of Independent Public Accountants |
25 |
|||
Consolidated Balance Sheets - January 3, 2004 and December 28, 2002 |
26 |
|||
Consolidated Statements of Income - years ended January 3, 2004, December 28, 2002, and December 29, 2001 |
|
|||
Consolidated Statements of Changes in Shareholders' Equity - years ended January 3, 2004, December 28, 2002 and December 29, 2001 |
|
|||
Consolidated Statements of Cash Flows - years ended January 3, 2004 , December 28, 2002 and December 29, 2001 |
|
|||
Notes to Consolidated Financial Statements |
30 |
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
OshKosh B'Gosh, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of OshKosh B'Gosh, Inc. and subsidiaries (the "Company") as of January 3, 2004 and December 28, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the 2003 and 2002 consolidated financial statements and financial statement schedule based on our audits. The consolidated financial statements and financial statement schedule of the Company for the period ended December 29, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such financial statement schedule, when considered in relation to the 2001 basic consolidated financial statements taken as a whole, presented fairly in all material respects the inf ormation set forth therein their report dated January 30, 2002.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 3, 2004 and December 28, 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2003 and 2002 financial statement schedule when considered in relation to the 2003 and 2002 basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 10, 2004
The following is a copy of a report previously issued by Arthur Andersen LLP in connection with the Company's Annual Report on Form 10-K for the year ended December 29, 2001. This opinion has not been reissued by Arthur Andersen LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of OshKosh B'Gosh, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of OshKosh B'Gosh, Inc. (a Delaware Corporation) and subsidiaries as of December 29, 2001 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements and the supplemental schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and supplemental schedule based on our audit. The consolidated financial statements of OshKosh B'Gosh, Inc. and subsidiaries as of December 30, 2000 and for each of the two years in the period ended December 30, 2000 were audited by other auditors whose report dated January 26, 2001, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OshKosh B'Gosh, Inc. and subsidiaries as of December 29, 2001 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule listed in the index to Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The supplemental schedule for the year ended December 29, 2001 has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 30, 2002
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
|
January 3, |
December 28, |
|||||||||||
ASSETS |
|
|
|||||||||||
Current assets |
|
|
|||||||||||
|
Cash and cash equivalents |
|
$ |
23,931 |
|
$ |
36,198 |
|
|||||
|
Accounts receivable, net |
|
|
16,669 |
|
|
16,729 |
|
|||||
|
Inventories |
|
|
61,358 |
|
|
57,114 |
|
|||||
|
Prepaid expenses and other current assets |
|
|
8,316 |
|
|
1,685 |
|
|||||
|
Deferred income taxes |
|
|
10,100 |
|
|
9,600 |
|
|||||
Total current assets |
|
|
120,374 |
|
|
121,326 |
|
||||||
Property, plant and equipment, net |
|
|
23,696 |
|
|
27,127 |
|
||||||
Deferred income taxes |
2,000 |
2,300 |
|||||||||||
Other assets |
|
|
5,855 |
|
|
5,001 |
|
||||||
|
|
||||||||||||
Total assets |
|
$ |
151,925 |
|
$ |
155,754 |
|
||||||
|
|||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
||||||||
Current liabilities |
|
|
|
|
|
||||||||
|
Accounts payable |
|
$ |
16,961 |
$ |
11,907 |
|||||||
|
Accrued liabilities |
|
|
33,552 |
38,396 |
||||||||
Total current liabilities |
|
|
50,513 |
50,303 |
|||||||||
Employee benefit plan liabilities |
|
|
13,647 |
13,062 |
|||||||||
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 |
- 9,436,869 shares in 2003, |
|
|
||||||||
|
|
- 9,758,459 shares in 2002 |
|
|
94 |
97 |
|||||||
|
|
Class B, authorized |
- 4,425,000 shares; |
|
|
||||||||
|
|
Issued and outstanding |
- 2,184,261 shares in 2003, |
|
|
||||||||
|
|
- 2,194,561 shares in 2002 |
|
|
22 |
22 |
|||||||
|
Retained earnings |
|
|
87,649 |
92,290 |
||||||||
|
Unearned compensation under restricted stock plan |
|
|
-- |
(20 |
) |
|||||||
Total shareholders' equity |
|
|
87,765 |
92,389 |
|||||||||
|
|
||||||||||||
Total liabilities and shareholders' equity |
|
$ |
151,925 |
|
$ |
155,754 |
|
||||||
|
|
||||||||||||
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 |
|||||||||||||||||
|
January 3, |
December 28, |
December 29, |
||||||||||||||
Net sales |
|
$ |
417,272 |
$ |
436,989 |
$ |
463,069 |
||||||||||
Cost of products sold |
|
266,119 |
246,744 |
269,286 |
|||||||||||||
|
|
|
|
||||||||||||||
Gross profit |
|
151,153 |
190,245 |
193,783 |
|||||||||||||
|
|
|
|||||||||||||||
Selling, general and administrative expenses |
|
151,251 |
148,947 |
148,326 |
|||||||||||||
Royalty income, net |
|
(11,688 |
) |
(10,188 |
) |
(9,259 |
) |
||||||||||
|
|
|
|
||||||||||||||
Operating income |
|
11,590 |
51,486 |
54,716 |
|||||||||||||
|
|
|
|
||||||||||||||
Other income (expense): |
|
||||||||||||||||
|
Interest expense |
|
(718 |
) |
(1,097 |
) |
(2,258 |
) |
|||||||||
|
Interest income |
|
|
200 |
|
528 |
834 |
||||||||||
|
Miscellaneous |
|
|
162 |
(56 |
) |
(29 |
) |
|||||||||
|
|
|
|
||||||||||||||
Other income (expense) - net |
|
(356 |
) |
(625 |
) |
(1,453 |
) |
||||||||||
|
|
|
|
||||||||||||||
Income before income taxes |
|
11,234 |
50,861 |
53,263 |
|||||||||||||
|
|
|
|||||||||||||||
Income taxes |
|
4,045 |
18,816 |
20,455 |
|||||||||||||
|
|
|
|||||||||||||||
Net income |
|
$ |
7,189 |
$ |
32,045 |
$ |
32,808 |
||||||||||
|
|
|
|
||||||||||||||
Net income per common share |
|
||||||||||||||||
|
Basic |
|
$ |
0.61 |
$ |
2.59 |
$ |
2.69 |
|||||||||
|
Diluted |
|
$ |
0.60 |
$ |
2.54 |
$ |
2.61 |
|||||||||
|
|
|
|
||||||||||||||
|
|
||||||||||||||||
See notes to consolidated financial statements. |
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Unearned |
||||||||||||||||||||||
Common Stock |
Additional |
Compensation |
||||||||||||||||||||
Class A |
Class B |
Paid-In |
Retained |
Under Restricted |
||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Earnings |
Stock Plan |
||||||||||||||||
Balance -- December 30, 2000 |
9,944 |
$ |
99 |
2,229 |
$ |
22 |
$ |
-- |
$ |
45,054 |
$ |
(702 |
) |
|||||||||
Net income |
-- |
-- |
-- |
-- |
-- |
32,808 |
-- |
|||||||||||||||
Dividends |
||||||||||||||||||||||
|
- Class A ($.22 per share) |
-- |
-- |
-- |
-- |
-- |
(2,198 |
) |
-- |
|||||||||||||
- Class B ($.19 per share) |
-- |
-- |
-- |
-- |
-- |
(422 |
) |
-- |
||||||||||||||
Conversions of common shares |
21 |
-- |
(21 |
) |
-- |
-- |
-- |
-- |
||||||||||||||
Stock options exercised |
452 |
5 |
-- |
-- |
5,234 |
-- |
-- |
|||||||||||||||
Income tax benefit from stock |
||||||||||||||||||||||
Options exercised |
-- |
-- |
-- |
-- |
3,754 |
-- |
-- |
|||||||||||||||
Compensation earned under |
||||||||||||||||||||||
Restricted stock plan |
-- |
-- |
-- |
-- |
-- |
-- |
390 |
|||||||||||||||
Repurchase and retirement of |
||||||||||||||||||||||
|
Common shares |
(397 |
) |
(4 |
) |
-- |
-- |
(3,649 |
) |
(6,691 |
) |
-- |
||||||||||
|
||||||||||||||||||||||
Balance -- December 29, 2001 |
10,020 |
100 |
2,208 |
22 |
5,339 |
68,551 |
(312 |
)) |
||||||||||||||
Net income |
-- |
-- |
-- |
-- |
-- |
32,045 |
-- |
|||||||||||||||
Dividends |
||||||||||||||||||||||
|
- Class A ($.26 per share) |
-- |
-- |
-- |
-- |
-- |
(2,635 |
) |
-- |
|||||||||||||
- Class B ($.225 per share) |
-- |
-- |
-- |
-- |
-- |
(495 |
) |
-- |
||||||||||||||
Conversions of common shares |
13 |
-- |
(13 |
) |
-- |
-- |
-- |
-- |
||||||||||||||
Stock options exercised |
437 |
4 |
-- |
-- |
6,614 |
-- |
-- |
|||||||||||||||
Income tax benefit from stock |
||||||||||||||||||||||
Options exercised |
-- |
-- |
-- |
-- |
4,108 |
-- |
-- |
|||||||||||||||
Compensation earned under |
||||||||||||||||||||||
Restricted stock plan |
-- |
-- |
-- |
-- |
-- |
-- |
292 |
|||||||||||||||
Repurchase and retirement of |
||||||||||||||||||||||
|
Common shares |
(712 |
) |
(7 |
) |
-- |
-- |
(16,061 |
) |
(5,176 |
) |
-- |
||||||||||
|
||||||||||||||||||||||
Balance -- December 28, 2002 |
9,758 |
97 |
2,195 |
22 |
-- |
92,290 |
(20 |
)) |
||||||||||||||
Net income |
-- |
-- |
-- |
-- |
-- |
7,189 |
-- |
|||||||||||||||
Dividends |
||||||||||||||||||||||
|
- Class A ($.36 per share) |
-- |
-- |
-- |
-- |
-- |
(3,460 |
) |
-- |
|||||||||||||
- Class B ($.31 per share) |
-- |
-- |
-- |
-- |
-- |
(679 |
) |
-- |
||||||||||||||
Conversions of common shares |
11 |
-- |
(11 |
) |
-- |
-- |
-- |
-- |
||||||||||||||
Stock options exercised, net |
68 |
1 |
-- |
-- |
867 |
-- |
-- |
|||||||||||||||
Income tax benefit from stock |
-- |
-- |
||||||||||||||||||||
|
Options exercised |
-- |
-- |
-- |
-- |
321 |
-- |
-- |
||||||||||||||
Additional consideration under |
||||||||||||||||||||||
Restricted stock plan |
-- |
-- |
-- |
-- |
67 |
-- |
(67 |
)) |
||||||||||||||
Compensation earned under |
||||||||||||||||||||||
Restricted stock plan |
-- |
-- |
-- |
-- |
-- |
-- |
87 |
|||||||||||||||
Repurchase and retirement of |
||||||||||||||||||||||
|
Common shares |
(400 |
) |
(4 |
) |
-- |
-- |
(1,255 |
) |
(7,691 |
) |
-- |
||||||||||
|
||||||||||||||||||||||
Balance -- January 3, 2004 |
9,437 |
$ |
94 |
2,184 |
$ |
22 |
$ |
-- |
$ |
87,649 |
$ |
-- |
||||||||||
|
||||||||||||||||||||||
See notes to consolidated financial statements. |
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
For the Year Ended |
|||||||||||||||||||
|
January 3, |
December 28, |
December 29, |
|||||||||||||||||
Cash flows from operating activities |
|
|
||||||||||||||||||
|
Net income |
|
$ |
7,189 |
$ |
32,045 |
$ |
32,808 |
||||||||||||
Adjustments to reconcile net income to net |
||||||||||||||||||||
|
Depreciation |
|
|
6,774 |
6,906 |
7,210 |
||||||||||||||
Amortization |
598 |
1,013 |
806 |
|||||||||||||||||
(Gain) loss on disposal of assets |
(158 |
) |
349 |
76 |
||||||||||||||||
|
Deferred income taxes |
|
|
(200 |
) |
5,400 |
1,450 |
|||||||||||||
Compensation earned under restricted stock plan |
87 |
292 |
390 |
|||||||||||||||||
Income tax benefit from stock option exercises |
321 |
4,108 |
3,754 |
|||||||||||||||||
Benefit plan expense, net of contributions |
(446 |
) |
(3,924 |
) |
(993 |
) |
||||||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||||||
Accounts receivable |
60 |
8,968 |
4,469 |
|||||||||||||||||
|
Inventories |
|
|
(4,244 |
) |
(1,685 |
) |
(2,244 |
) |
|||||||||||
|
Prepaid expenses and other current assets |
|
|
(6,631 |
) |
(78 |
) |
275 |
||||||||||||
|
Accounts payable |
|
|
5,054 |
678 |
(3,611 |
) |
|||||||||||||
|
Accrued liabilities |
|
|
(4,844 |
) |
(7 |
) |
(1,539 |
) |
|||||||||||
Net cash provided by operating activities |
|
|
3,560 |
54,065 |
42,851 |
|||||||||||||||
Cash flows from investing activities |
|
|
||||||||||||||||||
|
Additions to property, plant and equipment |
|
|
(3,695 |
) |
(5,400 |
) |
(5,106 |
) |
|||||||||||
|
Proceeds from disposal of assets |
|
|
510 |
369 |
104 |
||||||||||||||
|
Sale of investments, net |
|
|
-- |
-- |
511 |
||||||||||||||
|
Changes in other assets |
|
|
(421 |
) |
(402 |
) |
(1,152 |
) |
|||||||||||
Net cash used in investing activities |
|
|
(3,606 |
) |
(5,433 |
) |
(5,643 |
) |
||||||||||||
Cash flows from financing activities |
|
|
||||||||||||||||||
|
Payments on long-term debt |
|
|
-- |
(24,000 |
) |
(20,000 |
) |
||||||||||||
|
Dividends paid |
|
|
(4,139 |
) |
(3,130 |
) |
(2,620 |
) |
|||||||||||
|
Net proceeds from issuance of common shares |
|
|
868 |
6,618 |
5,239 |
||||||||||||||
|
Repurchase of common shares |
|
|
(8,950 |
) |
(21,244 |
) |
(10,344 |
) |
|||||||||||
Net cash used in financing activities |
|
|
(12,221 |
) |
(41,756 |
) |
(27,725 |
) |
||||||||||||
Net increase (decrease) in cash and cash equivalents |
|
|
(12,267 |
) |
6,876 |
9,483 |
||||||||||||||
Cash and cash equivalents at beginning of year |
|
|
36,198 |
29,322 |
19,839 |
|||||||||||||||
Cash and cash equivalents at end of year |
|
$ |
23,931 |
$ |
36,198 |
$ |
29,322 |
|||||||||||||
Supplementary disclosures |
||||||||||||||||||||
Cash paid for interest |
$ |
287 |
$ |
652 |
$ |
2,467 |
||||||||||||||
Cash paid for income taxes |
$ |
6,625 |
$ |
5,434 |
$ |
18,658 |
||||||||||||||
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 and 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 and other financial instruments that can be readily liquidated. 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.
Financial instruments
The fair value of financial instruments, primarily cash equivalents, accounts receivable, accounts payable and accrued liabilities do not materially differ from their carrying value due to their short-term nature.
Accounts receivable
Accounts receivable are recorded net of allowances, which totaled $5,602 in 2003 and $5,237 in 2002.
Inventories
Inventories are stated at the lower of cost or market on the last-in, first-out (LIFO) basis.
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. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" less accumulated depreciation. Expenditures for improvements that increase asset values and extend usefulness are capitalized. Expenditures for maintenance and repairs are expensed as incurred. 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, fixtures and equipment |
3 to 10 |
Revenue recognition
Revenue within wholesale operations is recognized at the time merchandise is shipped and title and risk of loss is transferred to customers. Wholesale revenue is recorded net of returns, margin support, allowances, and certain co-op advertising support. Returns are recorded when the company authorizes the return of product. Margin support arrangements are based on management's estimate of seasonal support levels that correspond with current period product shipments. Allowances for the settlement of operational chargebacks are estimated based on prior experience and existing open chargeback levels. Advertising support arrangements not specifically relating to the reimbursement for actual advertising expenses by the Company's customers are recorded in the period corresponding with the shipment of seasonal products, as a reduction of revenues.
Retail store revenues are recognized at the time of sale, net of all promotional discounts.
Royalty income is recognized based on actual sales of licensed products.
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 $7,867, $11,550 and $14,896 in 2003, 2002 and 2001, respectively.
Stock-based compensation
The Company has elected to use the intrinsic value method permitted under Accounting Principles Board (APB) Opinion No. 25 in accounting for its employee stock options.
Under this method, compensation expense is determined using the difference between the exercise price of stock based compensation and the fair value of the underlying securities. Compensation expense for the Company's restricted stock grants is reflected over the period in which services were performed and when the financial performance targets are met.
The Company complies with the provisions of SFAS No. 148 "Accounting for Stock-Based Compensation -Transition and Disclosure", and discloses the value of stock option grants, and includes proforma information concerning the impact on net income had the fair value accounting called for under SFAS No. 123 been applied in all periods presented.
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):
2003 |
2002 |
2001 |
|
Denominator for basic earnings per share-- |
|
|
|
Employee stock options (treasury stock method) |
111 |
260 |
390 |
Denominator for diluted earnings per share |
11,944 |
12,641 |
12,581 |
The Company had 339,225, 317,500 and 26,500 employee stock options that were anti-dilutive in 2003, 2002 and 2001, respectively, and, accordingly, are not included in the diluted earnings per share calculations.
Fiscal year
The Company's fiscal year is a 52/53-week year ending on the Saturday closest to December 31. Fiscal 2003 was a 53-week year and ended on January 3, 2004. Fiscal 2002 and 2001 were 52-week years and ended on December 28, 2002 and December 29, 2001, respectively. All references to years in this report refer to the fiscal years described above.
Comprehensive income
Comprehensive income equaled net income for all years presented.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
NOTE 2. INVENTORIES
A summary of inventories follows:
|
January 3, |
December 28, |
||||||||
Finished goods |
|
$ |
51,750 |
|
$ |
48,103 |
||||
Work in process |
|
|
8,817 |
|
7,490 |
|
||||
Raw materials |
|
791 |
|
1,521 |
|
|||||
Total |
|
$ |
61,358 |
|
$ |
57,114 |
|
|||
The replacement cost of inventory exceeds the above LIFO costs by $10,515 and $10,600 at January 3, 2004 and December 28, 2002, respectively.
NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
A summary of prepaid expenses and other current assets follows:
January 3, |
December 28, |
||||
Deposit under insurance contract |
$ |
4,500 |
$ |
-- |
|
Prepaid rent |
1,857 |
-- |
|||
Other current assets |
1,959 |
1,685 |
|||
$ |
8,316 |
$ |
1,685 |
||
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
January 3, |
December 28, |
|||||
Land and improvements |
$ |
2,654 |
$ |
2,751 |
||
Buildings |
13,831 |
13,774 |
||||
Leasehold improvements |
21,378 |
20,557 |
||||
Machinery, fixtures and equipment |
34,517 |
33,260 |
||||
Construction in progress |
36 |
-- |
||||
Total |
72,416 |
70,342 |
||||
Less: accumulated depreciation and amortization |
48,720 |
43,215 |
||||
Property, plant and equipment, net |
$ |
23,696 |
$ |
27,127 |
||
NOTE 5. CREDIT AGREEMENTS
The Company has an unsecured credit agreement with a number of banks which provides 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 October 28, 2004. Letters of credit of approximately $16,930 were outstanding at January 3, 2004, with $58,070 of the unused revolving credit facility available for borrowing.
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 (effectively 1.90% at January 3, 2004). Commitment fees of 0.15% are required on the revolving credit facility. The Company is required to maintain certain financial ratios in connection with this agreement. As of January 3, 2004, the Company is in compliance with all of its financial covenants.
There were no outstanding borrowings against the revolving credit arrangement at January 3, 2004 and December 28, 2002.
NOTE 6. ACCRUED LIABILITIES
January 3, |
December 28, |
|||||
Compensation |
$ |
5,125 |
$ |
6,038 |
||
Workers' compensation |
7,800 |
8,500 |
||||
Income taxes |
6,098 |
8,824 |
||||
Other |
14,529 |
15,034 |
||||
Total |
$ |
33,552 |
$ |
38,396 |
||
NOTE 7. LEASES
The Company leases certain property and equipment including a design studio, retail sales facilities, manufacturing facilities and a regional sales office 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 |
|||
2004 |
$ |
16,855 |
|
2005 |
12,795 |
||
2006 |
8,714 |
||
2007 |
5,774 |
||
2008 |
3,684 |
||
Thereafter |
7,598 |
||
Total minimum lease payments |
$ |
55,420 |
|
|
Total rent expense charged to operations for all operating leases is as follows:
2003 |
2002 |
2001 |
||||||||
Minimum rentals |
$ |
21,562 |
$ |
20,377 |
$ |
18,755 |
||||
Contingent rentals |
710 |
1,112 |
1,262 |
|||||||
Total rent expense |
$ |
22,272 |
$ |
21,489 |
$ |
20,017 |
||||
NOTE 8. INCOME TAXES
Income tax expense is comprised of the following:
2003 |
2002 |
2001 |
|||||||||
Current: |
|||||||||||
Federal |
$ |
3,659 |
$ |
12,102 |
$ |
17,092 |
|||||
State and local |
586 |
1,314 |
1,913 |
||||||||
Deferred |
(200 |
) |
5,400 |
1,450 |
|||||||
Total |
$ |
4,045 |
$ |
18,816 |
$ |
20,455 |
|||||
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:
January 3, |
December 28, |
|||||||
2004 |
2002 |
|||||||
[Assets (Liabilities)] |
||||||||
Current deferred taxes |
||||||||
|
Accounts receivable allowances |
$ |
2,012 |
$ |
1,790 |
|||
|
Inventory valuation |
2,452 |
2,127 |
|||||
|
Accrued liabilities |
5,102 |
5,072 |
|||||
|
Other |
534 |
611 |
|||||
Total net current deferred tax assets |
$ |
10,100 |
$ |
9,600 |
||||
Non-current deferred taxes |
||||||||
Depreciation |
$ |
(1,427 |
) |
$ |
(1,405 |
) |
||
Deferred employee benefits |
3,185 |
3,662 |
||||||
Trademark |
478 |
489 |
||||||
Other |
(236 |
) |
(446 |
) |
||||
Total net non-current deferred tax assets |
$ |
2,000 |
$ |
2,300 |
||||
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:
2003 |
2002 |
2001 |
||||||||
Federal statutory tax rate |
34.0 |
% |
35.0 |
% |
35.0 |
% |
||||
Differences resulting from: |
||||||||||
|
State and local income taxes, net of federal income tax benefit |
|
|
|
||||||
|
Other, including federal employment credits |
(1.4 |
) |
(.2 |
) |
.1 |
||||
Total |
36.0 |
% |
37.0 |
% |
38.4 |
% |
||||
|
NOTE 9. RETIREMENT PLANS
The Company has defined contribution and defined benefit pension plans covering substantially all full-time U.S. employees. Charges to operations by the Company for these plans totaled $4,173, $3,658 and $2,047 for 2003, 2002 and 2001, respectively.
Defined benefit plans
The Company sponsors several defined benefit pension plans covering certain U.S. hourly and salaried employees. These pension plan assets are invested in group annuity contracts and equity securities based on the Company's overall strategic investment direction as follows:
Target Allocation |
Expected Long-Term |
||||||
Equity investments |
50 |
% |
9-10 |
% |
|||
Intermediate term debt investments |
40 |
% |
5-7 |
% |
|||
Real estate investments |
10 |
% |
6-8 |
% |
|||
Total |
100 |
% |
8 |
% |
|||
The long-term rate of return assumption considers historic returns adjusted for changes in overall economic conditions that may affect future returns and a weighting of each investment class.
The defined benefit pension plan assets were invested as follows as of the end of each year:
2003 |
2002 |
||||||
Equity investments |
50 |
% |
48 |
% |
|||
Intermediate term debt investments |
39 |
% |
52 |
% |
|||
Real estate investments |
11 |
% |
-- |
% |
|||
Total |
100 |
% |
100 |
% |
|||
The actuarial computations utilized the following assumptions, using year-end measurement dates:
Benefit Obligation |
2003 |
2002 |
||||||
Discount rate |
6.0 |
% |
6.5 |
% |
||||
Rates of increase in compensation level |
0-4.5 |
% |
0-4.5 |
% |
||||
Net Periodic Pension Cost |
2003 |
2002 |
2001 |
|||
Discount rate |
6.5 |
% |
7.0 |
% |
7.5 |
% |
Expected long-term rate of return on assets |
8.0 |
% |
8.0 |
% |
9.0 |
% |
Rates of increase in compensation levels |
0-4.5 |
% |
0-4.5 |
% |
0-4.5 |
% |
Net periodic pension cost was comprised of:
2003 |
2002 |
2001 |
||||||||||||||||
Service cost |
$ |
2,184 |
$ |
2,053 |
$ |
1,894 |
||||||||||||
Interest cost |
2,806 |
2,667 |
2,540 |
|||||||||||||||
Expected return on plan assets |
(2,926 |
) |
(2,892 |
) |
(3,692 |
) |
||||||||||||
Amortization of prior service cost |
323 |
313 |
331 |
|||||||||||||||
Amortization of transition obligation |
(151 |
) |
(159 |
) |
(159 |
) |
||||||||||||
Recognized actuarial (gain) loss |
98 |
(273 |
) |
(827 |
) |
|||||||||||||
Net periodic pension cost |
$ |
2,334 |
$ |
1,709 |
$ |
87 |
||||||||||||
A reconciliation of changes in the projected pension benefit obligation and plan assets follows:
2003 |
2002 |
|
Change in projected benefit obligation |
||
Projected benefit obligation at beginning of year |
$ 44,727 |
$ 38,751 |
Service cost |
2,184 |
2,053 |
Interest cost |
2,806 |
2,667 |
Amendments |
82 |
54 |
Actuarial loss |
3,333 |
3,499 |
Benefits paid |
(1,943) |
(2,297) |
Projected benefit obligation at end of year |
51,189 |
44,727 |
Change in plan assets |
||
Fair value of plan assets at beginning of year |
36,569 |
35,612 |
Actual return on plan assets |
6,326 |
(2,783) |
Company contributions |
3,527 |
6,037 |
Benefits paid |
(1,943) |
(2,297) |
Fair value of plan assets at end of year |
44,479 |
36,569 |
Funded status |
||
Funded status of plan |
(6,710) |
(8,158) |
Unrecognized net actuarial loss |
3,711 |
3,877 |
Unrecognized prior service cost |
1,016 |
1,256 |
Unrecognized transition obligation |
-- |
(151) |
Accrued benefit cost |
$ (1,983) |
$ (3,176) |
Amounts recognized in the Consolidated Balance Sheets:
2003 |
2002 |
|||||||||||||||
Prepaid benefit cost |
$ |
4,009 |
$ |
2,978 |
||||||||||||
Accrued benefit liability |
(5,992 |
) |
(6,154 |
) |
||||||||||||
$ |
(1,983 |
) |
$ |
(3,176 |
) |
|||||||||||
Amounts applicable to the Company's pension plans with accumulated benefit obligations in excess of plan assets are as follows:
ABO > Assets |
ABO > Assets |
|||
2004 |
2002 |
|||
Projected benefit obligations |
$ 2,672 |
$ 8,750 |
||
Accumulated benefit obligations |
2,261 |
7,769 |
||
Fair value of plan assets |
-- |
6,166 |
||
Total accumulated benefit obligations for all defined benefit plans totaled $39,466 and $29,268 at January 3, 2004 and December 28, 2002, respectively.
While limited to funding requirements of federal laws and regulations, the Company intends to annually fund the qualified plans in an amount sufficient to have plan assets in excess of the accumulated benefit obligation at year end.
The Company also sponsors an unfunded defined benefit post-retirement life and health insurance plan that covers qualifying salaried employees.
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 Retirement Plan Committee. Charges to operations by the Company for contributions under this plan totaled $1,292, $1,222 and $1,278, for 2003, 2002 and 2001, 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. Matching contributions by the Company are discretionary, and amounted to approximately $432, $439 and $402 for 2003, 2002 and 2001, 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 Retirement Plan Committee. Charges to operations by the Company for additions to this plan totaled $115, $288 and $280 for 2003, 2002 and 2001, respectively.
NOTE 10. 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 2003, 2002 and 2001, the Company repurchased 400,400, 712,000 and 397,300 shares, respectively, of its Class A common stock under this program for approximately $8,950, $21,244 and $10,344, respectively. At January 3, 2004, the Company had 151,200 shares remaining under its current repurchase program.
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 Incentive Stock Option Plans have authorized the grant of options to management personnel and directors for up to 3,125,000 of the Company's Class A common stock. As of January 3, 2004, 572,250 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. 148, "Accounting for Stock Based Compensation-Transition and Disclosure," has been determined as if the Company had accounted for its employee stock options under the fair value method. 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 2003, 2002 and 2001, respectively: risk-free interest rates of 3.90%, 4.91% and 5.00%; annual dividend yield of 1.19%, 0.68% and 1.14%; volatility factors of the expected market price of the Company's common stock of .364, .514 and .508; and a weighted-average expected life of the option of approximately eight years. Changes in these subjective assumptions can significantly affect the fair value calculations.
The estimated fair values of the options are amortized to expense over the options' vesting periods:
2003 |
2002 |
2001 |
||||
Net income as reported |
$ 7,189 |
$ 32,045 |
$ 32,808 |
|||
Add: Stock based compensation included |
||||||
|
in net income as reported, net of related tax effects |
|
|
|
||
Deduct stock based compensation |
||||||
|
determined under fair value based methods for all awards, net of related tax effects |
|
|
|
||
Pro forma net income |
$ 5,538 |
$ 29,973 |
$ 31,255 |
|||
Net income per common share as reported |
||||||
Basic |
.61 |
2.59 |
2.69 |
|||
Diluted |
.60 |
2.54 |
2.61 |
|||
Pro forma net income per common share |
||||||
Basic |
.47 |
2.42 |
2.56 |
|||
Diluted |
.47 |
2.39 |
2.51 |
|||
A summary of the Company's stock option activity and related information follows:
2003 |
2002 |
2001 |
||||
|
Weighted |
|
Weighted- |
|
Weighted |
|
Outstanding-beginning |
|
|
|
|
|
|
Granted |
240 |
24 |
345 |
41 |
344 |
20 |
Exercised |
(115) |
18 |
(441) |
15 |
(452) |
12 |
Forfeited |
(99) |
31 |
(74) |
23 |
(33) |
18 |
Outstanding -end of |
|
|
|
|
|
|
Exerciseable at end |
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
Options outstanding |
Options exerciseable |
|||||
|
|
Weighted- |
|
|
|
|
$ 7 to $ 9 |
2 |
3.1 |
$ 8 |
2 |
$ 8 |
|
$15 to $17 |
151 |
6.1 |
16 |
107 |
16 |
|
$18 to $21 |
379 |
6.0 |
19 |
276 |
19 |
|
$24 to $34 |
256 |
8.9 |
25 |
59 |
28 |
|
$36 to $42 |
267 |
8.1 |
41 |
96 |
41 |
|
1,055 |
540 |
|||||
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 was reflected over the period in which services were performed and when the financial performance targets were met.
NOTE 11. 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 2003 and 2002 no individual customer had sales in excess of 10% of the Company's net sales. In 2001 sales to a wholesale customer amounted to approximately 11% of net sales.
NOTE 12. 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 affect on the consolidated financial statements.
NOTE 13. 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 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 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:
Domestic |
Retail |
Procurement |
All |
Total |
|
January 3, 2004 |
|||||
Net sales |
$ 165,700 |
$ 248,694 |
$ 141 |
$ 2,737 |
$ 417,272 |
Income (loss) before |
|
|
|
|
|
Assets |
34,844 |
63,709 |
15,265 |
38,107 |
151,925 |
Depreciation expense |
1,283 |
4,375 |
487 |
629 |
6,774 |
Property, plant and |
|
|
|
|
|
December 28, 2002 |
|||||
Net sales |
$ 182,744 |
$ 250,539 |
$ 180 |
$ 3,526 |
$ 436,989 |
Income before income |
|
|
|
|
|
Assets |
44,026 |
48,983 |
15,638 |
47,107 |
155,754 |
Depreciation expense |
1,651 |
4,013 |
555 |
687 |
6,906 |
Property, plant and |
|
|
|
|
|
December 29, 2001 |
|||||
Net sales |
$ 213,588 |
$ 245,112 |
$ 5 |
$ 4,364 |
$ 463,069 |
Income before income |
|
|
|
|
|
Assets |
57,831 |
46,207 |
13,753 |
43,549 |
161,340 |
Depreciation expense |
1,651 |
3,662 |
1,073 |
824 |
7,210 |
Property, plant and |
|
|
|
|
|
NOTE 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2003 Quarter Ended |
||||||||
April 5, |
July 5 |
October 4, |
January 3, |
|||||
Net sales |
$99,287 |
$84,546 |
$124,097 |
$109,342 |
||||
Gross profit |
40,704 |
30,700 |
44,656 |
35,093 |
||||
Net income (loss) |
1,281 |
(1,874) |
6,783 |
999 |
||||
Net income (loss) per common share: |
||||||||
Basic |
.11 |
(.16) |
.57 |
.09 |
||||
Diluted |
.11 |
(.16) |
.57 |
.08 |
||||
2002 Quarter Ended |
||||||||||||
March 30, |
June 29, |
September 28, |
December 28, |
|||||||||
Net sales |
$ |
100,781 |
$ |
84,124 |
$ |
133,939 |
$ |
118,145 |
||||
Gross profit |
44,259 |
36,028 |
58,413 |
51,545 |
||||||||
Net income |
5,667 |
1,332 |
13,993 |
11,053 |
||||||||
Net income per common share: |
||||||||||||
Basic |
.46 |
.11 |
1.12 |
.91 |
||||||||
Diluted |
.45 |
.10 |
1.11 |
.90 |
||||||||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company's principal executive officer and principal financial officer have reviewed and evaluated the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report on Form 10-K (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company's periodic filings under the Exchange Act.
Changes in Internal Controls
There have not been any significant changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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, 2004, under the captions "Directors and Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance".
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, 2004, under the captions "Management Compensation" and "Directors' Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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, 2004, under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plans".
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, 2004, under the caption "Directors and Executive Officers".
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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, 2004, under the caption, "Report of the Audit Committee".
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 the schedules are not applicable, the amounts are 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
On July 23, 2003, the Registrant filed an 8-K to accompany its press release announcing certain financial results for the second quarter ended July 5, 2003.
On August 7, 2003, the Registrant filed a report on Form 8-K to accompany its press release announcing an increase in the quarterly cash dividend rates.
On August 28, 2003, the Registrant filed a report on Form 8-K announcing the Company's Senior Vice President of Product Development's retirement in December 2003.
On October 10, 2003, the Registrant filed a report on Form 8-K to accompany its press release announcing that James J. Martin will assume the position of Senior Vice President of Merchandising and Special Markets and Rich Kaplan has been promoted to Vice President of Wholesale. Both moves are related to the retirement of the Company's Senior Vice President of Product Development.
On October 22, 2003, the Registrant filed a report on Form 8-K to accompany its press release announcing certain financial results for the third quarter ended October 4, 2003.
On November 6, 2003 the Registrant filed a report on Form 8-K to report on an amended credit agreement. This $75,000,000 revolving credit agreement (the "Credit Agreement"), originally dated as of October 30, 2002, between the Company and U.S. Bank National Association and participating banks, was amended to extend its maturity date to October 28, 2004.
On December 11, 2003, the Registrant filed a report on Form 8-K accompanying its press release providing an update on recent business developments including the financial impact on its business of an anticipated significant reduction in sales to a major customer.
On February 4, 2004, the Registrant filed a report on Form 8-K accompanying its press release announcing certain financial results for the fourth quarter and year ended January 3, 2004.
On February 18, 2004, the Registrant filed a report on Form 8-K to accompany its press release announcing that David L. Omachinski has been promoted to President and Chief Operating Officer and that Michael L. Heider has been promoted to Vice President Finance, Treasurer and Chief Financial Officer.
(c) Exhibits
See Exhibit Index, attached hereto.
SIGNATURES
Date: March 16, 2004
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 and Chief Executive Officer |
By: /S/ MICHAEL L. HEIDER |
Vice President Finance, Treasurer and Chief Financial Officer |
(Principal Financial Officer and Principal Accounting 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 |
||
By: /S/ DOUGLAS W. HYDE |
Chairman of the Board, |
||
Chief Executive Officer and Director |
|||
By: /S/ DAVID L. OMACHINSKI |
President, Chief Operating Officer |
||
and Director |
|||
By: /S/ MICHAEL L. HEIDER |
Vice President Finance, Treasurer and |
||
Chief Financial Officer |
|||
By: /S/ STEVEN R. DUBACK |
Secretary and Director |
||
By: /S/ WILLIAM F. WYMAN |
Senior Vice President Home Accessories, |
||
Global Licensing and Director |
|||
By: /S/ PAUL A. LOWRY |
Vice President Corporate Retail and Director |
||
By: /S/ PHOEBE A. WOOD |
Director, Chairperson of the Audit Committee |
||
By: /S/ SHIRLEY A. DAWE |
Director |
||
By: /S/ TAMARA L. HEIM |
Director |
||
By: /S/ ROBERT C. SIEGEL |
Director |
||
Exhibit Index
3.1 Restated Certificate of Incorporation of OshKosh B'Gosh, Inc., dated May 9, 2002 previously filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission File Number 0-13365, is incorporated herein by reference.
3.2 By-laws of OshKosh B'Gosh, Inc., as amended.
*10.1 OshKosh B'Gosh, Inc. 401(K) Plan, as amended into which to OshKosh B'Gosh Profit Sharing Plan was merged, effective January 1, 2003.
*10.2 OshKosh B'Gosh, Inc. Pension Plan, previously filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission File Number 0-13365, is incorporated herein by reference.
*10.3 OshKosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan, as amended and restated.
*10.4 OshKosh B'Gosh, Inc. Excess Benefit Plan, previously filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission File Number 0-13365, is incorporated herein by reference.
*10.5 OshKosh B'Gosh, Inc. Executive Deferred Compensation Plan, previously filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission File Number 0-13365, is incorporated herein by reference.
*10.6 OshKosh B'Gosh, Inc. Officers Medical and Dental Reimbursement Plan, as amended, previously filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2000, Commission File Number 0-13365, is incorporated herein by reference.
*10.7 OshKosh B'Gosh, Inc. 1994 Incentive Stock Plan, as amended, previously filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001, Commission File Number 0-13365, is incorporated herein by reference.
10.8 OshKosh B'Gosh, Inc. 1995 Outside Director's Stock Option Plan, previously filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2002, Commission File Number 0-13365, is incorporated herein by reference.
10.9 Credit agreement between OshKosh B'Gosh, Inc. and U.S. Bank N.A. and participating banks as amended, dated as of October 30, 2003.
21. List of subsidiaries
23. Consent of Deloitte & Touche LLP
31.1 Certification by the Chief Executive Officer
31.2 Certification by the Vice President Finance, Treasurer and Chief Financial Officer
32.1 Section 906 of the Sarbanes-Oxley Act Certification by the Chief Executive Officer
32.2 Section 906 of the Sarbanes-Oxley Act Certification by the Vice President Finance, Treasurer and Chief Financial Officer
* Represents a plan that covers compensation, benefits and/or related arrangements for executive management.
OSHKOSH B'GOSH, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
2003 |
2002 |
2001 |
|
Accounts receivable - allowances: |
|||
Balance at beginning of period |
$ 5,237 |
$ 7,075 |
$ 5,510 |
Charged to costs and expenses |
48,204 |
35,534 |
31,177 |
Deductions - bad debts and other |
|
|
|
Balance at end of period |
$ 5,602 |
$ 5,237 |
$ 7,075 |
EXHIBIT 3.2
BYLAWS
OF
OSHKOSH B'GOSH, INC.
STATED TO INCLUDE ALL AMENDMENTS
ADOPTED THROUGH MAY 6, 2003
Table of Contents |
Page |
||
OFFICES |
1 |
||
1. Seal |
1 |
||
2. Stockholders' Meeting |
1 |
||
3. Place Of Meeting |
1 |
||
4. Annual Meeting |
1 |
||
5. Notice of Annual Meeting |
1 |
||
6. Quorum |
2 |
||
7. Voting of Shares |
2 |
||
8. Special Meetings |
2 |
||
9. Notice of Special Meetings |
2 |
||
DIRECTORS |
3 |
||
10. General Powers |
3 |
||
11. Number |
3 |
||
12. Office |
3 |
||
13. Vacancies |
3 |
||
14. Removal |
3 |
||
COMMITTEES |
3 |
||
15.01 Executive Committee |
3 |
||
15.02 Audit Committee |
4 |
||
15.03 Nominating and Corporate Governance Committee |
4 |
||
15.04 Retirement Plan Committee |
5 |
||
15.05 Compensation Committee |
5 |
||
15.06 Other Committees |
6 |
||
COMPENSATION OF DIRECTORS |
6 |
||
16. |
6 |
||
MEETINGS OF DIRECTORS |
6 |
||
17. Annual Meeting |
6 |
||
18. Regular Meetings |
6 |
||
19. Special Meetings |
6 |
||
20. Quorum |
6 |
||
21. Action By Written Consent of Directors |
7 |
||
22. Participation by Conference Telephone |
7 |
||
OFFICERS |
7 |
||
23.01 Number |
7 |
||
23.02 Election and Term of Office |
7 |
||
23.03 Removal |
7 |
||
23.04 Vacancies |
7 |
||
23.05 Chairman of the Board |
8 |
||
23.07 President |
8 |
||
23.08 Executive Vice President |
8 |
||
23.09 The Vice Presidents |
8 |
||
23.10 Shared Functions |
8 |
||
23.11 The Secretary |
9 |
||
23.12 The Treasurer |
9 |
||
23.13 Assistant Secretaries and Assistant Treasurers |
9 |
||
23.14 Other Assistants and Acting Officers |
9 |
||
23.15 Additional Officers |
9 |
||
23.26 Salaries |
10 |
||
CERTIFICATES OF STOCK AND THEIR TRANSFER |
10 |
||
35. Certificates |
10 |
||
36. Facsimile Signatures |
10 |
||
37. Transfers to Stock |
10 |
||
CLOSING OF TRANSFER BOOKS |
10 |
||
38. In General |
10 |
||
39. List of Stockholders Available for Inspection |
11 |
||
REGISTERED STOCKHOLDERS |
11 |
||
LOST CERTIFICATES |
11 |
||
CHECKS |
12 |
||
FISCAL YEAR |
12 |
||
DIVIDENDS |
12 |
||
DIRECTORS' ANNUAL STATEMENT |
12 |
||
NOTICES |
12 |
||
46. Notice |
12 |
||
47. Waiver of Notice |
13 |
||
AMENDMENTS |
13 |
||
INDEMNIFICATION OF OFFICERS AND DIRECTORS |
13 |
||
49. |
A. Mandatory Indemnification |
13 |
|
B. Right to Indemnification: How Determined |
16 |
||
C. Termination of an Action is Nonconclusive |
18 |
||
D. Advance Payment |
18 |
||
E. Partial Indemnification:Interest |
18 |
||
F. Nonexclusivity of Section 49 |
19 |
||
G. Insurance |
19 |
||
H. Witness Expenses |
20 |
||
I. Contribution |
20 |
||
J. Severability |
21 |
||
K. Amendment |
21 |
BYLAWS
OF
OSHKOSH B'GOSH, INC.
OFFICES
The corporation may also have an office in the City of Oshkosh, State of Wisconsin, and also offices at such other places as the Board of Directors may from time to time appoint or the business of the corporation may require.
[Section 23.06 is intentionally omitted.]
[Sections 24-34 are intentionally omitted.]
Before payment of any dividend, there may be set aside out of funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interests of the corporation; and the directors may modify or abolish any such reserve in the manner in which it was created.
Notwithstanding the foregoing, the payment of such requested amounts may be denied by the corporation in the event:
In either of such events, the Board of Directors of the corporation shall immediately authorize and direct, by resolution, that an independent determination be made as to whether the executive has met the applicable standard(s) of conduct under Paragraph A of this Section 49 and, therefore, whether indemnification of the executive is proper pursuant to this Section 49. Such independent determination shall be made by a panel of three arbitrators in Oshkosh, Wisconsin, in accordance with the rules then prevailing of the American Arbitration Association, or, at the option of the executive, by an independent legal counsel mutually selected by the Board of Directors of the corporation and the executive (such panel of arbitrators and/or independent legal counsel being hereinafter referred to as "authority").
In any such determination there shall exist a rebuttable presumption that the executive has met such standard(s) of conduct and is therefore entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the corporation.
If a panel of arbitrators is to be employed hereunder, one of such arbitrators shall be selected by the Board of Directors of the corporation by a majority vote of a quorum thereof consisting of directors who were not parties in interest to such action (or, if such a quorum is not obtainable, by an independent legal counsel chosen by the Board of Directors of the corporation), the second by the executive(s) who claim entitlement to indemnification under this Section 49 and the third by the previous two arbitrators.
The authority shall make its determination within sixty (60) days of being selected and shall simultaneously submit a written opinion of its conclusions to both the corporation and the executive and, in the event the authority determines that the executive is entitled to be indemnified for any amounts pursuant to this Section 49, the corporation shall pay such amounts (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D), including interest thereon as provided in Paragraph E, to the executive (or to such other person or entity as the executive may designate in writing to the corporation), within ten (10) days of receipt of such opinion.
The court shall make an independent determination of whether the executive is entitled to indemnification as provided under this Section 49, irrespective of any prior determination made by the authority; provided, however, that there shall exist a rebuttable presumption that the executive has met the applicable standard(s) of conduct and is therefore entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the corporation.
In the event the court determines that the executive is entitled to be indemnified for any amounts pursuant to the terms and conditions of this Section 49, unless otherwise ordered by such court, the corporation shall pay such amounts (net of all amounts, if any, previously advanced to the executive pursuant to Paragraph D), including interest thereon as provided in Paragraph E, to the executive (or to such other person or entity as the executive may designate in writing to the corporation) within ten (10) days of the rendering of such determination.
The executive shall pay all expenses incurred by such executive in connection with the judicial determination provided in this Subparagraph (2), unless it shall ultimately be determined by the court that he is entitled to be indemnified, in whole or in part, by the corporation as authorized in this Section 49. All expenses incurred by the executive in connection with any subsequent appeal of the judicial determination provided for in this Subparagraph (2) shall be paid by the executive regardless of the disposition of such appeal.
The termination of any action, no matter by whom brought, including, without limitation, securities law actions, by judgment, order, settlement, conviction, or upon a plea of no contest or its equivalent, shall not, of itself, create a presumption that the executive has not met the applicable standard(s) of conduct set forth in Paragraph A.
The right to indemnification provided to an executive by this Section 49 shall not be deemed exclusive of any other rights to indemnification or the advancement of expenses to which any executive may be entitled under any charter provision, by-law, agreement, resolution, vote of stockholders or disinterested directors of the corporation or otherwise, including, without limitation, under Delaware General Corporation Law Section 145 as it may then be in effect, both as to acts in his official capacity as such executive or other employee or agent of the corporation or of an affiliate or as to acts in any other capacity while holding such office or position, and the terms and provisions of this Section 49 shall continue as to any executive who has ceased to be an executive or other employee or agent of the corporation and/or of an affiliate, and such terms and provisions shall inure to the benefit of the heirs executors and administrators of such executive.
In addition, upon payment of indemnified amounts under this Section 49, the corporation shall be subrogated to such executive's rights against any insurance carrier in respect of such indemnified amounts and the executive shall execute and deliver any and all instruments and/or documents and perform any and all other acts or deeds which the corporation shall deem necessary or advisable to secure such rights. The executive shall do nothing to prejudice such rights of recovery or subrogation.
Upon an executive's written request, the corporation shall pay (in advance or otherwise) or reimburse any and all expenses reasonably incurred by an executive in connection with his appearance as a witness in any action at a time when he has not been formally named a defendant or respondent to such an action.
If any provision of this Section 49 shall be deemed invalid or inoperative, or in the event a court of competent jurisdiction determines that any of the provisions of this Section 49 contravene public policy, this Section 49 shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the corporation, be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable, and the corporation shall indemnify an executive as to reasonable expenses, judgments, fines and amounts incurred in settlement with respect to any action, no matter by whom brought, including securities law actions, to the full extent permitted by an applicable provision of this Section 49 that shall not have been invalidated and to the full extent otherwise perm itted by the Delaware General Corporation Law as it may then be in effect.
This Section 49 may only be altered or repealed by the affirmative vote of not less than two-thirds of the stockholders of the corporation so entitled to vote; provided, however, that stockholder approval shall not be required if any such alteration or amendment;
EXHIBIT 10.1
Your plan is an important legal document. This sample plan has been prepared based on our understanding of the desired provisions. It may not fit your situation. You should consult with your lawyer on the plan's legal and tax implications. Neither Principal Life Insurance Company nor its agents can be responsible for the legal or tax aspects of the plan nor its appropriateness for your situation. If you wish to change the provisions of this sample plan, you may ask us to prepare new sample wording for you and your lawyer to review.
OSHKOSH B'GOSH, INC.
401(k) PLAN
Defined Contribution Plan 8.0
Restated January 1, 2003
TABLE OF CONTENTS
INTRODUCTION
ARTICLE I FORMAT AND DEFINITIONS
Section 1.01 ----- Format
Section 1.02 ----- Definitions
ARTICLE II PARTICIPATION
Section 2.01 ----- Active Participant
Section 2.02 ----- Inactive Participant
Section 2.03 ----- Cessation of Participation
Section 2.04 ----- Adopting Employers - Single Plan
ARTICLE III CONTRIBUTIONS
Section 3.01 ----- Employer Contributions
Section 3.01A ----- Rollover Contributions
Section 3.02 ----- Forfeitures
Section 3.03 ----- Allocation
Section 3.04 ----- Contribution Limitation
Section 3.05 ----- Excess Amounts
ARTICLE IV INVESTMENT OF CONTRIBUTIONS
Section 4.01 ----- Investment and Timing of Contributions
ARTICLE V BENEFITS
Section 5.01 ----- Retirement Benefits
Section 5.02 ----- Death Benefits
Section 5.03 ----- Vested Benefits
Section 5.04 ----- When Benefits Start
Section 5.05 ----- Withdrawal Benefits
Section 5.06 ----- Loans to Participants
Section 5.07 ----- Distributions Under Qualified Domestic Relations Orders
ARTICLE VI DISTRIBUTION OF BENEFITS
Section 6.01 ----- Form of Distribution
Section 6.02 ----- Election Procedures
Section 6.03 ----- Notice Requirements
ARTICLE VII DISTRIBUTION REQUIREMENTS
Section 7.01 ----- Application
Section 7.02 ----- Definitions
Section 7.03 ----- Distribution Requirements
ARTICLE VIII TERMINATION OF THE PLAN
ARTICLE IX ADMINISTRATION OF THE PLAN
Section 9.01 ----- Administration
Section 9.02 ----- Expenses
Section 9.03 ----- Records
Section 9.04 ----- Information Available
Section 9.05 ----- Claim and Appeal Procedures
Section 9.06 ----- Delegation of Authority
Section 9.07 ----- Exercise of Discretionary Authority
ARTICLE X GENERAL PROVISIONS
Section 10.01 ----- Amendments
Section 10.02 ----- Direct Rollovers
Section 10.03 ----- Mergers and Direct Transfers
Section 10.04 ----- Provisions Relating to the Insurer and Other Parties
Section 10.05 ----- Employment Status
Section 10.06 ----- Rights to Plan Assets
Section 10.07 ----- Beneficiary
Section 10.08 ----- Nonalienation of Benefits
Section 10.09 ----- Construction
Section 10.10 ----- Legal Actions
Section 10.11 ----- Small Amounts
Section 10.12 ----- Word Usage
Section 10.13 ----- Change in Service Method
Section 10.14 ----- Military Service
ARTICLE XI TOP-HEAVY PLAN REQUIREMENTS
Section 11.01 ----- Application
Section 11.02 ----- Definitions
Section 11.03 ----- Modification of Vesting Requirements
Section 11.04 ----- Modification of Contributions
PLAN EXECUTION
INTRODUCTION
The Primary Employer previously established a 401(k) savings plan on October 1, 1996.
The Primary Employer is of the opinion that the plan should be changed. It believes that the best means to accomplish these changes is to completely restate the plan's terms, provisions and conditions. The restatement, effective January 1, 2003, is set forth in this document and is substituted in lieu of the prior document.
The Primary Employer previously established a profit sharing plan on January 1, 1952, and restated November 6, 2001.
The Primary Employer is of the opinion that these two plans should be merged under the Oshkosh B'Gosh, Inc. 401(k) Plan. Effective January 1, 2003, the plans are merged and this document is in lieu of the OshKosh B'Gosh, Inc. Profit Sharing Plan.
The restated plan continues to be for the exclusive benefit of employees of the Employer. All persons covered under the plan on December 31, 2002, shall continue to be covered under the restated plan with no loss of benefits.
It is intended that the plan, as restated, shall qualify as a profit sharing plan under the Internal Revenue Code of 1986, including any later amendments to the Code.
ARTICLE I
FORMAT AND DEFINITIONS
SECTION 1.01--FORMAT.
Words and phrases defined in the DEFINITIONS SECTION of Article I shall have that defined meaning when used in this Plan, unless the context clearly indicates otherwise.
These words and phrases have an initial capital letter to aid in identifying them as defined terms.
SECTION 1.02--DEFINITIONS.
Account means, for a Participant, his share of the Plan Fund. Separate accounting records are kept for those parts of his Account that result from:
(a) Elective Deferral Contributions
(b) Matching Contributions
(c) Discretionary Contributions
(d) Rollover Contributions
A Participant's Account shall be reduced by any distribution of his Vested Account and by any Forfeitures. A Participant's Account shall participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund. His Account is subject to any minimum guarantees applicable under the Annuity Contract or other investment arrangement and to any expenses associated therewith.
Accrual Computation Period means a consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before October 1, 1996.
ACP Test means the nondiscrimination test described in Code Section 401(m)(2) as provided for in subparagraph (d) of the EXCESS AMOUNTS SECTION of Article III.
Active Participant means an Eligible Employee who is actively participating in the Plan according to the provisions in the ACTIVE PARTICIPANT SECTION of Article II.
Adopting Employer means an employer which is a Controlled Group member and which is listed in the ADOPTING EMPLOYERS - SINGLE PLAN SECTION of Article II.
ADP Test means the nondiscrimination test described in Code Section 401(k)(3) as provided for in subparagraph (c) of the EXCESS AMOUNTS SECTION of Article III.
Affiliated Service Group means any group of corporations, partnerships or other organizations of which the Employer is a part and which is affiliated within the meaning of Code Section 414(m) and regulations thereunder. Such a group includes at least two organizations one of which is either a service organization (that is, an organization the principal business of which is performing services), or an organization the principal business of which is performing management functions on a regular and continuing basis. Such service is of a type historically performed by employees. In the case of a management organization, the Affiliated Service Group shall include organizations related, within the meaning of Code Section 144(a)(3), to either the management organization or the organization for which it performs management functions. The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group.
Alternate Payee means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a qualified domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant.
Annual Compensation means, for a Plan Year, the Employee's Compensation for the Compensation Year ending with or within the consecutive 12-month period ending on the last day of the Plan Year.
Annual Compensation shall include Compensation received while an Active Participant.
Annuity Contract means the annuity contract or contracts into which the Employer enters with the Insurer for guaranteed benefits, for the investment of Contributions in separate accounts, and for the payment of benefits under this Plan. The term Annuity Contract as it is used in this Plan shall include the plural unless the context clearly indicates the singular is meant.
Annuity Starting Date means, for a Participant, the first day of the first period for which an amount is payable as an annuity or any other form.
Beneficiary means the person or persons named by a Participant to receive any benefits under the Plan when the Participant dies. See the BENEFICIARY SECTION of Article X.
Claimant means any person who makes a claim for benefits under this Plan. See the CLAIM AND APPEAL PROCEDURES SECTION of Article IX.
Code means the Internal Revenue Code of 1986, as amended.
Compensation means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III and Article XI, the total earnings, except as modified in this definition, paid or made available to an Employee by the Employer during any specified period.
"Earnings" in this definition means wages within the meaning of Code Section 3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Earnings must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The amount reported in the "Wages, Tips and Other Compensation" box on Form W-2 satisfies this definition.
For any Self-employed Individual, Compensation means Earned Income.
Compensation shall exclude reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation (other than elective contributions), and welfare benefits.
Compensation shall also include elective contributions. For this purpose, elective contributions are amounts contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Employee under Code Section 125, 402(e)(3), 402(h)(1)(B), or 403(b). Elective contributions also include compensation deferred under a Code Section 457 plan maintained by the Employer and employee contributions "picked up" by a governmental entity and, pursuant to Code Section 414(h)(2), treated as Employer contributions. For years beginning after December 31, 1997, elective contributions shall also include amounts contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Employee under Code Section 132(f)(4).
For purposes of the EXCESS AMOUNTS SECTION of Article III, the Employer may elect to use an alternative nondiscriminatory definition of Compensation in accordance with the regulations under Code Section 414(s).
For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $150,000, as adjusted for increases in the cost-of-living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year.
If a determination period consists of fewer than 12 months, the annual limit is an amount equal to the otherwise applicable annual limit multiplied by a fraction. The numerator of the fraction is the number of months in the short determination period, and the denominator of the fraction is 12.
If Compensation for any prior determination period is taken into account in determining a Participant's contributions or benefits for the current Plan Year, the Compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that determination period. For this purpose, in determining contributions or benefits in Plan Years beginning on or after January 1, 1994, the annual compensation limit in effect for determination periods beginning before that date is $150,000.
Compensation means, for a Leased Employee, Compensation for the services the Leased Employee performs for the Employer, determined in the same manner as the Compensation of Employees who are not Leased Employees, regardless of whether such Compensation is received directly from the Employer or from the leasing organization.
Compensation Year means the consecutive 12-month period ending on the last day of each Plan Year, including corresponding periods before October 1, 1996.
Contributions means
Elective Deferral Contributions
Matching Contributions
Discretionary Contributions
Rollover Contributions
as set out in Article III, unless the context clearly indicates only specific contributions are meant.
Controlled Group means any group of corporations, trades, or businesses of which the Employer is a part that are under common control. A Controlled Group includes any group of corporations, trades, or businesses, whether or not incorporated, which is either a parent-subsidiary group, a brother-sister group, or a combined group within the meaning of Code Section 414(b), Code Section 414(c) and regulations thereunder and, for purposes of determining contribution limitations under the CONTRIBUTION LIMITATION SECTION of Article III, as modified by Code Section 415(h) and, for the purpose of identifying Leased Employees, as modified by Code Section 144(a)(3). The term Controlled Group, as it is used in this Plan, shall include the term Affiliated Service Group and any other employer required to be aggregated with the Employer under Code Section 414(o) and the regulations thereunder.
Direct Rollover means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee.
Discretionary Contributions means discretionary contributions made by the Employer to fund this Plan. See the EMPLOYER CONTRIBUTIONS SECTION of Article III.
Distributee means an Employee or former Employee. In addition, the Employee's (or former Employee's) surviving spouse and the Employee's (or former Employee's) spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are Distributees with regard to the interest of the spouse or former spouse.
Earned Income means, for a Self-employed Individual, net earnings from self-employment in the trade or business for which this Plan is established if such Self-employed Individual's personal services are a material income producing factor for that trade or business. Net earnings shall be determined without regard to items not included in gross income and the deductions properly allocable to or chargeable against such items. Net earnings shall be reduced for the employer contributions to the Employer's qualified retirement plan(s) to the extent deductible under Code Section 404.
Net earnings shall be determined with regard to the deduction allowed to the Employer by Code Section 164(f) for taxable years beginning after December 31, 1989.
Elective Deferral Contributions means contributions made by the Employer to fund this Plan in accordance with elective deferral agreements between Eligible Employees and the Employer.
Elective deferral agreements shall be made, changed, or terminated according to the provisions of the EMPLOYER CONTRIBUTIONS SECTION of Article III.
Elective Deferral Contributions shall be 100% vested and subject to the distribution restrictions of Code Section 401(k) when made. See the WHEN BENEFITS START SECTION of Article V.
Eligibility Break in Service means an Eligibility Computation Period in which an Employee is credited with 500 or fewer Hours-of-Service. An Employee incurs an Eligibility Break in Service on the last day of an Eligibility Computation Period in which he has an Eligibility Break in Service.
Eligibility Computation Period means a consecutive 12-month period. The first Eligibility Computation Period begins on an Employee's Employment Commencement Date. Later Eligibility Computation Periods shall be consecutive 12-month periods ending on the last day of each Plan Year that begins after his Employment Commencement Date.
To determine an Eligibility Computation Period after an Eligibility Break in Service, the Plan shall use the consecutive 12-month period beginning on an Employee's Reemployment Commencement Date as if his Reemployment Commencement Date were his Employment Commencement Date.
Eligibility Service means one year of service for each Eligibility Computation Period that has ended and in which an Employee is credited with at least 1,000 Hours-of-Service.
However, Eligibility Service is modified as follows:
Period of Military Duty included:
A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited. For purposes of crediting Hours-of-Service during the Period of Military Duty, an Hour-of-Service shall be credited (without regard to the 501 Hour-of-Service limitation) for each hour an Employee would normally have been scheduled to work for the Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.
Eligible Employee means any Employee of the Employer, for purposes of Contributions other than Discretionary Contributions, who meets the following requirement. His employment classification with the Employer is one of the following:
Nonbargaining class. Not represented for collective bargaining purposes by any collective bargaining agreement between the Employer and employee representatives, if retirement benefits were the subject of good faith bargaining and if two percent or less of the Employees who are covered pursuant to that agreement are professionals as defined in section 1.410(b)-9 of the regulations. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer.
Not a nonresident alien, within the meaning of Code Section 7701(b)(1)(B), who receives no earned income, within the meaning of Code Section 911(d)(2), from the Employer which constitutes income from sources within the United States, within the meaning of Code Section 861(a)(3), or who receives such earned income but it is all exempt from income tax in the United States under the terms of an income tax convention.
Not a Leased Employee.
Not an Employee considered by the Employer to be an independent contractor, or the employee of an independent contractor, who is later determined by the Internal Revenue Service to be an Employee.
Eligible Employee means any Employee of the Employer, for purposes of Discretionary Contributions, means any Employee of the Employer, who meets the following requirement. His employment classification with the Employer is all of the following:
Salaried class (pays social security and employed in classification codes, 220, 750, 840 and 850.)
Nonbargaining class. Not represented for collective bargaining purposes by any collective bargaining agreement between the Employer and employee representatives, if retirement benefits were the subject of good faith bargaining and if two percent or less of the Employees who are covered pursuant to that agreement are professionals as defined in section 1.410(b)-9 of the regulations. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer.
Not a nonresident alien, within the meaning of Code Section 7701(b)(1)(B), who receives no earned income, within the meaning of Code Section 911(d)(2), from the Employer which constitutes income from sources within the United States, within the meaning of Code Section 861(a)(3), or who receives such earned income but it is all exempt from income tax in the United States under the terms of an income tax convention.
Not a Leased Employee.
Not an Employee considered by the Employer to be an independent contractor, or the employee of an independent contractor, who is later determined by the Internal Revenue Service to be an Employee.
Eligible Retirement Plan means an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a) or a qualified trust described in Code Section 401(a), that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity.
Eligible Rollover Distribution means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; (ii) any distribution to the extent such distribution is required under Code Section 401(a)(9); (iii) any hardship distribution described in Code Section 401(k)(2)(B)(i)(IV) received after December 31, 1998; (iv) the portion of any other distribution(s) that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and (v) any other distribution(s) that is reas onably expected to total less than $200 during a year.
Employee means an individual who is employed by the Employer or any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m), or (o). A Controlled Group member is required to be aggregated with the Employer.
The term Employee shall include any Self-employed Individual treated as an employee of any employer described in the preceding paragraph as provided in Code Section 401(c)(1). The term Employee shall also include any Leased Employee deemed to be an employee of any employer described in the preceding paragraph as provided in Code Section 414(n) or (o).
The term Employee shall exclude any person who is classified by the Employer or any such other employer as other than an employee, for the entire period of such classification, without regard to any subsequent reclassification which may occur by operation of law or otherwise.
Employer means, except for purposes of the CONTRIBUTION LIMITATION SECTION of Article III, the Primary Employer. This will also include any successor corporation or firm of the Employer which shall, by written agreement, assume the obligations of this Plan or any Predecessor Employer which maintained this Plan. For purposes of determining an Eligible Employee, Employer means the Primary Employer and all Adopting Employers in the ADOPTING EMPLOYERS - SINGLE PLAN SECTION of Article II.
Employer Contributions means
Elective Deferral Contributions
Matching Contributions
Discretionary Contributions
as set out in Article III and contributions made by the Employer to fund this Plan in accordance with the provisions of the MODIFICATION OF CONTRIBUTIONS SECTION of Article XI, unless the context clearly indicates only specific contributions are meant.
Employment Commencement Date means the date an Employee first performs an Hour-of-Service.
Entry Date means the date an Employee first enters the Plan as an Active Participant. See the ACTIVE PARTICIPANT SECTION of Article II.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Fiscal Year means the 12 consecutive month period beginning on the Saturday closest to December 31 and ending on the Friday closest to December 31.
Forfeiture means the part, if any, of a Participant's Account that is forfeited. See the FORFEITURES SECTION of Article III.
Forfeiture Date means, as to a Participant, the date the Participant incurs five consecutive Vesting Breaks in Service.
Highly Compensated Employee means any Employee who:
(a) was a 5-percent owner at any time during the year or the preceding year, or
(b) for the preceding year had compensation from the Employer in excess of $80,000 and, if the Employer so elects, was in the top-paid group for the preceding year. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996.
For this purpose the applicable year of the plan for which a determination is being made is called a determination year and the preceding 12-month period is called a look-back year. If the Employer makes a calendar year data election, the look-back year shall be the calendar year beginning with or within the look-back year. The Plan may not use such election to determine whether Employees are Highly Compensated Employees on account of being a 5-percent owner.
In determining who is a Highly Compensated Employee, the Employer does not make a top-paid group election. In determining who is a Highly Compensated Employee, the Employer does not make a calendar year data election.
Calendar year data elections and top-paid group elections, once made, apply for all subsequent years unless changed by the Employer. If the Employer makes one election, the Employer is not required to make the other. If both elections are made, the look-back year in determining the top-paid group must be the calendar year beginning with or within the look-back year. These elections must apply consistently to the determination years of all plans maintained by the Employer which reference the highly compensated employee definition in Code Section 414(q), except as provided in Internal Revenue Service Notice 97-45 (or superseding guidance). The consistency requirement will not apply to determination years beginning with or within the 1997 calendar year, and for determination years beginning on or after January 1, 1998 and before January 1, 2000, satisfaction of the consistency requirement is determined without regard to any nonretirement plans of the Employer.
The determination of who is a highly compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for that determination year, in accordance with section 1.414(q)-1T, A-4 of the temporary Income Tax Regulations and Internal Revenue Service Notice 97-45.
In determining whether an Employee is a Highly Compensated Employee for years beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996.
The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the compensation that is considered, and the identity of the 5-percent owners, shall be made in accordance with Code Section 414(q) and the regulations thereunder.
Hour-of-Service means the following:
(a) Each hour for which an Employee is paid, or entitled to payment, for performing duties for the Employer during the applicable computation period.
(b) Each hour for which an Employee is paid, or entitled to payment, by the Employer because of a period of time in which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding provisions of this subparagraph (b), no credit will be given to the Employee:
(1) for more than 501 Hours-of-Service under this subparagraph (b) because of any single continuous period in which the Employee performs no duties (whether or not such period occurs in a single computation period); or
(2) for an Hour-of-Service for which the Employee is directly or indirectly paid, or entitled to payment, because of a period in which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's or workmen's compensation, or unemployment compensation, or disability insurance laws; or
(3) for an Hour-of-Service for a payment which solely reimburses the Employee for medical or medically related expenses incurred by him.
For purposes of this subparagraph (b), a payment shall be deemed to be made by, or due from the Employer, regardless of whether such payment is made by, or due from the Employer, directly or indirectly through, among others, a trust fund or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate.
(c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours-of-Service shall not be credited both under subparagraph (a) or subparagraph (b) above (as the case may be) and under this subparagraph (c). Crediting of Hours-of-Service for back pay awarded or agreed to with respect to periods described in subparagraph (b) above will be subject to the limitations set forth in that subparagraph.
Hours-of-Service shall be determined on the basis of months worked for salaried exempt employees. An Employee shall be credited with 190 Hours-of-Service for each month in which the Employee would otherwise be credited with at least one Hour-of-Service.
The crediting of Hours-of-Service above shall be applied under the rules of paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2 (including any interpretations or opinions implementing such rules); which rules, by this reference, are specifically incorporated in full within this Plan. The reference to paragraph (b) applies to the special rule for determining hours of service for reasons other than the performance of duties such as payments calculated (or not calculated) on the basis of units of time and the rule against double credit. The reference to paragraph (c) applies to the crediting of hours of service to computation periods.
Hours-of-Service shall be credited for employment with any other employer required to be aggregated with the Employer under Code Sections 414(b), (c), (m), or (o) and the regulations thereunder for purposes of eligibility and vesting. Hours-of-Service shall also be credited for any individual who is considered an employee for purposes of this Plan pursuant to Code Section 414(n) or (o) and the regulations thereunder.
Solely for purposes of determining whether a one-year break in service has occurred for eligibility or vesting purposes, during a Parental Absence an Employee shall be credited with the Hours-of-Service which otherwise would normally have been credited to the Employee but for such absence, or in any case in which such hours cannot be determined, eight Hours-of-Service per day of such absence. The Hours-of-Service credited under this paragraph shall be credited in the computation period in which the absence begins if the crediting is necessary to prevent a break in service in that period; or in all other cases, in the following computation period.
Inactive Participant means a former Active Participant who has an Account. See the INACTIVE PARTICIPANT SECTION of Article II.
Insurer means Principal Life Insurance Company and any other insurance company or companies named by the Trustee or Primary Employer.
Investment Fund means the total of Plan assets, excluding the guaranteed benefit policy portion of any Annuity Contract. All or a portion of these assets may be held under the Trust Agreement.
The Investment Fund shall be valued at current fair market value as of the Valuation Date. The valuation shall take into consideration investment earnings credited, expenses charged, payments made, and changes in the values of the assets held in the Investment Fund.
The Investment Fund shall be allocated at all times to Participants, except as otherwise expressly provided in the Plan. The Account of a Participant shall be credited with its share of the gains and losses of the Investment Fund. That part of a Participant's Account invested in a funding arrangement which establishes one or more accounts or investment vehicles for such Participant thereunder shall be credited with the gain or loss from such accounts or investment vehicles. The part of a Participant's Account which is invested in other funding arrangements shall be credited with a proportionate share of the gain or loss of such investments. The share shall be determined by multiplying the gain or loss of the investment by the ratio of the part of the Participant's Account invested in such funding arrangement to the total of the Investment Fund invested in such funding arrangement.
Investment Manager means any fiduciary (other than a trustee or Named Fiduciary)
(a) who has the power to manage, acquire, or dispose of any assets of the Plan;
(b) who (i) is registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is not registered as an investment adviser under such Act by reason of paragraph (1) of section 203A(a) of such Act, is registered as an investment adviser under the laws of the state (referred to in such paragraph (1)) in which it maintains its principal office and place of business, and, at the time it last filed the registration form most recently filed by it with such state in order to maintain its registration under the laws of such state, also filed a copy of such form with the Secretary of Labor, (iii) is a bank, as defined in that Act; or (iv) is an insurance company qualified to perform services described in subparagraph (a) above under the laws of more than one state; and
(c) who has acknowledged in writing being a fiduciary with respect to the Plan.
Late Retirement Date means the first day of any month which is after a Participant's Normal Retirement Date and on which retirement benefits begin. If a Participant continues to work for the Employer after his Normal Retirement Date, his Late Retirement Date shall be the earliest first day of the month on or after the date he ceases to be an Employee. An earlier or a later Retirement Date may apply if the Participant so elects. An earlier Retirement Date may apply if the Participant is age 70 1/2. See the WHEN BENEFITS START SECTION of Article V.
Leased Employee means any person (other than an employee of the recipient) who, pursuant to an agreement between the recipient and any other person ("leasing organization"), has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided by the leasing organization to a Leased Employee, which are attributable to service performed for the recipient employer, shall be treated as provided by the recipient employer.
A Leased Employee shall not be considered an employee of the recipient if:
(a) such employee is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), but for years beginning before January 1, 1998, including amounts contributed pursuant to a salary reduction agreement which are excludible from the employee's gross income under Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b), (ii) immediate participation, and (iii) full and immediate vesting, and
(b) Leased Employees do not constitute more than 20 percent of the recipient's nonhighly compensated work force.
Loan Administrator means the person(s) or position(s) authorized to administer the Participant loan program.
The Loan Administrator is the Benefits Manager, or his or her designee.
Matching Contributions means contributions made by the Employer to fund this Plan which are contingent on a Participant's Elective Deferral Contributions. See the EMPLOYER CONTRIBUTIONS SECTION of Article III.
Monthly Date means each Yearly Date and the same day of each following month during the Plan Year beginning on such Yearly Date.
Named Fiduciary means the person or persons who have authority to control and manage the operation and administration of the Plan.
The Named Fiduciary is the Employer.
Nonhighly Compensated Employee means an Employee of the Employer who is not a Highly Compensated Employee.
Nonvested Account means the excess, if any, of a Participant's Account over his Vested Account.
Normal Retirement Age means the age at which the Participant's normal retirement benefit becomes nonforfeitable if he is an Employee. A Participant's Normal Retirement Age is 65.
Normal Retirement Date means the earliest first day of the month on or after the date the Participant reaches his Normal Retirement Age. Unless otherwise provided in this Plan, a Participant's retirement benefits shall begin on a Participant's Normal Retirement Date if he has ceased to be an Employee on such date and has a Vested Account. Even if the Participant is an Employee on his Normal Retirement Date, he may choose to have his retirement benefit begin on such date. See the WHEN BENEFITS START SECTION of Article V.
Owner-employee means a Self-employed Individual who, in the case of a sole proprietorship, owns the entire interest in the unincorporated trade or business for which this Plan is established. If this Plan is established for a partnership, an Owner-employee means a Self-employed Individual who owns more than 10 percent of either the capital interest or profits interest in such partnership.
Parental Absence means an Employee's absence from work:
(a) by reason of pregnancy of the Employee,
(b) by reason of birth of a child of the Employee,
(c) by reason of the placement of a child with the Employee in connection with adoption of such child by such Employee, or
(d) for purposes of caring for such child for a period beginning immediately following such birth or placement.
Participant means either an Active Participant or an Inactive Participant.
Period of Military Duty means, for an Employee
(a) who served as a member of the armed forces of the United States, and
(b) who was reemployed by the Employer at a time when the Employee had a right to reemployment in accordance with seniority rights as protected under Chapter 43 of Title 38 of the U. S. Code, the period of time from the date the Employee was first absent from active work for the Employer because of such military duty to the date the Employee was reemployed.
Plan means the 401(k) savings plan of the Employer set forth in this document, including any later amendments to it.
Plan Administrator means the person or persons who administer the Plan.
The Plan Administrator is the Employer.
Plan Fund means the total of the Investment Fund and the guaranteed benefit policy portion of any Annuity Contract. The Investment Fund shall be valued as stated in its definition. The guaranteed benefit policy portion of any Annuity Contract shall be determined in accordance with the terms of the Annuity Contract and, to the extent that such Annuity Contract allocates contract values to Participants, allocated to Participants in accordance with its terms. The total value of all amounts held under the Plan Fund shall equal the value of the aggregate Participants' Accounts under the Plan.
Plan Year means a period beginning on a Yearly Date and ending on the day before the next Yearly Date.
Predecessor Employer means a firm of which the Employer was once a part (e.g., due to a spinoff or change of corporate status) or a firm absorbed by the Employer because of a merger or acquisition (stock or asset, including a division or an operation of such company).
Primary Employer means OshKosh B'Gosh, Inc.
Reemployment Commencement Date means the date an Employee first performs an Hour-of-Service following an Eligibility Break in Service.
Reentry Date means the date a former Active Participant reenters the Plan. See the ACTIVE PARTICIPANT SECTION of Article II.
Retirement Date means the date a retirement benefit will begin and is a Participant's Normal or Late Retirement Date, as the case may be.
Rollover Contributions means the Rollover Contributions which are made by an Eligible Employee or an Inactive Participant according to the provisions of the ROLLOVER CONTRIBUTIONS SECTION of Article III.
Self-employed Individual means, with respect to any Fiscal Year, an individual who has Earned Income for the Fiscal Year (or who would have Earned Income but for the fact the trade or business for which this Plan is established did not have net profits for such Fiscal Year).
Totally and Permanently Disabled means that a Participant is disabled as determined by a physician who is selected by the Plan Administrator. Such mental or physical disability must be expected to be of long continuous duration or which may be expected to result in death and which prevents him from satisfactorily performing his duties with the Employer or affiliated employers.
Trust Agreement means an agreement of trust between the Primary Employer and Trustee established for the purpose of holding and distributing the Trust Fund under the provisions of the Plan. The Trust Agreement may provide for the investment of all or any portion of the Trust Fund in the Annuity Contract.
Trust Fund means the total funds held under the Trust Agreement.
Trustee means the party or parties named in the Trust Agreement. The term Trustee as it is used in this Plan is deemed to include the plural unless the context clearly indicates the singular is meant.
Valuation Date means the date on which the value of the assets of the Investment Fund is determined. The value of each Account which is maintained under this Plan shall be determined on the Valuation Date. In each Plan Year, the Valuation Date shall be the last day of the Plan Year. At the discretion of the Plan Administrator, Trustee, or Insurer (whichever applies), assets of the Investment Fund may be valued more frequently. These dates shall also be Valuation Dates.
Vested Account means the vested part of a Participant's Account. The Participant's Vested Account is equal to that part of his Account which results from Contributions which were 100% vested when made before his Vesting Percentage is 100% and is equal to his Account when his Vesting Percentage is 100%.
If the Participant's Vesting Percentage is less than 100%, his Vested Account equals the sum of (a) and (b) below:
(a) The part of the Participant's Account that results from Employer Contributions made before a prior Forfeiture Date and all other Contributions which were 100% vested when made.
(b) The balance of the Participant's Account in excess of the amount in (a) above multiplied by his Vesting Percentage.
The Participant's Vested Account is nonforfeitable.
Vesting Break in Service means a Vesting Computation Period in which an Employee is credited with 500 or fewer Hours-of-Service. An Employee incurs a Vesting Break in Service on the last day of a Vesting Computation Period in which he has a Vesting Break in Service.
Vesting Computation Period means a consecutive 12-month period ending on the last day of each Plan Year, including corresponding consecutive 12-month periods before October 1, 1996.
Vesting Percentage means the percentage used to determine the nonforfeitable portion of a Participant's Account attributable to Employer Contributions which were not 100% vested when made.
A Participant's Vesting Percentage is shown in the following schedule opposite the number of whole years of his Vesting Service.
VESTING SERVICE |
VESTING |
(whole years) |
PERCENTAGE |
Less than 3 |
0 |
3 or more |
100 |
The Vesting Percentage for a Participant who is an Employee on or after the date he reaches Normal Retirement Age shall be 100%. The Vesting Percentage for a Participant who is an Employee on the date he becomes Totally and Permanently Disabled or dies shall be 100%. With respect to Matching Contributions only, the Vesting Percentage for a Participant who is permanently laid-off from Manufacturing Distribution or Finishing Facility shall be 100%.
If the schedule used to determine a Participant's Vesting Percentage is changed, the new schedule shall not apply to a Participant unless he is credited with an Hour-of-Service on or after the date of the change and the Participant's nonforfeitable percentage on the day before the date of the change is not reduced under this Plan. The amendment provisions of the AMENDMENTS SECTION of Article X regarding changes in the computation of the Vesting Percentage shall apply.
Vesting Service means one year of service for each Vesting Computation Period in which an Employee is credited with at least 1,000 Hours-of-Service.
However, Vesting Service is modified as follows:
Period of Military Duty included:
A Period of Military Duty shall be included as service with the Employer to the extent it has not already been credited. For purposes of crediting Hours-of-Service during the Period of Military Duty, an Hour-of-Service shall be credited (without regard to the 501 Hour-of-Service limitation) for each hour an Employee would normally have been scheduled to work for the Employer during such period.
Controlled Group service included:
An Employee's service with a member firm of a Controlled Group while both that firm and the Employer were members of the Controlled Group shall be included as service with the Employer.
Yearly Date means October 1, 1996, and each following January 1.
Years of Service means an Employee's Vesting Service disregarding any modifications which exclude service.
ARTICLE II
PARTICIPATION
SECTION 2.01--ACTIVE PARTICIPANT.
(a) For purposes of Contributions other than Discretionary Contributions, an Employee shall first become an Active Participant (begin active participation in the Plan) on the earliest Monthly Date on which he is an Eligible Employee and has met both of the eligibility requirements set forth below. This date is his Entry Date.
(1) Eligibility Service
He has completed one year of Eligibility Service with 1,000 Hours-of-Service before his Entry Date for all purposes except eligibility for Discretionary Contributions.
or
(b) He has completed three consecutive months of Eligibility Service with 250 Hours-of-Service (earned within that 3 month period) before his Entry Date.
(2) He is age 21 or older.
For purposes of Discretionary Contributions, an Employee shall first become an Active Participant (begin active participation in the Plan) on the earliest Monthly Date on which he is an Eligible Employee and has met both of the eligibility requirements set forth below. This date is his Entry Date for purposes of Discretionary Contributions only.
(1) He has completed one year of Eligibility Service with 1,000 Hours-of-Service before his Entry Date.
(2) He is age 21 or older.
Each Employee who was an Active Participant under the Plan on December 31, 2002, shall continue to be an Active Participant if he is still an Eligible Employee on January 1, 2003, and his Entry Date shall not change.
If a person has been an Eligible Employee who has met all of the eligibility requirements above, but is not an Eligible Employee on the date which would have been his Entry Date, he shall become an Active Participant on the date he again becomes an Eligible Employee. This date is his Entry Date.
In the event an Employee who is not an Eligible Employee becomes an Eligible Employee, such Eligible Employee shall become an Active Participant immediately if such Eligible Employee has satisfied the eligibility requirements above and would have otherwise previously become an Active Participant had he met the definition of Eligible Employee. This date is his Entry Date.
For purposes of the foregoing paragraphs, eligibility and Entry Dates shall be determined separately for Discretionary Contributions and all Contributions other than Discretionary Contributions.
(b) An Inactive Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date.
Upon again becoming an Active Participant, he shall cease to be an Inactive Participant.
(c) A former Participant shall again become an Active Participant (resume active participation in the Plan) on the date he again performs an Hour-of-Service as an Eligible Employee. This date is his Reentry Date.
There shall be no duplication of benefits for a Participant under this Plan because of more than one period as an Active Participant.
SECTION 2.02--INACTIVE PARTICIPANT.
An Active Participant shall become an Inactive Participant (stop accruing benefits under the Plan) on the earlier of the following:
(a) the date the Participant ceases to be an Eligible Employee, or
(b) the effective date of complete termination of the Plan under Article VIII.
An Employee or former Employee who was an Inactive Participant under the Plan on December 31, 2002, shall continue to be an Inactive Participant on January 1, 2003. Eligibility for any benefits payable to the Participant or on his behalf and the amount of the benefits shall be determined according to the provisions of the prior document, unless otherwise stated in this document.
SECTION 2.03--CESSATION OF PARTICIPATION.
A Participant shall cease to be a Participant on the date he is no longer an Eligible Employee and his Account is zero.
SECTION 2.04--ADOPTING EMPLOYERS - SINGLE PLAN.
Each of the Controlled Group members listed below is an Adopting Employer. Each Adopting Employer listed below participates with the Employer in this Plan. An Adopting Employer's agreement to participate in this Plan shall be in writing.
The Employer has the right to amend the Plan. An Adopting Employer does not have the right to amend the Plan.
If the Adopting Employer did not maintain its plan before its date of adoption specified below, its date of adoption shall be the Entry Date for any of its Employees who have met the requirements in the ACTIVE PARTICIPANT SECTION of Article II as of that date. Service with and Compensation from an Adopting Employer shall be included as service with and Compensation from the Employer. Transfer of employment, without interruption, between an Adopting Employer and another Adopting Employer or the Employer shall not be considered an interruption of service. The Employer's Fiscal Year defined in the DEFINITIONS SECTION of Article I shall be the Fiscal Year used in interpreting this Plan for Adopting Employers.
Contributions made by an Adopting Employer shall be treated as Contributions made by the Employer. Forfeitures arising from those Contributions shall be used for the benefit of all Participants.
An employer shall not be an Adopting Employer if it ceases to be a Controlled Group member. Such an employer may continue a retirement plan for its Employees in the form of a separate document. This Plan shall be amended to delete a former Adopting Employer from the list below.
If (i) an employer ceases to be an Adopting Employer or the Plan is amended to delete an Adopting Employer and (ii) the Adopting Employer does not continue a retirement plan for the benefit of its Employees, partial termination may result and the provisions of Article VIII shall apply.
ADOPTING EMPLOYERS |
|
NAME |
DATE OF ADOPTION |
OshKosh B'Gosh, Inc. |
January 1, 2000 |
OshKosh B'Gosh Retail, Inc. |
January 1, 2000 |
OBG Product Development and Sales, Inc. |
September 1, 2000 |
OBG Distribution Company, LLC |
September 1, 2000 |
OBG Manufacturing Company |
September 1, 2000 |
ARTICLE III
CONTRIBUTIONS
SECTION 3.01--EMPLOYER CONTRIBUTIONS.
Employer Contributions shall be made without regard to current or accumulated net income, earnings or profits of the Employer. Notwithstanding the foregoing, the Plan shall continue to be designed to qualify as a profit sharing plan for purposes of Code Sections 401(a), 402, 412, and 417. Such Contributions shall be equal to the Employer Contributions as described below:
(a) The amount of each Elective Deferral Contribution for a Participant shall be equal to a portion of Compensation as specified in the elective deferral agreement. An Employee who is eligible to participate in the Plan may file an elective deferral agreement with the Employer. The Participant shall modify or terminate the elective deferral agreement by filing a new elective deferral agreement. The elective deferral agreement may not be made retroactively and shall remain in effect until modified or terminated.
The elective deferral agreement to start or modify Elective Deferral Contributions shall be effective on the first day of the first pay period following the pay period in which the Participant's Entry Date (Reentry Date, if applicable) or any following Monthly Date occurs. In order for the elective deferral agreement to become effective on this date, it must be entered into prior to a date specified by the Plan Administrator.
The elective deferral agreement to stop Elective Deferral Contributions may be entered into on any date. Such elective deferral agreement shall be effective on the first day of the pay period following the pay period in which the elective deferral agreement is entered into.
Elective Deferral Contributions are fully (100%) vested and nonforfeitable.
(b) The Employer may make discretionary Matching Contributions. The percentage of Elective Deferral Contributions matched, if any, shall be a percentage as determined by the Employer. Elective Deferral Contributions which are over a percentage of Compensation won't be matched. The percentage shall be determined by the Employer.
Matching Contributions are calculated based on Elective Deferral Contributions and Compensation for the month. Matching Contributions shall be made for all persons who were Active Participants at any time during that month.
Any percentage determined by the Employer shall apply to all eligible persons for the entire Plan Year.
Matching Contributions are subject to the Vesting Percentage.
(c) Discretionary Contributions may be made for each Plan Year in an amount determined by the Employer.
Discretionary Contributions are subject to the Vesting Percentage.
No Participant shall be permitted to have Elective Deferral Contributions, as defined in the EXCESS AMOUNTS SECTION of this article, made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of such taxable year.
An elective deferral agreement (or change thereto) must be made in such manner and in accordance with such rules as the Employer may prescribe (including by means of voice response or other electronic system under circumstances the Employer permits) and may not be made retroactively.
Employer Contributions are allocated according to the provisions of the ALLOCATION SECTION of this article.
A portion of the Plan assets resulting from Employer Contributions (but not more than the original amount of those Contributions) may be returned if the Employer Contributions are made because of a mistake of fact or are more than the amount deductible under Code Section 404 (excluding any amount which is not deductible because the Plan is disqualified). The amount involved must be returned to the Employer within one year after the date the Employer Contributions are made by mistake of fact or the date the deduction is disallowed, whichever applies. Except as provided under this paragraph and Article VIII, the assets of the Plan shall never be used for the benefit of the Employer and are held for the exclusive purpose of providing benefits to Participants and their Beneficiaries and for defraying reasonable expenses of administering the Plan.
SECTION 3.01A--ROLLOVER CONTRIBUTIONS.
A Rollover Contribution may be made by an Eligible Employee or an Inactive Participant if the following conditions are met:
(a) The Contribution is of amounts distributed from a plan that satisfies the requirements of Code Section 401(a) or from a "conduit" individual retirement account described in Code Section 408(d)(3)(A). In the case of an Inactive Participant, the Contribution must be of an amount distributed from another plan of the Employer, or a plan of a Controlled Group member, that satisfies the requirements of Code Section 401(a).
(b) The Contribution is of amounts that the Code permits to be transferred to a plan that meets the requirements of Code Section 401(a).
(c) The Contribution is made in the form of a direct rollover under Code Section 401(a)(31) or is a rollover made under Code Section 402(c) or 408(d)(3)(A) within 60 days after the Eligible Employee or Inactive Participant receives the distribution.
(d) The Eligible Employee or Inactive Participant furnishes evidence satisfactory to the Plan Administrator that the proposed rollover meets conditions (a), (b), and (c) above.
A Rollover Contribution shall be allowed in cash only and must be made according to procedures set up by the Plan Administrator.
If the Eligible Employee is not an Active Participant when the Rollover Contribution is made, he shall be deemed to be an Active Participant only for the purpose of investment and distribution of the Rollover Contribution. Employer Contributions shall not be made for or allocated to the Eligible Employee until the time he meets all of the requirements to become an Active Participant.
Rollover Contributions made by an Eligible Employee or an Inactive Participant shall be credited to his Account. The part of the Participant's Account resulting from Rollover Contributions is fully (100%) vested and nonforfeitable at all times. A separate accounting record shall be maintained for that part of his Rollover Contributions consisting of voluntary contributions which were deducted from the Participant's gross income for Federal income tax purposes.
SECTION 3.02--FORFEITURES.
The Nonvested Account of a Participant shall be forfeited as of the earlier of the following:
(a) the date the Participant dies (if prior to such date he had ceased to be an Employee), or
(b) the Participant's Forfeiture Date.
All or a portion of a Participant's Nonvested Account shall be forfeited before such earlier date if, after he ceases to be an Employee, he receives, or is deemed to receive, a distribution of his entire Vested Account or a distribution of his Vested Account derived from Employer Contributions which were not 100% vested when made, under the RETIREMENT BENEFITS SECTION of Article V, the VESTED BENEFITS SECTION of Article V, or the SMALL AMOUNTS SECTION of Article X. The forfeiture shall occur as of the date the Participant receives, or is deemed to receive, the distribution. If a Participant receives, or is deemed to receive, his entire Vested Account, his entire Nonvested Account shall be forfeited. If a Participant receives a distribution of his Vested Account from Employer Contributions which were not 100% vested when made, but less than his entire Vested Account from such Contributions, the amount to be forfeited shall be determined by multiplying his Nonvested Account from such Contributions by a fraction. The numerator of the fraction is the amount of the distribution derived from Employer Contributions which were not 100% vested when made and the denominator of the fraction is his entire Vested Account derived from such Contributions on the date of distribution.
A Forfeiture shall also occur as provided in the EXCESS AMOUNTS SECTION of this article.
Forfeitures shall be determined at least once during each Plan Year. Forfeitures may first be used to pay administrative expenses. Forfeitures of Matching Contributions which relate to excess amounts as provided in the EXCESS AMOUNTS SECTION of this article, which have not been used to pay administrative expenses, shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Any other Forfeitures which have not been used to pay administrative expenses shall be applied to reduce the earliest Employer Contributions made after the Forfeitures are determined. Upon their application to reduce Employer Contributions, Forfeitures shall be deemed to be Employer Contributions.
If a Participant again becomes an Eligible Employee after receiving a distribution which caused all or a portion of his Nonvested Account to be forfeited, he shall have the right to repay to the Plan the entire amount of the distribution he received (excluding any amount of such distribution resulting from Contributions which were 100% vested when made). The repayment must be made in a single sum (repayment in installments is not permitted) before the earlier of the date five years after the date he again becomes an Eligible Employee or the end of the first period of five consecutive Vesting Breaks in Service which begin after the date of the distribution.
If the Participant makes the repayment above, the Plan Administrator shall restore to his Account an amount equal to his Nonvested Account which was forfeited on the date of distribution, unadjusted for any investment gains or losses. If no amount is to be repaid because the Participant was deemed to have received a distribution, or only received a distribution of Contributions which were 100% vested when made, and he again performs an Hour-of-Service as an Eligible Employee within the repayment period, the Plan Administrator shall restore the Participant's Account as if he had made a required repayment on the date he performed such Hour-of-Service. Restoration of the Participant's Account shall include restoration of all Code Section 411(d)(6) protected benefits with respect to that restored Account, according to applicable Treasury regulations. Provided, however, the Plan Administrator shall not restore the Nonvested Account if (i) a Forfeiture Date has occurred after the date of the distribution and on or before the date of repayment and (ii) that Forfeiture Date would result in a complete forfeiture of the amount the Plan Administrator would otherwise restore.
The Plan Administrator shall restore the Participant's Account by the close of the Plan Year following the Plan Year in which repayment is made. Permissible sources for the restoration of the Participant's Account are Forfeitures or special Employer Contributions. Such special Employer Contributions shall be made without regard to profits. The repaid and restored amounts are not included in the Participant's Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.
SECTION 3.03--ALLOCATION.
A person meets the allocation requirements of this section if he is an Active Participant on the last day of the Plan Year. A person shall also meet the requirements of this section if he was an Active Participant at any time during the Plan Year and terminates employment during the year after Normal Retirement Age (or age 60 with 10 years of Vesting Service), death, or becoming Totally and Permanently Disabled.
Elective Deferral Contributions shall be allocated to Participants for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions shall be allocated when made and credited to the Participant's Account.
Matching Contributions shall be allocated to the persons for whom such Contributions are made under the EMPLOYER CONTRIBUTIONS SECTION of this article. Such Contributions shall be allocated when made and credited to the person's Account.
Discretionary Contributions shall be allocated as of the last day of the Plan Year using Annual Compensation for the Plan Year. The amount allocated shall be determined as follows:
STEP ONE: The step one shall only apply in years in which the Plan is a Top-heavy Plan, as defined in the DEFINITIONS SECTION of Article XI, and the minimum contribution under the MODIFICATION OF CONTRIBUTIONS SECTION of Article XI is not being provided by other contributions to this Plan or another plan of the Employer.
The allocation in this step one shall be made to each person meeting the allocation requirements of this section and each person who is entitled to a minimum contribution under the MODIFICATION OF CONTRIBUTIONS SECTION of Article XI. Each such person's allocation shall be an amount equal to the Discretionary Contributions multiplied by the ratio of such person's Annual Compensation to the total Aannual Compensation of all such persons. Such amount shall not exceed 3% of such person's Annual Compensation. The allocation for any person who does not meet the allocation requirements of this section shall be limited to the amount necessary to fund the minimum contribution.
STEP TWO: The allocation in this step two shall be made to each person meeting the allocation requirements of this section. Each such person's allocation shall be equal to any amount remaining after the allocation in step one multiplied by the ratio of such person's Annual Compensation to the total Annual Compensation of all such persons.
The amount shall be credited to the person's Account.
If Leased Employees are Eligible Employees, in determining the amount of Employer Contributions allocated to a person who is a Leased Employee, contributions provided by the leasing organization which are attributable to services such Leased Employee performs for the Employer shall be treated as provided by the Employer. Those contributions shall not be duplicated under this Plan.
SECTION 3.04--CONTRIBUTION LIMITATION.
(a) Definitions. For the purpose of determining the contribution limitation set forth in this section, the following terms are defined.
Annual Additions means the sum of the following amounts credited to a Participant's account for the Limitation Year:
(1) employer contributions;
(2) employee contributions; and
(3) forfeitures.
Annual Additions to a defined contribution plan shall also include the following:
(4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2), which are part of a pension or annuity plan maintained by the Employer,
(5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits, allocated to the separate account of a key employee, as defined in Code Section 419A(d)(3), under a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer; and
(6) allocations under a simplified employee pension.
For this purpose, any Excess Amount applied under (e) and (k) below in the Limitation Year to reduce Employer Contributions shall be considered Annual Additions for such Limitation Year.
Compensation means wages within the meaning of Code Section 3401(a) and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code Sections 6041(d), 6051(a)(3), and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). The amount reported in the "Wages, Tips and Other Compensation" box on Form W-2 satisfies this definition.
For any Self-employed Individual, Compensation shall mean Earned Income.
For purposes of applying the limitations of this section, Compensation for a Limitation Year is the Compensation actually paid or made available in gross income during such Limitation Year.
For Limitation Years beginning after December 31, 1997, for purposes of applying the limitations of this section, Compensation paid or made available during such Limitation Year shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Employee and which is not includible in the gross income of the Employee by reason of Code Section 125, 132(f)(4), or 457.
Defined Contribution Dollar Limitation means, for Limitation Years beginning after December 31, 1994, $30,000, as adjusted under Code Section 415(d).
Employer means the employer that adopts this Plan, and all members of a controlled group of corporations (as defined in Code Section 414(b) as modified by Code Section 415(h)), all commonly controlled trades or businesses (as defined in Code Section 415(c) as modified by Code Section 415(h)) or affiliated service groups (as defined in Code Section 414(m)) of which the adopting employer is a part, and any other entity required to be aggregated with the employer pursuant to regulations under Code Section 414(o).
Excess Amount means the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Amount.
Limitation Year means the consecutive 12-month period ending on each December 31. If the Limitation Year is other than the calendar year, execution of this Plan (or any amendment to this Plan changing the Limitation Year) constitutes the Employer's adoption of a written resolution electing the Limitation Year. If the Limitation Year is amended to a different consecutive 12-month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made.
Maximum Permissible Amount means the maximum Annual Addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year. This amount shall not exceed the lesser of:
(1) The Defined Contribution Dollar Limitation, or
(2) 25 percent of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (2) shall not apply to any contribution for medical benefits (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition under Code Section 415(l)(1) or 419A(d)(2).
If a short Limitation Year is created because of an amendment changing the Limitation Year to a different consecutive 12-month period, the Maximum Permissible Amount will not exceed the Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
12
(b) If the Participant does not participate in, and has never participated in, another qualified plan maintained by the Employer or a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, or an individual medical account, as defined in Code Section 415(l)(2), maintained by the Employer, or a simplified employee pension, as defined in Code Section 408(k), maintained by the Employer, which provides an Annual Addition, the amount of Annual Additions which may be credited to the Participant's Account for any Limitation Year shall not exceed the lesser of the Maximum Permissible Amount or any other limitation contained in this Plan. If the Employer Contribution that would otherwise be contributed or allocated to the Participant's Account would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Amount, the amount contributed or allocated shall be reduced so that the Annual Additions for the Limitation Year will equal t he Maximum Permissible Amount.
(c) Prior to determining the Participant's actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant on the basis of a reasonable estimation of the Participant's Compensation for the Limitation Year, uniformly determined for all Participants similarly situated.
(d) As soon as is administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year.
(e) If a reasonable error in estimating a Participant's Compensation for the Limitation Year, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any individual under the limits of Code Section 415, or under other facts and circumstances allowed by the Internal Revenue Service, there is an Excess Amount, the excess will be disposed of as follows:
(1) Any Elective Deferral Contributions that are not the basis for Matching Contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant.
(2) If after the application of (1) above an Excess Amount still exists, any Elective Deferral Contributions that are the basis for Matching Contributions (plus attributable earnings), to the extent they would reduce the Excess Amount, will be distributed to the Participant. Concurrently with the distribution of such Elective Deferral Contributions, any Matching Contributions which relate to any Elective Deferral Contributions distributed in the preceding sentence, to the extent such application would reduce the Excess Amount, will be applied as provided in (3) or (4) below:
(3) If after the application of (2) above an Excess Amount still exists, and the Participant is covered by the Plan at the end of the Limitation Year, the Excess Amount in the Participant's Account will be used to reduce Employer Contributions for such Participant in the next Limitation Year, and each succeeding Limitation Year if necessary.
(4) If after the application of (2) above an Excess Amount still exists, and the Participant is not covered by the Plan at the end of the Limitation Year, the Excess Amount will be held unallocated in a suspense account. The suspense account will be applied to reduce future Employer Contributions for all remaining Participants in the next Limitation Year, and each succeeding Limitation Year if necessary.
(5) If a suspense account is in existence at any time during a Limitation Year pursuant to this (e), it will participate in the allocation of investment gains or losses. If a suspense account is in existence at any time during a particular Limitation Year, all amounts in the suspense account must be allocated and reallocated to Participant's Accounts before any Employer Contributions may be made to the Plan for that Limitation Year. Excess Amounts held in a suspense account may not be distributed to Participants or former Participants.
(f) This (f) applies if, in addition to this Plan, the Participant is covered under another qualified defined contribution plan maintained by the Employer, a welfare benefit fund maintained by the Employer, an individual medical account maintained by the Employer, or a simplified employee pension maintained by the Employer which provides an Annual Addition during any Limitation Year. The Annual Additions which may be credited to a Participant's Account under this Plan for any such Limitation Year will not exceed the Maximum Permissible Amount, reduced by the Annual Additions credited to a Participant's account under the other qualified defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions for the same Limitation Year. If the Annual Additions with respect to the Participant under other qualified defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions maintained by the Employer are less than the Maximum Permissible Amount, and the Employer Contribution that would otherwise be contributed or allocated to the Participant's Account under this Plan would cause the Annual Additions for the Limitation Year to exceed this limitation, the amount contributed or allocated will be reduced so that the Annual Additions under all such plans and funds for the Limitation Year will equal the Maximum Permissible Amount. If the Annual Additions with respect to the Participant under such other qualified defined contribution plans, welfare benefit funds, individual medical accounts, and simplified employee pensions in the aggregate are equal to or greater than the Maximum Permissible Amount, no amount will be contributed or allocated to the Participant's Account under this Plan for the Limitation Year.
(g) Prior to determining the Participant's actual Compensation for the Limitation Year, the Employer may determine the Maximum Permissible Amount for a Participant in the manner described in (c) above.
(h) As soon as administratively feasible after the end of the Limitation Year, the Maximum Permissible Amount for the Limitation Year will be determined on the basis of the Participant's actual Compensation for the Limitation Year.
(i) If pursuant to (h) above or as a result of the allocation of forfeitures or as a result of a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3) that may be made with respect to any individual under the limits of Code Section 415, a Participant's Annual Additions under this Plan and such other plans would result in an Excess Amount for a Limitation Year, the Excess Amount will be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a simplified employee pension will be deemed to have been allocated first, followed by Annual Additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date.
(j) If an Excess Amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the Excess Amount attributed to this Plan will be the product of:
(1) the total Excess Amount allocated as of such date, times
(2) the ratio of (i) the Annual Addition allocated to the Participant for the Limitation Year as of such date under this Plan to (ii) the total Annual Additions allocated to the Participant for the Limitation Year as of such date under this and all other qualified defined contribution plans.
(k) Any Excess Amount attributed to this Plan will be disposed of in the manner described in (e) above.
SECTION 3.05--EXCESS AMOUNTS.
(a) Definitions. For the purposes of this section, the following terms are defined:
ACP means the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in a group.
ADP means the average (expressed as a percentage) of the Deferral Percentages of the Eligible Participants in a group.
Aggregate Limit means the greater of:
(1) The sum of:
(i) 125 percent of the greater of the ADP of the Nonhighly Compensated Employees for the prior Plan Year or the ACP of the Nonhighly Compensated Employees under the plan subject to Code Section 401(m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement, and
(ii) the lesser of 200 percent or 2 percent plus the lesser of such ADP or ACP.
(2) The sum of:
(i) 125 percent of the lesser of the ADP of the Nonhighly Compensated Employees for the prior Plan Year or the ACP of the Nonhighly Compensated Employees under the plan subject to Code Section 401(m) for the Plan Year beginning with or within the prior Plan Year of the cash or deferred arrangement, and
(ii) the lesser of 200 percent or 2 percent plus the greater of such ADP or ACP.
If the Employer has elected to use the current testing method, then, in calculating the Aggregate Limit for a particular Plan Year, the Nonhighly Compensated Employees' ADP and ACP for that Plan Year, instead of the prior Plan Year, is used.
Contribution Percentage means the ratio (expressed as a percentage) of the Eligible Participant's Contribution Percentage Amounts to the Eligible Participant's Compensation for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year). For an Eligible Participant for whom such Contribution Percentage Amounts for the Plan Year are zero, the percentage is zero.
Contribution Percentage Amounts means the sum of the Participant Contributions and Matching Contributions (that are not Qualified Matching Contributions taken into account for purposes of the ADP Test) made under the Plan on behalf of the Eligible Participant for the Plan Year. Such Contribution Percentage Amounts shall not include Matching Contributions that are forfeited either to correct Excess Aggregate Contributions or because the Contributions to which they relate are Excess Elective Deferrals, Excess Contributions, or Excess Aggregate Contributions. Under such rules as the Secretary of the Treasury shall prescribe, in determining the Contribution Percentage the Employer may elect to include Qualified Nonelective Contributions under this Plan which were not used in computing the Deferral Percentage. The Employer may also elect to use Elective Deferral Contributions in computing the Contribution Percentage so long as the ADP Test is met before the Elective Deferral C ontributions are used in the ACP Test and continues to be met following the exclusion of those Elective Deferral Contributions that are used to meet the ACP Test.
Deferral Percentage means the ratio (expressed as a percentage) of Elective Deferral Contributions under this Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant's Compensation for the Plan Year (whether or not the Eligible Participant was an Eligible Participant for the entire Plan Year). The Elective Deferral Contributions used to determine the Deferral Percentage shall include Excess Elective Deferrals (other than Excess Elective Deferrals of Nonhighly Compensated Employees that arise solely from Elective Deferral Contributions made under this Plan or any other plans of the Employer or a Controlled Group member), but shall exclude Elective Deferral Contributions that are used in computing the Contribution Percentage (provided the ADP Test is satisfied both with and without exclusion of these Elective Deferral Contributions). Under such rules as the Secretary of the Treasury shall prescribe, the Employer may elect to include Qualifie d Nonelective Contributions and Qualified Matching Contributions under this Plan in computing the Deferral Percentage. For an Eligible Participant for whom such contributions on his behalf for the Plan Year are zero, the percentage is zero.
Elective Deferral Contributions means any employer contributions made to a plan at the election of a participant, in lieu of cash compensation, and shall include contributions made pursuant to a salary reduction agreement or other deferral mechanism. With respect to any taxable year, a participant's Elective Deferral Contributions are the sum of all employer contributions made on behalf of such participant pursuant to an election to defer under any qualified cash or deferred arrangement described in Code Section 401(k), any salary reduction simplified employee pension plan described in Code Section 408(k)(6), any SIMPLE IRA plan described in Code Section 408(p), any eligible deferred compensation plan under Code Section 457, any plan described under Code Section 501(c)(18), and any employer contributions made on behalf of a participant for the purchase of an annuity contract under Code Section 403(b) pursuant to a salary reduction agreement. Elective Deferral Contributions shall not include any deferrals properly distributed as excess annual additions.
Eligible Participant means, for purposes of determining the Deferral Percentage, any Employee who is otherwise entitled to make Elective Deferral Contributions under the terms of the Plan for the Plan Year. Eligible Participant means, for purposes of determining the Contribution Percentage, any Employee who is eligible (i) to make a Participant Contribution or an Elective Deferral Contribution (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or (ii) to receive a Matching Contribution (including forfeitures) or a Qualified Matching Contribution. If a Participant Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an Eligible Participant on behalf of whom no Participant Contributions are made.
Excess Aggregate Contributions means, with respect to any Plan Year, the excess of:
(1) The aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over
(2) The maximum Contribution Percentage Amounts permitted by the ACP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective Deferrals and then determining Excess Contributions.
Excess Contributions means, with respect to any Plan Year, the excess of:
(1) The aggregate amount of employer contributions actually taken into account in computing the Deferral Percentage of Highly Compensated Employees for such Plan Year, over
(2) The maximum amount of such contributions permitted by the ADP Test (determined by hypothetically reducing contributions made on behalf of Highly Compensated Employees in the order of the Deferral Percentages, beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective Deferrals.
Excess Elective Deferrals means those Elective Deferral Contributions that are includible in a Participant's gross income under Code Section 402(g) to the extent such Participant's Elective Deferral Contributions for a taxable year exceed the dollar limitation under such Code section. Excess Elective Deferrals shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article, under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year.
Matching Contributions means employer contributions made to this or any other defined contribution plan, or to a contract described in Code Section 403(b), on behalf of a participant on account of a Participant Contribution made by such participant, or on account of a participant's Elective Deferral Contributions, under a plan maintained by the Employer or a Controlled Group member.
Participant Contributions means contributions made to the plan by or on behalf of a participant that are included in the participant's gross income in the year in which made and that are maintained under a separate account to which the earnings and losses are allocated.
Qualified Matching Contributions means Matching Contributions which are subject to the distribution and nonforfeitability requirements under Code Section 401(k) when made.
Qualified Nonelective Contributions means any employer contributions (other than Matching Contributions) which an employee may not elect to have paid to him in cash instead of being contributed to the plan and which are subject to the distribution and nonforfeitability requirements under Code Section 401(k) when made.
(b) Excess Elective Deferrals. A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator in writing on or before the first following March 1 of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferral Contributions made to this Plan and any other plan of the Employer or a Controlled Group member. The Participant's claim for Excess Elective Deferrals shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Elective Deferrals will exceed the limit imposed on the Participant by Code Section 402(g) for the year in which the deferral occurred. The Excess Elective Deferrals assigned to this Plan cannot exceed the Elective Deferral Contributions allocated under t his Plan for such taxable year.
Notwithstanding any other provisions of the Plan, Elective Deferral Contributions in an amount equal to the Excess Elective Deferrals assigned to this Plan, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year.
The Excess Elective Deferrals shall be adjusted for income or loss. The income or loss allocable to such Excess Elective Deferrals shall be equal to the income or loss allocable to the Participant's Elective Deferral Contributions for the taxable year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Elective Deferrals. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such taxable year (as of the end of such taxable year) of the Participant's Account resulting from Elective Deferral Contributions.
Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be forfeited.
(c) ADP Test. As of the end of each Plan Year after Excess Elective Deferrals have been determined, the Plan must satisfy the ADP Test. The ADP Test shall be satisfied using the prior year testing method, unless the Employer has elected to use the current year testing method.
(1) Prior Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year's ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:
(i) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year's ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or
(ii) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:
A. shall not exceed the prior year's ADP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and
B. the difference between such ADPs is not more than 2.
If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Elective Deferral Contributions, for purposes of the foregoing tests, the prior year's Nonhighly Compensated Employees' ADP shall be 3 percent, unless the Employer has elected to use the Plan Year's ADP for these Eligible Participants.
(2) Current Year Testing Method. The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:
(i) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The ADP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:
A. shall not exceed the ADP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and
B. the difference between such ADP's is not more than 2.
If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) the Plan otherwise meets one of the conditions specified in Internal Revenue Service Notice 98-1 (or superseding guidance) for changing from the current year testing method.
A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.
The Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferral Contributions for purposes of the ADP Test) allocated to his account under two or more arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if such Elective Deferral Contributions (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. The foregoing notwithstanding, certain plans shall be tr eated as separate if mandatorily disaggregated under the regulations of Code Section 401(k).
In the event this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Deferral Percentage of Employees as if all such plans were a single plan. Any adjustments to the Nonhighly Compensated Employee ADP for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 (or superseding guidance), unless the Employer has elected to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same plan year and use the same testing method for the ADP Test.
For purposes of the ADP Test, Elective Deferral Contributions, Qualified Nonelective Contributions, and Qualified Matching Contributions must be made before the end of the 12-month period immediately following the Plan Year to which the contributions relate.
The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.
If the Plan Administrator should determine during the Plan Year that the ADP Test is not being met, the Plan Administrator may limit the amount of future Elective Deferral Contributions of the Highly Compensated Employees.
Notwithstanding any other provisions of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Accounts such Excess Contributions were allocated for the preceding Plan Year. Excess Contributions are allocated to the Highly Compensated Employees with the largest amounts of employer contributions taken into account in calculating the ADP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such employer contributions and continuing in descending order until all of the Excess Contributions have been allocated. For purposes of the preceding sentence, the "largest amount" is determined after distribution of any Excess Contributions. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.
Excess Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.
The Excess Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant's Elective Deferral Contributions (and, if applicable, Qualified Nonelective Contributions or Qualified Matching Contributions, or both) for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant's Account resulting from Elective Deferral Contributions (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if such contributions are included in the ADP Test).
Excess Contributions allocated to a Participant shall be distributed from the Participant's Account resulting from Elective Deferral Contributions. If such Excess Contributions exceed the balance in the Participant's Account resulting from Elective Deferral Contributions, the balance shall be distributed from the Participant's Account resulting from Qualified Matching Contributions (if applicable) and Qualified Nonelective Contributions, respectively.
Any Matching Contributions which were based on the Elective Deferral Contributions which are distributed as Excess Contributions, plus any income and minus any loss allocable thereto, shall be forfeited.
(d) ACP Test. As of the end of each Plan Year, the Plan must satisfy the ACP Test. The ACP Test shall be satisfied using the prior year testing method, unless the Employer has elected to use the current year testing method.
(1) Prior Year Testing Method. The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the prior year's ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year must satisfy one of the following tests:
(i) The ACP for the Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the prior year's ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 1.25; or
(ii) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:
A. shall not exceed the prior year's ACP for Eligible Participants who were Nonhighly Compensated Employees for the prior Plan Year multiplied by 2, and
B. the difference between such ACPs is not more than 2.
If this is not a successor plan, for the first Plan Year the Plan permits any Participant to make Participant Contributions, provides for Matching Contributions, or both, for purposes of the foregoing tests, the prior year's Nonhighly Compensated Employees' ACP shall be 3 percent, unless the Employer has elected to use the Plan Year's ACP for these Eligible Participants.
(2) Current Year Testing Method. The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for each Plan Year and the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year must satisfy one of the following tests:
(i) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The ACP for a Plan Year for Eligible Participants who are Highly Compensated Employees for the Plan Year:
A. shall not exceed the ACP for Eligible Participants who are Nonhighly Compensated Employees for the Plan Year multiplied by 2, and
B. the difference between such ACPs is not more than 2.
If the Employer has elected to use the current year testing method, that election cannot be changed unless (i) the Plan has been using the current year testing method for the preceding five Plan Years, or if less, the number of Plan Years the Plan has been in existence; or (ii) the Plan otherwise meets one of the conditions specified in Internal Revenue Service Notice 98-1 (or superseding guidance) for changing from the current year testing method.
A Participant is a Highly Compensated Employee for a particular Plan Year if he meets the definition of a Highly Compensated Employee in effect for that Plan Year. Similarly, a Participant is a Nonhighly Compensated Employee for a particular Plan Year if he does not meet the definition of a Highly Compensated Employee in effect for that Plan Year.
Multiple Use. If one or more Highly Compensated Employees participate in both a cash or deferred arrangement and a plan subject to the ACP Test maintained by the Employer or a Controlled Group member, and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the Contribution Percentage of those Highly Compensated Employees who also participate in a cash or deferred arrangement will be reduced in the manner described below for allocating Excess Aggregate Contributions so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage is reduced shall be treated as an Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP Test and ACP Test and are deemed to be the maximum permitted under such tests for the Plan Year. Multiple use does not occur if either the ADP or ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP, respectively, of the Nonhighly Compensated Employees.
The Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Contribution Percentage Amounts allocated to his account under two or more plans described in Code Section 401(a) or arrangements described in Code Section 401(k) that are maintained by the Employer or a Controlled Group member shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. The foregoing notwithstanding, certain plans shall be treated as separate if mandatorily disaggregated under the regulations of Code Section 401(m).
In the event this Plan satisfies the requirements of Code Section 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code sections only if aggregated with this Plan, then this section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. Any adjustments to the Nonhighly Compensated Employee ACP for the prior year shall be made in accordance with Internal Revenue Service Notice 98-1 (or superseding guidance), unless the Employer has elected to use the current year testing method. Plans may be aggregated in order to satisfy Code Section 401(m) only if they have the same plan year and use the same testing method for the ACP Test.
For purposes of the ACP Test, Participant Contributions are considered to have been made in the Plan Year in which contributed to the Plan. Matching Contributions and Qualified Nonelective Contributions will be considered to have been made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year.
The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP Test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.
Notwithstanding any other provisions of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if not vested, or distributed, if vested, no later than the last day of each Plan Year to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions are allocated to the Highly Compensated Employees with the largest Contribution Percentage Amounts taken into account in calculating the ACP Test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest amount of such Contribution Percentage Amounts and continuing in descending order until all of the Excess Aggregate Contributions have been allocated. For purposes of the preceding sentence, the "largest amount" is determined after distribution of any Excess Aggregate Contributions. If such Excess Aggregate Contributions are distributed more than 2&nbs p;1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10 percent excise tax shall be imposed on the employer maintaining the plan with respect to such amounts.
Excess Aggregate Contributions shall be treated as Annual Additions, as defined in the CONTRIBUTION LIMITATION SECTION of this article.
The Excess Aggregate Contributions shall be adjusted for income or loss. The income or loss allocable to such Excess Aggregate Contributions allocated to each Participant shall be equal to the income or loss allocable to the Participant's Contribution Percentage Amounts for the Plan Year in which the excess occurred multiplied by a fraction. The numerator of the fraction is the Excess Aggregate Contributions. The denominator of the fraction is the closing balance without regard to any income or loss occurring during such Plan Year (as of the end of such Plan Year) of the Participant's Account resulting from Contribution Percentage Amounts.
Excess Aggregate Contributions allocated to a Participant shall be distributed from the Participant's Account resulting from Participant Contributions that are not required as a condition of employment or participation or for obtaining additional benefits from Employer Contributions. If such Excess Aggregate Contributions exceed the balance in the Participant's Account resulting from such Participant's Contributions, the balance shall be forfeited, if not vested, or distributed, if vested, on a pro-rata basis from the Participant's Account resulting from Contribution Percentage Amounts.
(e) Employer Elections. The Employer has not made an election to use the current year testing method.
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
SECTION 4.01--INVESTMENT AND TIMING OF CONTRIBUTIONS.
The handling of Contributions is governed by the provisions of the Trust Agreement, the Annuity Contract, and any other funding arrangement in which the Plan Fund is or may be held or invested. To the extent permitted by the Trust Agreement, Annuity Contract, or other funding arrangement, the parties named below shall direct the Contributions to the guaranteed benefit policy portion of the Annuity Contract, any of the investment options available under the Annuity Contract, or any of the investment vehicles available under the Trust Agreement and may request the transfer of amounts resulting from those Contributions between such investment options and investment vehicles or the transfer of amounts between the guaranteed benefit policy portion of the Annuity Contract and such investment options and investment vehicles. A Participant may not direct the Trustee or Insurer to invest the Participant's Account in collectibles. Collectibles mean any work of art, rug or antique, metal or ge m, stamp or coin, alcoholic beverage, or other tangible personal property specified by the Secretary of the Treasury. However, for tax years beginning after December 31, 1997, certain coins and bullion as provided in Code Section 408(m)(3) shall not be considered collectibles. To the extent that a Participant who has investment direction fails to give timely direction, the Primary Employer shall direct the investment of his Account. If the Primary Employer has investment direction, such Account shall be invested ratably in the guaranteed benefit policy portion of the Annuity Contract, the investment options available under the Annuity Contract, or the investment vehicles available under the Trust Agreement in the same manner as the Accounts of all other Participants who do not direct their investments. The Primary Employer shall have investment direction for amounts which have not been allocated to Participants. To the extent an investment is no longer available, the Primary Employer may require tha t amounts currently held in such investment be reinvested in other investments.
At least annually, the Named Fiduciary shall review all pertinent Employee information and Plan data in order to establish the funding policy of the Plan and to determine appropriate methods of carrying out the Plan's objectives. The Named Fiduciary shall inform the Trustee and any Investment Manager of the Plan's short-term and long-term financial needs so the investment policy can be coordinated with the Plan's financial requirements.
(a) Employer Contributions other than Elective Deferral Contributions: The Participant shall direct the investment of such Employer Contributions and transfer of amounts resulting from those Contributions.
(b) Elective Deferral Contributions: The Participant shall direct the investment of Elective Deferral Contributions and transfer of amounts resulting from those Contributions.
(c) Rollover Contributions: The Participant shall direct the investment of Rollover Contributions and transfer of amounts resulting from those Contributions.
However, the Named Fiduciary may delegate to the Investment Manager investment discretion for Contributions and amounts which are not subject to Participant direction.
The Employer shall pay to the Insurer or Trustee, as applicable, the Elective Deferral Contributions for each Plan Year not later than the end of the 12-month period immediately following the Plan Year for which they are deemed to be paid.
All Contributions are forwarded by the Employer to the Trustee to be deposited in the Trust Fund or to the Insurer to be deposited under the Annuity Contract, as applicable. Contributions that are accumulated through payroll deduction shall be paid to the Trustee or Insurer, as applicable, by the earlier of (i) the date the Contributions can reasonably be segregated from the Employer's assets, or (ii) the 15th business day of the month following the month in which the Contributions would otherwise have been paid in cash to the Participant.
ARTICLE V
BENEFITS
SECTION 5.01--RETIREMENT BENEFITS.
On a Participant's Retirement Date, his Vested Account shall be distributed to him according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article X.
SECTION 5.02--DEATH BENEFITS.
If a Participant dies before his Annuity Starting Date, his Vested Account shall be distributed according to the distribution of benefits provisions of Article VI and the provisions of the SMALL AMOUNTS SECTION of Article X.
SECTION 5.03--VESTED BENEFITS.
If an Inactive Participant's Vested Account is not payable under the SMALL AMOUNTS SECTION of Article X, he may elect, but is not required, to receive a distribution of his Vested Account after he ceases to be an Employee. The Participant's election shall be subject to his spouse's consent as provided in the ELECTION PROCEDURES SECTION of Article VI. A distribution under this paragraph shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI.
A Participant may not elect to receive a distribution under the provisions of this section after he again becomes an Employee until he subsequently ceases to be an Employee and meets the requirements of this section.
If an Inactive Participant does not receive an earlier distribution, upon his Retirement Date or death, his Vested Account shall be distributed according to the provisions of the RETIREMENT BENEFITS SECTION or the DEATH BENEFITS SECTION of Article V.
The Nonvested Account of an Inactive Participant who has ceased to be an Employee shall remain a part of his Account until it becomes a Forfeiture. However, if he again becomes an Employee so that his Vesting Percentage can increase, the Nonvested Account may become a part of his Vested Account.
SECTION 5.04--WHEN BENEFITS START.
(a) Unless otherwise elected, benefits shall begin before the 60th day following the close of the Plan Year in which the latest date below occurs:
(1) The date the Participant attains age 65 (or Normal Retirement Age, if earlier).
(2) The 10th anniversary of the Participant's Entry Date.
(3) The date the Participant ceases to be an Employee.
Notwithstanding the foregoing, the failure of a Participant to consent to a distribution while a benefit is immediately distributable, within the meaning of the ELECTION PROCEDURES SECTION of Article VI, shall be deemed to be an election to defer the start of benefits sufficient to satisfy this section.
The Participant may elect to have his benefits begin after the latest date for beginning benefits described above, subject to the following provisions of this section. The Participant shall make the election in writing. Such election must be made before his Normal Retirement Date or the date he ceases to be an Employee, if later. The election must describe the form of distribution and the date benefits will begin. The Participant shall not elect a date for beginning benefits or a form of distribution that would result in a benefit payable when he dies which would be more than incidental within the meaning of governmental regulations.
Benefits shall begin on an earlier date if otherwise provided in the Plan. For example, the Participant's Retirement Date or Required Beginning Date, as defined in the DEFINITIONS SECTION of Article VII.
(b) The Participant's Vested Account which results from Elective Deferral Contributions may not be distributed to a Participant or to his Beneficiary (or Beneficiaries) in accordance with the Participant's or Beneficiary's (or Beneficiaries') election, earlier than separation from service, death, or disability. Such amount may also be distributed upon:
(1) Termination of the Plan, as permitted in Article VIII.
(2) The disposition by the Employer, if the Employer is a corporation, to an unrelated corporation of substantially all of the assets, within the meaning of Code Section 409(d)(2), used in a trade or business of the Employer if the Employer continues to maintain the Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets.
(3) The disposition by the Employer, if the Employer is a corporation, to an unrelated entity of the Employer's interest in a subsidiary, within the meaning of Code Section 409(d)(3), if the Employer continues to maintain the Plan, but only with respect to Employees who continue employment with such subsidiary.
(4) The hardship of the Participant as permitted in the WITHDRAWAL BENEFITS SECTION of this article.
All distributions that may be made pursuant to one or more of the foregoing distributable events will be a retirement benefit and shall be distributed to the Participant according to the distribution of benefit provisions of Article VI. In addition, distributions that are triggered by (1), (2) and (3) above must be made in a lump sum. A lump sum shall include a distribution of an annuity contract.
SECTION 5.05--WITHDRAWAL BENEFITS.
A Participant may withdraw any part of his Vested Account which results from the following Contributions:
Elective Deferral Contributions
in the event of hardship due to an immediate and heavy financial need. Withdrawals from the Participant's Account resulting from Elective Deferral Contributions shall be limited to the amount of the Participant's Elective Deferral Contributions. Immediate and heavy financial need shall be limited to: (i) expenses incurred or necessary for medical care, described in Code Section 213(d), of the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152); (ii) purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) payment of tuition, related educational fees, and room and board expenses, for the next 12 months of post-secondary education for the Participant, his spouse, children, or dependents; (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) any other distribution which is deemed by the Com missioner of Internal Revenue to be made on account of immediate and heavy financial need as provided in Treasury regulations.
No withdrawal shall be allowed which is not necessary to satisfy such immediate and heavy financial need. Such withdrawal shall be deemed necessary only if all of the following requirements are met: (i) the distribution is not in excess of the amount of the immediate and heavy financial need (including amounts necessary to pay any Federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution); (ii) the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (iii) the Plan, and all other plans maintained by the Employer, provide that the Participant's elective contributions and participant contributions will be suspended for at least 6 months after receipt of the hardship distribution; and (iv) the Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective contributions for the Particip ant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective contributions for the taxable year of the hardship distribution. The Plan will suspend elective contributions and participant contributions for 6 months and limit elective deferrals as provided in the preceding sentence. A Participant shall not cease to be an Eligible Participant, as defined in the EXCESS AMOUNTS SECTION of Article III, merely because his elective contributions or participant contributions are suspended.
A request for withdrawal shall be made in such manner and in accordance with such rules as the Employer will prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). Withdrawals shall be a retirement benefit and shall be distributed to the Participant according to the distribution of benefits provisions of Article VI. A forfeiture shall not occur solely as a result of a withdrawal.
SECTION 5.06--LOANS TO PARTICIPANTS.
Loans shall be made available to all Participants on a reasonably equivalent basis. Loans shall only be made from a Participant's Vested Account resulting from Elective Deferral Contributions, Rollover Contributions, and Matching Contributions. Loans shall be made available only in the event of hardship due to an immediate and heavy financial need. Immediate and heavy financial need shall be limited to (i) medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or any dependents of the Participant (as defined in Code Section 152); (ii) purchase (excluding mortgage payments) of a principal residence for the Participant; (iii) payment of tuition for the next semester or quarter of post-secondary education for the Participant, his spouse, children or dependents; (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (v) any other di stribution which is deemed by the Commissioner of Internal Revenue to be made on account of immediate and heavy financial need as provided in Treasury regulations. The Participant's request for a loan shall include his written statement that an immediate and heavy financial need exists and explain its nature.
For purposes of this section, and unless otherwise specified, Participant means any Participant or Beneficiary who is a party-in-interest as defined in ERISA. Loans shall not be made to Highly Compensated Employees in an amount greater than the amount made available to other Participants.
No loans will be made to any shareholder-employee or Owner-employee. For purposes of this requirement, a shareholder-employee means an employee or officer of an electing small business (Subchapter S) corporation who owns (or is considered as owning within the meaning of Code Section 318(a)(1)), on any day during the taxable year of such corporation, more than 5 percent of the outstanding stock of the corporation.
A loan to a Participant shall be a Participant-directed investment of his Account. The loan is a Trust Fund investment but no Account other than the borrowing Participant's Account shall share in the interest paid on the loan or bear any expense or loss incurred because of the loan.
The number of outstanding loans shall not be limited. The minimum amount of any loan shall be $1,000.
Loans must be adequately secured and bear a reasonable rate of interest.
The amount of the loan shall not exceed the maximum amount that may be treated as a loan under Code Section 72(p) (rather than a distribution) to the Participant and shall be equal to the lesser of (a) or (b) below:
(a) $50,000, reduced by the highest outstanding loan balance of loans during the one-year period ending on the day before the new loan is made.
(b) The greater of (1) or (2), reduced by (3) below:
(1) One-half of the Participant's Vested Account attributable to Elective Deferral Contributions, Rollover Contributions, and Matching Contributions.
(2) $10,000.
(3) Any outstanding loan balance on the date the new loan is made.
For purposes of this maximum, a Participant's Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B), and all qualified employer plans, as defined in Code Section 72(p)(4), of the Employer and any Controlled Group member shall be treated as one plan.
The foregoing notwithstanding, the amount of such loan shall not exceed 50 percent of the amount of the Participant's Vested Account, reduced by any outstanding loan balance on the date the new loan is made. For purposes of this maximum, a Participant's Vested Account does not include any accumulated deductible employee contributions, as defined in Code Section 72(o)(5)(B). No collateral other than a portion of the Participant's Vested Account (as limited above) shall be accepted. The Loan Administrator shall determine if the collateral is adequate for the amount of the loan requested.
Each loan shall bear a reasonable fixed rate of interest to be determined by the Loan Administrator. In determining the interest rate, the Loan Administrator shall take into consideration fixed interest rates currently being charged by commercial lenders for loans of comparable risk on similar terms and for similar durations, so that the interest will provide for a return commensurate with rates currently charged by commercial lenders for loans made under similar circumstances. The Loan Administrator shall not discriminate among Participants in the matter of interest rates; but loans granted at different times may bear different interest rates in accordance with the current appropriate standards.
The loan shall by its terms require that repayment (principal and interest) be amortized in level payments, not less frequently than quarterly, over a period not extending beyond five years from the date of the loan. If the loan is used to acquire a dwelling unit, which within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant, the repayment period may extend beyond five years from the date of the loan. The period of repayment for any loan shall be arrived at by mutual agreement between the Loan Administrator and the Participant and if the loan is for a principal residence, shall not be made for a period longer than the repayment period consistent with commercial practices.
The Participant shall make an application for a loan in such manner and in accordance with such rules as the Employer shall prescribe for this purpose (including by means of voice response or other electronic means under circumstances the Employer permits). The application must specify the amount and duration requested.
Information contained in the application for the loan concerning the income, liabilities, and assets of the Participant will be evaluated to determine whether there is a reasonable expectation that the Participant will be able to satisfy payments on the loan as due. Additionally, the Loan Administrator will pursue any appropriate further investigations concerning the creditworthiness and credit history of the Participant to determine whether a loan should be approved.
Each loan shall be fully documented in the form of a promissory note signed by the Participant for the face amount of the loan, together with interest determined as specified above.
There will be an assignment of collateral to the Plan executed at the time the loan is made.
In those cases where repayment through payroll deduction is available, installments are so payable, and a payroll deduction agreement shall be executed by the Participant at the time the loan is made. Loan repayments that are accumulated through payroll deduction shall be paid to the Trustee by the earlier of (i) the date the loan repayments can reasonably be segregated from the Employer's assets, or (ii) the 15th business day of the month following the month in which such amounts would otherwise have been paid in cash to the Participant.
Where payroll deduction is not available, payments in cash are to be timely made. Any payment that is not by payroll deduction shall be made payable to the Employer or the Trustee, as specified in the promissory note, and delivered to the Loan Administrator, including prepayments, service fees and penalties, if any, and other amounts due under the note. The Loan Administrator shall deposit such amounts into the Plan as soon as administratively practicable after they are received, but in no event later than the 15th business day of the month after they are received.
The promissory note may provide for reasonable late payment penalties and service fees. Any penalties or service fees shall be applied to all Participants in a nondiscriminatory manner. If the promissory note so provides, such amounts may be assessed and collected from the Account of the Participant as part of the loan balance.
Each loan may be paid prior to maturity, in part or in full, without penalty or service fee, except as may be set out in the promissory note.
The Plan shall suspend loan payments for a period not exceeding one year during which an approved unpaid leave of absence occurs other than a military leave of absence. The Loan Administrator shall provide the Participant a written explanation of the effect of the suspension of payments upon his loan.
If a Participant separates from service (or takes a leave of absence) from the Employer because of service in the military and does not receive a distribution of his Vested Account, the Plan shall suspend loan payments until the Participant's completion of military service or until the Participant's fifth anniversary of commencement of military service, if earlier, as permitted under Code Section 414(u). The Loan Administrator shall provide the Participant a written explanation of the effect of his military service upon his loan.
If any payment of principal and interest, or any portion thereof, remains unpaid for more than 90 days after due, the loan shall be in default. For purposes of Code Section 72(p), the Participant shall then be treated as having received a deemed distribution regardless of whether or not a distributable event has occurred.
Upon default, the Plan has the right to pursue any remedy available by law to satisfy the amount due, along with accrued interest, including the right to enforce its claim against the security pledged and execute upon the collateral as allowed by law. The entire principal balance whether or not otherwise then due, along with accrued interest, shall become immediately due and payable without demand or notice, and subject to collection or satisfaction by any lawful means, including specifically, but not limited to, the right to enforce the claim against the security pledged and to execute upon the collateral as allowed by law.
In the event of default, foreclosure on the note and attachment of security or use of amounts pledged to satisfy the amount then due shall not occur until a distributable event occurs in accordance with the Plan, and shall not occur to an extent greater than the amount then available upon any distributable event which has occurred under the Plan.
All reasonable costs and expenses, including but not limited to attorney's fees, incurred by the Plan in connection with any default or in any proceeding to enforce any provision of a promissory note or instrument by which a promissory note for a Participant loan is secured, shall be assessed and collected from the Account of the Participant as part of the loan balance.
If payroll deduction is being utilized, in the event that a Participant's available payroll deduction amounts in any given month are insufficient to satisfy the total amount due, there will be an increase in the amount taken subsequently, sufficient to make up the amount that is then due. If any amount remains past due more than 90 days, the entire principal amount, whether or not otherwise then due, along with interest then accrued, shall become due and payable, as above.
If no distributable event has occurred under the Plan at the time that the Participant's Vested Account would otherwise be used under this provision to pay any amount due under the outstanding loan, this will not occur until the time, or in excess of the extent to which, a distributable event occurs under the Plan. An outstanding loan will become due and payable in full 60 days after a Participant ceases to be an Employee and a party-in-interest as defined in ERISA or after complete termination of the Plan.
SECTION 5.07--DISTRIBUTIONS UNDER QUALIFIED DOMESTIC RELATIONS ORDERS.
The Plan specifically permits distributions to an Alternate Payee under a qualified domestic relations order as defined in Code Section 414(p), at any time, irrespective of whether the Participant has attained his earliest retirement age, as defined in Code Section 414(p), under the Plan. A distribution to an Alternate Payee before the Participant has attained his earliest retirement age is available only if the order specifies that distribution shall be made prior to the earliest retirement age or allows the Alternate Payee to elect a distribution prior to the earliest retirement age.
Nothing in this section shall permit a Participant to receive a distribution at a time otherwise not permitted under the Plan nor shall it permit the Alternate Payee to receive a form of payment not permitted under the Plan.
The benefit payable to an Alternate Payee shall be subject to the provisions of the SMALL AMOUNTS SECTION of Article X if the value of the benefit does not exceed $5,000 ($3,500 for Plan Years beginning before August 6, 1997).
The Plan Administrator shall establish reasonable procedures to determine the qualified status of a domestic relations order. Upon receiving a domestic relations order, the Plan Administrator shall promptly notify the Participant and the Alternate Payee named in the order, in writing, of the receipt of the order and the Plan's procedures for determining the qualified status of the order. Within a reasonable period of time after receiving the domestic relations order, the Plan Administrator shall determine the qualified status of the order and shall notify the Participant and each Alternate Payee, in writing, of its determination. The Plan Administrator shall provide notice under this paragraph by mailing to the individual's address specified in the domestic relations order, or in a manner consistent with Department of Labor regulations. The Plan Administrator may treat as qualified any domestic relations order entered into before January 1, 1985, irrespective of whether it sat isfies all the requirements described in Code Section 414(p).
If any portion of the Participant's Vested Account is payable during the period the Plan Administrator is making its determination of the qualified status of the domestic relations order, a separate accounting shall be made of the amount payable. If the Plan Administrator determines the order is a qualified domestic relations order within 18 months of the date amounts are first payable following receipt of the order, the payable amounts shall be distributed in accordance with the order. If the Plan Administrator does not make its determination of the qualified status of the order within the 18-month determination period, the payable amounts shall be distributed in the manner the Plan would distribute if the order did not exist and the order shall apply prospectively if the Plan Administrator later determines the order is a qualified domestic relations order.
The Plan shall make payments or distributions required under this section by separate benefit checks or other separate distribution to the Alternate Payee(s).
ARTICLE VI
DISTRIBUTION OF BENEFITS
SECTION 6.01--FORM OF DISTRIBUTION.
Unless an optional form of benefit is selected pursuant to a qualified election within the election period (see the ELECTION PROCEDURES SECTION of this article), the automatic form of benefit payable to or on behalf of a Participant is determined as follows:
(a) Retirement Benefits. Prior to February 1, 2004, single sum and installments are allowed. Effective as of February 1, 2004, the Plan is being amended to eliminate installments as an optional form of distribution and the Plan provides a single sum distribution form that is otherwise identical to the optional form of distribution eliminated or restricted. The amendment shall not apply to any distribution with an Annuity Starting Date earlier than the earlier of (i) the 90th day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the ERISA requirements at 29 CFR 2520.104b-3 relating to a summary of material modifications, or (ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted.
(b) Death Benefits. The only form of death benefit is a single sum payment.
SECTION 6.02-- ELECTION PROCEDURES.
The Participant shall make any election under this section in writing. The Plan Administrator may require such individual to complete and sign any necessary documents as to the provisions to be made. Any election permitted under (a) below shall be subject to the qualified election provisions of (b) below.
(a) Death Benefits. A Participant may elect his Beneficiary.
(b) Qualified Election. The Participant may make an election at any time during the election period. The Participant may revoke the election made (or make a new election) at any time and any number of times during the election period. An election is effective only if it meets the consent requirements below.
Election Period for Death Benefits. A Participant may make an election as to death benefits at any time before he dies.
Consent to Election. If the Participant's Vested Account exceeds $5,000, any benefit which is immediately distributable requires the consent of the Participant.
The consent of the Participant to a benefit which is immediately distributable must not be made before the date the Participant is provided with the notice of the ability to defer the distribution. Such consent shall be made in writing.
The consent shall not be made more than 90 days before the Annuity Starting Date. The consent of the Participant shall not be required to the extent that a distribution is required to satisfy Code Section 401(a)(9) or Code Section 415.
In addition, upon termination of this Plan, if the Plan does not offer an annuity option (purchased from a commercial provider), and if the Employer (or any entity within the same Controlled Group) does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)), the Participant's Account balance will, without the Participant's consent, be distributed to the Participant. However, if any entity within the same Controlled Group maintains another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) then the Participant's Account will be transferred, without the Participant's consent, to the other plan if the Participant does not consent to an immediate distribution.
A benefit is immediately distributable if any part of the benefit could be distributed to the Participant before the Participant attains the older of Normal Retirement Age or age 62.
(c) Designation of Beneficiary. Spousal consent is needed to name a Beneficiary other than the Participant's spouse. If a Participant names a Beneficiary other than his spouse, the spouse has the right to limit consent only to a specific Beneficiary. The spouse can relinquish such right. Such consent shall be in writing. The spouse's consent shall be witnessed by a plan representative or notary public. The spouse's consent must acknowledge the effect of the election, including that the spouse had the right to limit consent only to a specific Beneficiary and that the relinquishment of such right was voluntary. Unless the consent of the spouse expressly permits designations by the Participant without a requirement of further consent by the spouse, the spouse's consent must be limited to the Beneficiary, class of Beneficiaries, or contingent Beneficiary named in the election.
Spousal consent is not required, however, if the Participant establishes to the satisfaction of the plan representative that the consent of the spouse cannot be obtained because there is no spouse or the spouse cannot be located. A spouse's consent under this paragraph shall not be valid with respect to any other spouse. A Participant may revoke a prior election without the consent of the spouse. Any new election will require a new spousal consent, unless the consent of the spouse expressly permits such election by the Participant without further consent by the spouse. A spouse's consent may be revoked at any time within the Participant's election period.
SECTION 6.03--NOTICE REQUIREMENTS.
Right to Defer. The Plan Administrator shall furnish to the Participant a written explanation of the right of the Participant to defer distribution until the benefit is no longer immediately distributable.
The Plan Administrator shall furnish the written explanation by a method reasonably calculated to reach the attention of the Participant no less than 30 days, and no more than 90 days, before the Annuity Starting Date.
However, distribution may begin less than 30 days after the notice described in this subparagraph is given, provided the Plan Administrator clearly informs the Participant that he has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution, and the Participant, after receiving the notice, affirmatively elects a distribution.
ARTICLE VII
DISTRIBUTION REQUIREMENTS
SECTION 7.01--APPLICATION.
The timing of any distribution must meet the requirements of this article.
SECTION 7.02--DEFINITIONS.
For purposes of this article, the following terms are defined:
5-percent Owner means a 5-percent owner as defined in Code Section 416. A Participant is treated as a 5-percent Owner for purposes of this article if such Participant is a 5-percent Owner at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2.
In addition, a Participant is treated as a 5-percent Owner for purposes of this article if such Participant becomes a 5-percent Owner in a later Plan Year. Such Participant's Required Beginning Date shall not be later than the April 1 of the calendar year following the calendar year in which such later Plan Year ends.
Once distributions have begun to a 5-percent Owner under this article, they must continue to be distributed, even if the Participant ceases to be a 5-percent Owner in a subsequent year.
Required Beginning Date means, for a Participant who is a 5-percent Owner, the April 1 of the calendar year following the calendar year in which he attains age 70 1/2.
Required Beginning Date means, for any Participant who is not a 5-percent Owner, the April 1 of the calendar year following the later of the calendar year in which he attains age 70 1/2 or the calendar year in which he retires.
The preretirement age 70 1/2 distribution option is only eliminated with respect to Participants who reach age 70 1/2 in or after a calendar year that begins after the later of December 31, 1998, or the adoption date of the amendment which eliminated such option. The preretirement age 70 1/2 distribution is an optional form of benefit under which benefits payable in a particular distribution form (including any modifications that may be elected after benefits begin) begin at a time during the period that begins on or after January 1 of the calendar year in which the Participant attains age 70 1/2 and ends April 1 of the immediately following calendar year.
The options available for Participants who are not 5-percent Owners and attained age 70 1/2 in calendar years before the calendar year that begins after the later of December 31, 1998, or the adoption date of the amendment which eliminated the preretirement age 70 1/2 distribution shall be the following. Any such Participant attaining age 70 1/2 in years after 1995 may elect by April 1 of the calendar year following the calendar year in which he attained age 70 1/2 (or by December 31, 1997 in the case of a Participant attaining age 70 1/2 in 1996) to defer distributions until the calendar year following the calendar year in which he retires.
SECTION 7.03--DISTRIBUTION REQUIREMENTS.
(a) General Rules.
(1) The requirements of this article shall apply to any distribution of a Participant's interest and shall take precedence over any inconsistent provisions of this Plan. Unless otherwise specified, the provisions of this article apply to calendar years beginning after December 31, 1984.
(2) All distributions required under this article shall be determined and made in accordance with the proposed regulations under Code Section 401(a)(9).
(3) With respect to distributions under the Plan made on or after June 14, 2001, for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the regulations under Code Section 401(a)(9) that were proposed on January 17, 2001 (the 2001 Proposed Regulations), notwithstanding any provision of the Plan to the contrary. If the total amount of required minimum distributions made to a Participant for 2001 prior to June 14, 2001, are equal to or greater than the amount of required minimum distributions determined under the 2001 Proposed Regulations, then no additional distributions are required for such Participant for 2001 on or after such date. If the total amount of required minimum distributions made to a Participant for 2001 prior to June 14, 2001, are less than the amount determined under the 2001 Proposed Regulations, then the amount of required minimum distributions for 2001 on or after such date will be determined so that the total amount of required minimum distributions for 2001 is the amount determined under the 2001 Proposed Regulations. These provisions shall continue in effect until the last calendar year beginning before the effective date of final regulations under Code Section 401(a)(9) or such other date as may be published by the Internal Revenue Service.
(b) Required Beginning Date. The entire interest of a Participant must be distributed or begin to be distributed no later than the Participant's Required Beginning Date.
(c) Death Distribution Provisions. If the Participant dies before distribution of his interest begins, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death.
ARTICLE VIII
TERMINATION OF THE PLAN
The Employer expects to continue the Plan indefinitely but reserves the right to terminate the Plan in whole or in part at any time upon giving written notice to all parties concerned. Complete discontinuance of Contributions constitutes complete termination of the Plan.
The Account of each Participant shall be fully (100%) vested and nonforfeitable as of the effective date of complete termination of the Plan. The Account of each Participant who is included in the group of Participants deemed to be affected by the partial termination of the Plan shall be fully (100%) vested and nonforfeitable as of the effective date of the partial termination of the Plan. The Participant's Account shall continue to participate in the earnings credited, expenses charged, and any appreciation or depreciation of the Investment Fund until his Vested Account is distributed.
A Participant's Account which does not result from the Contributions listed below may be distributed to the Participant after the effective date of the complete termination of the Plan:
Elective Deferral Contributions
A Participant's Account resulting from such Contributions may be distributed upon complete termination of the Plan, but only if neither the Employer nor any Controlled Group member maintain or establish a successor defined contribution plan (other than an employer stock ownership plan as defined in Code Section 4975(e)(7), a simplified employee pension plan as defined in Code Section 408(k) or a SIMPLE IRA plan as defined in Code Section 408(p)) and such distribution is made in a lump sum. A distribution under this article shall be a retirement benefit and shall be distributed to the Participant according to the provisions of Article VI.
The Participant's entire Vested Account shall be paid in a single sum to the Participant as of the effective date of complete termination of the Plan if (i) the requirements for distribution of Elective Deferral Contributions in the above paragraph are met and (ii) consent of the Participant is not required in the ELECTION PROCEDURES SECTION of Article VI to distribute a benefit which is immediately distributable. This is a small amounts payment. The small amounts payment is in full settlement of all benefits otherwise payable.
Upon complete termination of the Plan, no more Employees shall become Participants and no more Contributions shall be made.
The assets of this Plan shall not be paid to the Employer at any time, except that, after the satisfaction of all liabilities under the Plan, any assets remaining may be paid to the Employer. The payment may not be made if it would contravene any provision of law.
ARTICLE IX
ADMINISTRATION OF THE PLAN
SECTION 9.01--ADMINISTRATION.
Subject to the provisions of this article, the Plan Administrator has complete control of the administration of the Plan. The Plan Administrator has all the powers necessary for it to properly carry out its administrative duties. Not in limitation, but in amplification of the foregoing, the Plan Administrator has complete discretion to construe or interpret the provisions of the Plan, including ambiguous provisions, if any, and to determine all questions that may arise under the Plan, including all questions relating to the eligibility of Employees to participate in the Plan and the amount of benefit to which any Participant or Beneficiary may become entitled. The Plan Administrator's decisions upon all matters within the scope of its authority shall be final.
Unless otherwise set out in the Plan or Annuity Contract, the Plan Administrator may delegate recordkeeping and other duties which are necessary for the administration of the Plan to any person or firm which agrees to accept such duties. The Plan Administrator shall be entitled to rely upon all tables, valuations, certificates and reports furnished by the consultant or actuary appointed by the Plan Administrator and upon all opinions given by any counsel selected or approved by the Plan Administrator.
The Plan Administrator shall receive all claims for benefits by Participants, former Participants or Beneficiaries. The Plan Administrator shall determine all facts necessary to establish the right of any Claimant to benefits and the amount of those benefits under the provisions of the Plan. The Plan Administrator may establish rules and procedures to be followed by Claimants in filing claims for benefits, in furnishing and verifying proofs necessary to determine age, and in any other matters required to administer the Plan.
SECTION 9.02--EXPENSES.
Expenses of the Plan, to the extent that the Employer does not pay such expenses, may be paid out of the assets of the Plan provided that such payment is consistent with ERISA. Such expenses include, but are not limited to, expenses for bonding required by ERISA; expenses for recordkeeping and other administrative services; fees and expenses of the Trustee or Annuity Contract; expenses for investment education service; and direct costs that the Employer incurs with respect to the Plan.
SECTION 9.03--RECORDS.
All acts and determinations of the Plan Administrator shall be duly recorded. All these records, together with other documents necessary for the administration of the Plan, shall be preserved in the Plan Administrator's custody.
Writing (handwriting, typing, printing), photostating, photographing, microfilming, magnetic impulse, mechanical or electrical recording, or other forms of data compilation shall be acceptable means of keeping records.
SECTION 9.04--INFORMATION AVAILABLE.
Any Participant in the Plan or any Beneficiary may examine copies of the Plan description, latest annual report, any bargaining agreement, this Plan, the Annuity Contract or any other instrument under which the Plan was established or is operated. The Plan Administrator shall maintain all of the items listed in this section in its office, or in such other place or places as it may designate in order to comply with governmental regulations. These items may be examined during reasonable business hours. Upon the written request of a Participant or Beneficiary receiving benefits under the Plan, the Plan Administrator shall furnish him with a copy of any of these items. The Plan Administrator may make a reasonable charge to the requesting person for the copy.
SECTION 9.05--CLAIM AND APPEAL PROCEDURES.
A Claimant must submit any required forms and pertinent information when making a claim for benefits under the Plan.
If a claim for benefits under the Plan is denied, the Plan Administrator shall provide adequate written notice to the Claimant whose claim for benefits under the Plan has been denied. The notice must be furnished within 90 days of the date that the claim is received by the Plan Administrator. The Claimant shall be notified in writing within this initial 90-day period if special circumstances require an extension of time needed to process the claim and the date by which the Plan Administrator's decision is expected to be rendered. The written notice shall be furnished no later than 180 days after the date the claim was received by the Plan Administrator.
The Plan Administrator's notice to the Claimant shall specify the reason for the denial; specify references to pertinent Plan provisions on which denial is based; describe any additional material and information needed for the Claimant to perfect his claim for benefits; explain why the material and information is needed; inform the Claimant that any appeal he wishes to make must be in writing to the Plan Administrator within 60 days after receipt of the Plan Administrator's notice of denial of benefits and that failure to make the written appeal within such 60-day period renders the Plan Administrator's determination of such denial final, binding and conclusive.
If the Claimant appeals to the Plan Administrator, the Claimant (or his authorized representative) may submit in writing whatever issues and comments the Claimant (or his authorized representative) feels are pertinent. The Claimant (or his authorized representative) may review pertinent Plan documents. The Plan Administrator shall reexamine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator shall advise the Claimant of its decision within 60 days of his written request for review, unless special circumstances (such as a hearing) would make rendering a decision within the 60-day limit unfeasible. The Claimant must be notified within the 60-day limit if an extension is necessary. The Plan Administrator shall render a decision on a claim for benefits no later than 120 days after the request for review is received.
SECTION 9.06--DELEGATION OF AUTHORITY.
All or any part of the administrative duties and responsibilities under this article may be delegated by the Plan Administrator to a retirement committee. The duties and responsibilities of the retirement committee shall be set out in a separate written agreement.
SECTION 9.07--EXERCISE OF DISCRETIONARY AUTHORITY.
The Employer, Plan Administrator, and any other person or entity who has authority with respect to the management, administration, or investment of the Plan may exercise that authority in its/his full discretion, subject only to the duties imposed under ERISA. This discretionary authority includes, but is not limited to, the authority to make any and all factual determinations and interpret all terms and provisions of the Plan documents relevant to the issue under consideration. The exercise of authority will be binding upon all persons; will be given deference in all courts of law; and will not be overturned or set aside by any court of law unless found to be arbitrary and capricious or made in bad faith.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01--AMENDMENTS.
The Employer may amend this Plan at any time, including any remedial retroactive changes (within the time specified by Internal Revenue Service regulations), to comply with any law or regulation issued by any governmental agency to which the Plan is subject.
An amendment may not diminish or adversely affect any accrued interest or benefit of Participants or their Beneficiaries nor allow reversion or diversion of Plan assets to the Employer at any time, except as may be required to comply with any law or regulation issued by any governmental agency to which the Plan is subject.
No amendment to this Plan shall be effective to the extent that it has the effect of decreasing a Participant's accrued benefit. However, a Participant's Account may be reduced to the extent permitted under Code Section 412(c)(8). For purposes of this paragraph, a Plan amendment which has the effect of decreasing a Participant's Account with respect to benefits attributable to service before the amendment shall be treated as reducing an accrued benefit. Furthermore, if the vesting schedule of the Plan is amended, in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Employee's right to his employer-derived accrued benefit shall not be less than his percentage computed under the Plan without regard to such amendment.
No amendment to the Plan shall be effective to eliminate or restrict an optional form of benefit with respect to benefits attributable to service before the amendment except as provided in the MERGERS AND DIRECT TRANSFERS SECTION of this article and below:
(a) The Plan is amended to eliminate or restrict the ability of a Participant to receive payment of his Account balance under a particular optional form of benefit and the amendment satisfies the condition in (1) and (2) below:
(1) The amendment provides a single sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement.
(2) The amendment provides that the amendment shall not apply to any distribution with an Annuity Starting Date earlier than the earlier of:
(i) the 90th day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the ERISA requirements at 29 CFR 2520.104b-3 relating to a summary of material modifications, or
(ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted.
(b) The Plan is amended to eliminate or restrict in-kind distributions and the conditions in Q&A 2(b)(2)(iii) in section 1.411(d)-4 of the regulations are met.
If, as a result of an amendment, an Employer Contribution is removed that is not 100% immediately vested when made, the applicable vesting schedule shall remain in effect after the date of such amendment. The Participant shall not become immediately 100% vested in such Contributions as a result of the elimination of such Contribution except as otherwise specifically provided in the Plan.
An amendment shall not decrease a Participant's vested interest in the Plan. If an amendment to the Plan, or a deemed amendment in the case of a change in top-heavy status of the Plan as provided in the MODIFICATION OF VESTING REQUIREMENTS SECTION of Article XI, changes the computation of the percentage used to determine that portion of a Participant's Account attributable to Employer Contributions which is nonforfeitable (whether directly or indirectly), each Participant or former Participant
(c) who has completed at least three Years of Service on the date the election period described below ends (five Years of Service if the Participant does not have at least one Hour-of-Service in a Plan Year beginning after December 31, 1988) and
(d) whose nonforfeitable percentage will be determined on any date after the date of the change
may elect, during the election period, to have the nonforfeitable percentage of his Account that results from Employer Contributions determined without regard to the amendment. This election may not be revoked. If after the Plan is changed, the Participant's nonforfeitable percentage will at all times be as great as it would have been if the change had not been made, no election needs to be provided. The election period shall begin no later than the date the Plan amendment is adopted, or deemed adopted in the case of a change in the top-heavy status of the Plan, and end no earlier than the 60th day after the latest of the date the amendment is adopted (deemed adopted) or becomes effective, or the date the Participant is issued written notice of the amendment (deemed amendment) by the Employer or the Plan Administrator.
SECTION 10.02--DIRECT ROLLOVERS.
Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover.
Any part of a distribution made under the SMALL AMOUNTS SECTION of this article (or which is a small amounts payment made under Article VIII at complete termination of the Plan) which is an Eligible Rollover Distribution, which is equal to or more than $1,000, and for which the Distributee has not elected to either have such distribution paid to him or to an Eligible Retirement Plan shall be rolled over to an Individual Retirement Account (IRA) with an affiliate of Principal Life Insurance Company. Such amounts shall be initially invested in the Principal Investor Funds Money Market Fund. The Distributee shall have the option to change the investment after the IRA has been established.
Any part of a distribution made under the SMALL AMOUNTS SECTION of this article (or which is a small amounts payment made under Article VIII at complete termination of the Plan) which is an Eligible Rollover Distribution, which is less than $1,000, and for which the Distributee has not elected to either have such distribution paid to him or to an Eligible Retirement Plan shall be paid to the Distributee.
SECTION 10.03--MERGERS AND DIRECT TRANSFERS.
The Plan may not be merged or consolidated with, nor have its assets or liabilities transferred to, any other retirement plan, unless each Participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit the Participant would have been entitled to receive immediately before the merger, consolidation, or transfer (if this Plan had then terminated). The Employer may enter into merger agreements or direct transfer of assets agreements with the employers under other retirement plans which are qualifiable under Code Section 401(a), including an elective transfer, and may accept the direct transfer of plan assets, or may transfer plan assets, as a party to any such agreement. The Employer shall not consent to, or be a party to a merger, consolidation, or transfer of assets with a plan which is subject to the survivor annuity requirements of Code Section 401(a)(11) if such act ion would result in survivor annuity feature being maintained under this Plan.
Notwithstanding any provision of the Plan to the contrary, to the extent any optional form of benefit under the Plan permits a distribution prior to the Employee's retirement, death, disability, or severance from employment, and prior to plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Code Section 414(l), to this Plan from a money purchase pension plan qualified under Code Section 401(a) (other than any portion of those assets and liabilities attributable to voluntary employee contributions).
The Plan may accept a direct transfer of plan assets on behalf of an Eligible Employee. If the Eligible Employee is not an Active Participant when the transfer is made, the Eligible Employee shall be deemed to be an Active Participant only for the purpose of investment and distribution of the transferred assets. Employer Contributions shall not be made for or allocated to the Eligible Employee, until the time he meets all of the requirements to become an Active Participant.
The Plan shall hold, administer, and distribute the transferred assets as a part of the Plan. The Plan shall maintain a separate account for the benefit of the Employee on whose behalf the Plan accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to the Plan is an elective transfer as described below, the Plan shall apply the optional forms of benefit protections described in the AMENDMENTS SECTION of this article to all transferred assets.
A Participant's protected benefits may be eliminated upon transfer between qualified defined contribution plans if the conditions in Q&A 3(b)(1) in section 1.411(d)-4 of the regulations are met. The transfer must meet all of the other applicable qualification requirements.
A Participant's protected benefits may be eliminated upon transfer between qualified plans (both defined benefit and defined contribution) if the conditions in Q&A 3(c)(1) in section 1.411(d)-4 of the regulations are met. Beginning January 1, 2002, if the Participant is eligible to receive an immediate distribution of his entire nonforfeitable accrued benefit in a single sum distribution that would consist entirely of an eligible rollover distribution under Code Section 401(a)(31), such transfer will be accomplished as a direct rollover under Code Section 401(a)(31). The rules applicable to distributions under the plan would apply to the transfer, but the transfer would not be treated as a distribution for purposes of the minimum distribution requirements of Code Section 401(a)(9).
SECTION 10.04--PROVISIONS RELATING TO THE INSURER AND OTHER PARTIES.
The obligations of an Insurer shall be governed solely by the provisions of the Annuity Contract. The Insurer shall not be required to perform any act not provided in or contrary to the provisions of the Annuity Contract. Each Annuity Contract when purchased shall comply with the Plan. See the CONSTRUCTION SECTION of this article.
Any issuer or distributor of investment contracts or securities is governed solely by the terms of its policies, written investment contract, prospectuses, security instruments, and any other written agreements entered into with the Trustee with regard to such investment contracts or securities.
Such Insurer, issuer or distributor is not a party to the Plan, nor bound in any way by the Plan provisions. Such parties shall not be required to look to the terms of this Plan, nor to determine whether the Employer, the Plan Administrator, the Trustee, or the Named Fiduciary have the authority to act in any particular manner or to make any contract or agreement.
Until notice of any amendment or termination of this Plan or a change in Trustee has been received by the Insurer at its home office or an issuer or distributor at their principal address, they are and shall be fully protected in assuming that the Plan has not been amended or terminated and in dealing with any party acting as Trustee according to the latest information which they have received at their home office or principal address.
SECTION 10.05--EMPLOYMENT STATUS.
Nothing contained in this Plan gives an Employee the right to be retained in the Employer's employ or to interfere with the Employer's right to discharge any Employee.
SECTION 10.06--RIGHTS TO PLAN ASSETS.
An Employee shall not have any right to or interest in any assets of the Plan upon termination of employment or otherwise except as specifically provided under this Plan, and then only to the extent of the benefits payable to such Employee according to the Plan provisions.
Any final payment or distribution to a Participant or his legal representative or to any Beneficiaries of such Participant under the Plan provisions shall be in full satisfaction of all claims against the Plan, the Named Fiduciary, the Plan Administrator, the Insurer, the Trustee, and the Employer arising under or by virtue of the Plan.
SECTION 10.07--BENEFICIARY.
Each Participant may name a Beneficiary to receive any death benefit that may arise out of his participation in the Plan. The Participant may change his Beneficiary from time to time. Unless a qualified election has been made, for purposes of distributing any death benefits before the Participant's Retirement Date, the Beneficiary of a Participant who has a spouse shall be the Participant's spouse. The Participant's Beneficiary designation and any change of Beneficiary shall be subject to the provisions of the ELECTION PROCEDURES SECTION of Article VI. It is the responsibility of the Participant to give written notice to the Insurer of the name of the Beneficiary on a form furnished for that purpose.
With the Employer's consent, the Plan Administrator may maintain records of Beneficiary designations for Participants before their Retirement Dates. In that event, the written designations made by Participants shall be filed with the Plan Administrator. If a Participant dies before his Retirement Date, the Plan Administrator shall certify to the Insurer the Beneficiary designation on its records for the Participant.
If there is no Beneficiary designation form on file, or if the designated Beneficiary predeceases the Participant, any death benefits under the Plan payable to the Beneficiary will be distributed in the following order of priority:
(a) to the surviving spouse; or, if none
(b) to the surviving issue (per stirpes and not per capita); or, if none
(c) to the surviving parents equally, or, if one is deceased, to the survivor of them; or, if none
(d) to the estate of the Participant.
SECTION 10.08--NONALIENATION OF BENEFITS.
Benefits payable under the Plan are not subject to the claims of any creditor of any Participant, Beneficiary or spouse. A Participant, Beneficiary or spouse does not have any rights to alienate, anticipate, commute, pledge, encumber, or assign any of such benefits, except in the case of a loan as provided in the LOANS TO PARTICIPANTS SECTION of Article V. The preceding sentences shall also apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant according to a domestic relations order, unless such order is determined by the Plan Administrator to be a qualified domestic relations order, as defined in Code Section 414(p), or any domestic relations order entered before January 1, 1985. The preceding sentences shall not apply to any offset of a Participant's benefits provided under the Plan against an amount the Participant is required to pay the Plan with respect to a judgement, order, or decree issued, or a settlement entered into, on or after August 5, 1997, which meets the requirements of Code Sections 401(a)(13)(C) or (D).
SECTION 10.09--CONSTRUCTION.
The validity of the Plan or any of its provisions is determined under and construed according to Federal law and, to the extent permissible, according to the laws of the state in which the Employer has its principal office. In case any provision of this Plan is held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included.
In the event of any conflict between the provisions of the Plan and the terms of any Annuity Contract issued hereunder, the provisions of the Plan control.
SECTION 10.10--LEGAL ACTIONS.
No person employed by the Employer; no Participant, former Participant, or their Beneficiaries; nor any other person having or claiming to have an interest in the Plan is entitled to any notice of process. A final judgment entered in any such action or proceeding shall be binding and conclusive on all persons having or claiming to have an interest in the Plan.
SECTION 10.11--SMALL AMOUNTS.
If consent of the Participant is not required for a benefit which is immediately distributable in the ELECTION PROCEDURES SECTION of Article VI, a Participant's entire Vested Account shall be paid in a single sum as of the earliest of his Retirement Date, the date he dies, or the date he ceases to be an Employee for any other reason (the date the Employer provides notice to the record keeper of the Plan of such event, if later). For purposes of this section, if the Participant's Vested Account is zero, the Participant shall be deemed to have received a distribution of such Vested Account. If a Participant would have received a distribution under the first sentence of this paragraph but for the fact that the Participant's consent was needed to distribute a benefit which is immediately distributable, and if at a later time consent would not be needed to distribute a benefit which is immediately distributable and such Participant has not again become an Employee, such Vested Account sha ll be paid in a single sum. This is a small amounts payment.
If a small amounts payment is made as of the date the Participant dies, the small amounts payment shall be made to the Participant's Beneficiary. If a small amounts payment is made while the Participant is living, the small amounts payment shall be made to the Participant. The small amounts payment is in full settlement of benefits otherwise payable.
No other small amounts payments shall be made.
SECTION 10.12--WORD USAGE.
The masculine gender, where used in this Plan, shall include the feminine gender and the singular words, as used in this Plan, may include the plural, unless the context indicates otherwise.
The words "in writing" and "written," where used in this Plan, shall include any other forms, such as voice response or other electronic system, as permitted by any governmental agency to which the Plan is subject.
SECTION 10.13--CHANGE IN SERVICE METHOD.
(a) Change of Service Method Under This Plan. If this Plan is amended to change the method of crediting service from the elapsed time method to the hours method for any purpose under this Plan, the Employee's service shall be equal to the sum of (1), (2), and (3) below:
(1) The number of whole years of service credited to the Employee under the Plan as of the date the change is effective.
(2) One year of service for the applicable computation period in which the change is effective if he is credited with the required number of Hours-of-Service. If the Employer does not have sufficient records to determine the Employee's actual Hours-of-Service in that part of the service period before the effective date of the change, the Hours-of-Service shall be determined using an equivalency. For any month in which he would be required to be credited with one Hour-of-Service, the Employee shall be deemed for purposes of this section to be credited with 190 Hours-of-Service.
(3) The Employee's service determined under this Plan using the hours method after the end of the computation period in which the change in service method was effective.
If this Plan is amended to change the method of crediting service from the hours method to the elapsed time method for any purpose under this Plan, the Employee's service shall be equal to the sum of (4), (5), and (6) below:
(4) The number of whole years of service credited to the Employee under the Plan as of the beginning of the computation period in which the change in service method is effective.
(5) the greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the Plan as of the date the change is effective.
(6) The Employee's service determined under this Plan using the elapsed time method after the end of the applicable computation period in which the change in service method was effective.
(b) Transfers Between Plans with Different Service Methods. If an Employee has been a participant in another plan of the Employer which credited service under the elapsed time method for any purpose which under this Plan is determined using the hours method, then the Employee's service shall be equal to the sum of (1), (2), and (3) below:
(1) The number of whole years of service credited to the Employee under the plan as of the date he became an Eligible Employee under this Plan.
(2) One year of service for the applicable computation period in which he became an Eligible Employee if he is credited with the required number of Hours-of-Service. If the Employer does not have sufficient records to determine the Employee's actual Hours-of-Service in that part of the service period before the date he became an Eligible Employee, the Hours-of-Service shall be determined using an equivalency. For any month in which he would be required to be credited with one Hour-of-Service, the Employee shall be deemed for purposes of this section to be credited with 190 Hours-of-Service.
(3) The Employee's service determined under this Plan using the hours method after the end of the computation period in which he became an Eligible Employee.
If an Employee has been a participant in another plan of the Employer which credited service under the hours method for any purpose which under this Plan is determined using the elapsed time method, then the Employee's service shall be equal to the sum of (4), (5), and (6) below:
(4) The number of whole years of service credited to the Employee under the other plan as of the beginning of the computation period under that plan in which he became an Eligible Employee under this Plan.
(5) The greater of (i) the service that would be credited to the Employee for that entire computation period using the elapsed time method or (ii) the service credited to him under the other plan as of the date he became an Eligible Employee under this Plan.
(6) The Employee's service determined under this Plan using the elapsed time method after the end of the applicable computation period under the other plan in which he became an Eligible Employee.
If an Employee has been a participant in a Controlled Group member's plan which credited service under a different method than is used in this Plan, in order to determine entry and vesting, the provisions in (b) above shall apply as though the Controlled Group member's plan were a plan of the Employer.
Any modification of service contained in this Plan shall be applicable to the service determined pursuant to this section.
SECTION 10.14--MILITARY SERVICE.
Notwithstanding any provision of this Plan to the contrary, the Plan shall provide contributions, benefits, and service credit with respect to qualified military service in accordance with Code Section 414(u). Loan repayments shall be suspended under this Plan as permitted under Code Section 414(u).
ARTICLE XI
TOP-HEAVY PLAN REQUIREMENTS
SECTION 11.01--APPLICATION.
The provisions of this article shall supersede all other provisions in the Plan to the contrary.
For the purpose of applying the Top-heavy Plan requirements of this article, all members of the Controlled Group shall be treated as one Employer. The term Employer, as used in this article, shall be deemed to include all members of the Controlled Group, unless the term as used clearly indicates only the Employer is meant.
The accrued benefit or account of a participant which results from deductible employee contributions shall not be included for any purpose under this article.
The minimum vesting and contribution provisions of the MODIFICATION OF VESTING REQUIREMENTS and MODIFICATION OF CONTRIBUTIONS SECTIONS of this article shall not apply to any Employee who is included in a group of Employees covered by a collective bargaining agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, including the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between such representatives. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are employees who are owners, officers, or executives.
SECTION 11.02--DEFINITIONS.
For purposes of this article the following terms are defined:
Aggregation Group means:
(a) each of the Employer's qualified plans in which a Key Employee is a participant during the Plan Year containing the Determination Date (regardless of whether the plan was terminated) or one of the four preceding Plan Years,
(b) each of the Employer's other qualified plans which allows the plan(s) described in (a) above to meet the nondiscrimination requirement of Code Section 401(a)(4) or the minimum coverage requirement of Code Section 410, and
(c) any of the Employer's other qualified plans not included in (a) or (b) above which the Employer desires to include as part of the Aggregation Group. Such a qualified plan shall be included only if the Aggregation Group would continue to satisfy the requirements of Code Section 401(a)(4) and Code Section 410.
The plans in (a) and (b) above constitute the "required" Aggregation Group. The plans in (a), (b), and (c) above constitute the "permissive" Aggregation Group.
Compensation means compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III. For purposes of determining who is a Key Employee in years beginning before January 1, 1998, Compensation shall include, in addition to compensation as defined in the CONTRIBUTION LIMITATION SECTION of Article III, elective contributions. Elective contributions are amounts excludible from the gross income of the Employee under Code Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b), and contributed by the Employer, at the Employee's election, to a Code Section 401(k) arrangement, a simplified employee pension, cafeteria plan, or tax-sheltered annuity. Elective contributions also include amounts deferred under a Code Section 457 plan maintained by the Employer.
Determination Date means as to any plan, for any plan year subsequent to the first plan year, the last day of the preceding plan year. For the first plan year of the plan, the last day of that year.
Key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was:
(a) an officer of the Employer if such individual's annual Compensation exceeds 50 percent of the dollar limitation under Code Section 415(b)(1)(A),
(b) an owner (or considered an owner under Code Section 318) of one of the ten largest interests in the Employer if such individual's annual Compensation exceeds 100 percent of the dollar limitation under Code Section 415(c)(1)(A),
(c) a 5-percent owner of the Employer, or
(d) a 1-percent owner of the Employer who has annual Compensation of more than $150,000.
The determination period is the Plan Year containing the Determination Date and the four preceding Plan Years.
The determination of who is a Key Employee shall be made according to Code Section 416(i)(1) and the regulations thereunder.
Non-key Employee means any Employee who is not a Key Employee.
Present Value means the present value of a participant's accrued benefit under a defined benefit plan. For purposes of establishing Present Value to compute the Top-heavy Ratio, any benefit shall be discounted only for 7.5% interest and mortality according to the 1971 Group Annuity Table (Male) without the 7% margin but with projection by Scale E from 1971 to the later of (a) 1974, or (b) the year determined by adding the age to 1920, and wherein for females the male age six years younger is used.
Top-heavy Plan means a plan which is top-heavy for any plan year beginning after December 31, 1983. This Plan shall be top-heavy if any of the following conditions exist:
(a) The Top-heavy Ratio for this Plan exceeds 60 percent and this Plan is not part of any required Aggregation Group or permissive Aggregation Group.
(b) This Plan is a part of a required Aggregation Group, but not part of a permissive Aggregation Group, and the Top-heavy Ratio for the required Aggregation Group exceeds 60 percent.
(c) This Plan is a part of a required Aggregation Group and part of a permissive Aggregation Group and the Top-heavy Ratio for the permissive Aggregation Group exceeds 60 percent.
Top-heavy Ratio means:
(a) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for this Plan alone or for the required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the five-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five-year period ending on the Distribution Date(s)), both computed in accordance with Code Section 416 and the regulations thereunder. Both the numerator and denominator of the Top-heavy Ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the five-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy Ratio for any required or permissive Aggregation Group, as appropriate, is a fraction, the numerator of which is the sum of the account balances under the aggregated defined contribution plan or plans of all Key Employees determined in accordance with (a) above, and the Present Value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all participants, determined in accordance with (a) above, and the Present Value of accrued benefits under the defined benefit plan or plans for all participants as of the Determination Date(s), all determined in accordance with Code Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-heavy Ratio are increased for any distribution of an accrued benefit made in the five-year period ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account balances and the Present Value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a participant (i) who is not a Key Employee but who was a Key Employee in a prior year or (ii) who has not been credited with at least an hour of service with any employer maintaining the plan at any time during the five-year period ending on the Determination Date will be disregarded. The calculation of the Top-heavy Ratio and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. Deductible employee contributions will not be taken into account for p urposes of computing the Top-heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year.
The accrued benefit of a participant other than a Key Employee shall be determined under (i) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C).
SECTION 11.03--MODIFICATION OF VESTING REQUIREMENTS.
If a Participant's Vesting Percentage determined under Article I is not at least as great as his Vesting Percentage would be if it were determined under a schedule permitted in Code Section 416, the following shall apply. During any Plan Year in which the Plan is a Top-heavy Plan, the Participant's Vesting Percentage shall be the greater of the Vesting Percentage determined under Article I or the schedule below.
VESTING SERVICE |
NONFORFEITABLE |
(whole years) |
PERCENTAGE. |
Less than 3 |
0 |
3 or more |
100 |
The schedule above shall not apply to Participants who are not credited with an Hour-of-Service after the Plan first becomes a Top-heavy Plan. The Vesting Percentage determined above applies to the portion of the Participant's Account which is multiplied by a Vesting Percentage to determine his Vested Account, including benefits accrued before the effective date of Code Section 416 and benefits accrued before this Plan became a Top-heavy Plan.
If, in a later Plan Year, this Plan is not a Top-heavy Plan, a Participant's Vesting Percentage shall be determined under Article I. A Participant's Vesting Percentage determined under either Article I or the schedule above shall never be reduced and the election procedures of the AMENDMENTS SECTION of Article X shall apply when changing to or from the schedule as though the automatic change were the result of an amendment.
The part of the Participant's Vested Account resulting from the minimum contributions required pursuant to the MODIFICATION OF CONTRIBUTIONS SECTION of this article (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Section 411(a)(3)(B) or (D).
SECTION 11.04--MODIFICATION OF CONTRIBUTIONS.
During any Plan Year in which this Plan is a Top-heavy Plan, the Employer shall make a minimum contribution as of the last day of the Plan Year for each Non-key Employee who is an Employee on the last day of the Plan Year and who was an Active Participant at any time during the Plan Year. A Non-key Employee is not required to have a minimum number of Hours-of-Service or minimum amount of Compensation in order to be entitled to this minimum. A Non-key Employee who fails to be an Active Participant merely because his Compensation is less than a stated amount or merely because of a failure to make mandatory participant contributions or, in the case of a cash or deferred arrangement, elective contributions shall be treated as if he were an Active Participant. The minimum is the lesser of (a) or (b) below:
(a) 3 percent of such person's Compensation for such Plan Year.
(b) The "highest percentage" of Compensation for such Plan Year at which the Employer's contributions are made for or allocated to any Key Employee. The highest percentage shall be determined by dividing the Employer Contributions made for or allocated to each Key Employee during the Plan Year by the amount of his Compensation for such Plan Year, and selecting the greatest quotient (expressed as a percentage). To determine the highest percentage, all of the Employer's defined contribution plans within the Aggregation Group shall be treated as one plan. The minimum shall be the amount in (a) above if this Plan and a defined benefit plan of the Employer are required to be included in the Aggregation Group and this Plan enables the defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410.
For purposes of (a) and (b) above, Compensation shall be limited by Code Section 401(a)(17).
If the Employer's contributions and allocations otherwise required under the defined contribution plan(s) are at least equal to the minimum above, no additional contribution shall be required. If the Employer's total contributions and allocations are less than the minimum above, the Employer shall contribute the difference for the Plan Year.
The minimum contribution applies to all of the Employer's defined contribution plans in the aggregate which are Top-heavy Plans. A minimum contribution under a profit sharing plan shall be made without regard to whether or not the Employer has profits.
If a person who is otherwise entitled to a minimum contribution above is also covered under another defined contribution plan of the Employer's which is a Top-heavy Plan during that same Plan Year, any additional contribution required to meet the minimum above shall be provided in this plan.
If a person who is otherwise entitled to a minimum contribution above is also covered under a defined benefit plan of the Employer's which is a Top-heavy Plan during that same Plan Year, the minimum benefits for him shall not be duplicated. The defined benefit plan shall provide an annual benefit for him on, or adjusted to, a straight life basis equal to the lesser of:
(c) 2 percent of his average compensation multiplied by his years of service, or
(d) 20 percent of his average compensation.
Average compensation and years of service shall have the meaning set forth in such defined benefit plan for this purpose. The Employer's profit sharing plan shall provide a minimum contribution of 5 percent of such Participant's Compensation for the Plan Year.
For purposes of this section, any employer contribution made according to a salary reduction or similar arrangement and employer contributions which are matching contributions, as defined in Code Section 401(m), shall not apply in determining if the minimum contribution requirement has been met, but shall apply in determining the minimum contribution required.
The requirements of this section shall be met without regard to any Social Security contribution.
By executing this Plan, the Primary Employer acknowledges having counseled to the extent necessary with selected legal and tax advisors regarding the Plan's legal and tax implications.
Executed this 31 day of December , 2003
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
Defined Contribution Plan 8.0 |
The Adopting Employer must agree to participate in or adopt the Plan in writing. If this has not already been done, it may be done by signing below.
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
12-31-03 |
Date |
OSHKOSH B'GOSH, RETAIL, INC. |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
12-31-03 |
Date |
OBG PRODUCT DEVELOPMENT AND SALES, INC. |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
12-31-03 |
Date |
OBG DISTRIBUTION COMPANY, LLC |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
12-31-03 |
Date |
OBG MANUFACTURING COMPANY |
By: /S/ DAVID L. OMACHINSKI |
Exec VP, COO, CFO & Treasurer |
Title |
12-31-03 |
Date |
MODEL AMENDMENT TO COMPLY WITH THE 401(a)(9) FINAL AND TEMPORARY REGULATIONS
Plan Name OSHKOSH B'GOSH, INC. 401(k) PLAN
The Plan named above gives the Employer the right to amend it at any time. According to that right, the Plan is amended by adopting the model amendment set forth below.
The plan's existing minimum distribution provisions are superseded to the extent they are inconsistent with the provisions of this model amendment, but those provisions that are not inconsistent (such as the plan's definition of required beginning date) shall be retained. The plan's minimum distribution provisions are amended as follows:
ARTICLE VII. MINIMUM DISTRIBUTION REQUIREMENTS.
Section 1. General Rules
1.1. Effective Date. The provisions of this article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.
1.2. Coordination with Minimum Distribution Requirements Previously in Effect. This amendment is not effective until calendar years beginning with the 2003 calendar year, therefore, no coordination is required.
1.3. Precedence. The requirements of this article will take precedence over any inconsistent provisions of the plan.
1.4. Requirements of Treasury Regulations Incorporated. All distributions required under this article will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Internal Revenue Code.
1.5. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this article, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the plan that relate to section 242(b)(2) of TEFRA.
Section 2. Time and Manner of Distribution.
2.1. Required Beginning Date. The participant's entire interest will be distributed, or begin to be distributed, to the participant no later than the participant's required beginning date.
2.2. Death of Participant Before Distributions Begin. If the participant dies before distributions begin, the participant's entire interest will be distributed, or begin to be distributed, no later than as follows:
(a) If the participant's surviving spouse is the participant's sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, or by December 31 of the calendar year in which the participant would have attained age 70 1/2 if later, except to the extent that an election is made to receive distributions in accordance with the 5-year rule. Under the 5-year rule, the participant's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(b) If the participant's surviving spouse is not the participant's sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the participant died, except to the extent that an election is made to receive distributions in accordance with the 5-year rule. Under the 5-year rule, the participant's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(c) If there is no designated beneficiary as of September 30 of the year following the year of the participant's death, the participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(d) If the participant's surviving spouse is the participant's sole designated beneficiary and the surviving spouse dies after the participant but before distributions to the surviving spouse begin, this section 2.2, other than section 2.2(a), will apply as if the surviving spouse were the participant.
For purposes of this section 2.2 and section 4, unless section 2.2(d) applies, distributions are considered to begin on the participant's required beginning date. If section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under section 2.2(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the participant before the participant's required beginning date (or to the participant's surviving spouse before the date distributions are required to begin to the surviving spouse under section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence.
2.3. Forms of Distribution. Unless the participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with sections 3 and 4 of this article. If the participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations.
Section 3. Required Minimum Distributions During Participant's Lifetime.
3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:
(a) the quotient obtained by dividing the participant's account balance by the
distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's age as of the participant's
birthday in the distribution calendar year; or
(b) if the participant's sole designated beneficiary for the distribution calendar year is the participant's spouse, the quotient obtained by dividing the participant's account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the participant's and spouse's attained ages as of the participant's and spouse's birthdays in the distribution calendar year.
3.2. Lifetime Required Minimum Distributions Continue Through Year of Participant's Death. Required minimum distributions will be determined under this section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the participant's date of death.
Section 4. Required Minimum Distributions After Participant's Death.
4.1. Death On or After Date Distributions Begin.
(a) Participant Survived by Designated Beneficiary. If the participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the longer of the remaining life expectancy of the participant or the remaining life expectancy of the participant's designated beneficiary, determined as follows:
(1) The participant's remaining life expectancy is calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
(2) If the participant's surviving spouse is the participant's sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the participant's death using the surviving spouse's age as of the spouse's birthday in that year. For distribution calendar years after the year of the surviving spouse's death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year.
(3) If the participant's surviving spouse is not the participant's sole designated beneficiary, the designated beneficiary's remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the participant's death, reduced by one for each subsequent year.
(b) No Designated Beneficiary. If the participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the participant's death, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the participant's remaining life expectancy calculated using the age of the participant in the year of death, reduced by one for each subsequent year.
4.2. Death Before Date Distributions Begin.
(a) Participant Survived by Designated Beneficiary. If the participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the participant's death is the quotient obtained by dividing the participant's account balance by the remaining life expectancy of the participant's designated beneficiary, determined as provided in section 4.1, except to the extent that an election is made to receive distributions in accordance with the 5-year rule. Under the 5-year rule, the participant's entire interest will be distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(b) No Designated Beneficiary. If the participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the participant's death, distribution of the participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the participant's death.
(c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the participant dies before the date distributions begin, the participant's surviving spouse is the participant's sole designated beneficiary, and the surviving spouse dies before the distributions are required to begin to the surviving spouse under section 2.2(a), this section 4.2 will apply as if the surviving spouse were the participant.
Section 5. Definitions.
5.1. Designated Beneficiary. The individual who is designated as the beneficiary under the BENEFICIARY SECTION of Article X of the plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
5.2. Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before the participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the participant's required beginning date. For distributions beginning after the participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 2.2. The required minimum distribution for the participant's first distribution calendar year will be made on or before the participant's required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution year in which the participant's required beginning date occurs, will be made on or before December 31 of that distribution calendar year.
5.3. Life Expectancy. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations.
5.4. Participant's Account Balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.
5.5. Required Beginning Date. The date specified in the DEFINITIONS SECTION of Article VII of the plan.
Section 6. Election to Allow Participants or Beneficiaries to Elect 5-Year Rule.
Participants or beneficiaries may elect on an individual basis whether the 5-year rule or the life expectancy rule in sections 2.2 and 4.2 of Article VII of the plan applies to distributions after the death of a participant who has a designated beneficiary. The election must be made no later than the earlier of September 30 of the calendar year in which distribution would be required to begin under section 2.2 of Article VII of the plan, or by September 30 of the calendar year which contains the fifth anniversary of the participant's (or, if applicable, surviving spouse's) death. If neither the participant nor beneficiary makes an election under this paragraph, distributions will be made in accordance with the life expectancy rule under sections 2.2 and 4.2 of Article VII of the plan.
Section 7. Election to Allow Designated Beneficiary Receiving Distributions Under 5-Year Rule to Elect Life Expectancy Distributions.
A designated beneficiary who is receiving payments under the 5-year rule may make a new election to receive payments under the life expectancy rule until December 31, 2003, provided that all amounts that would have been required to be distributed under the life expectancy rule for all distribution calendar years before 2004 are distributed by the earlier of December 31, 2003 or the end of the 5-year period.
This amendment is made an integral part of the aforesaid Plan and is controlling over the terms of said Plan with respect to the particular items addressed expressly therein. All other provisions of the Plan remain unchanged and controlling.
Unless otherwise stated on any page of this amendment, eligibility for benefits and the amount of any benefits payable to or on behalf of an individual who is an inactive participant on the effective date(s) stated above, shall be determined according to the provisions of the aforesaid Plan as in effect on the day before he became an inactive participant.
Signing this amendment, the Employer, as plan sponsor, has made the decision to adopt this plan amendment. The Employer is acting in reliance on its own discretion and on the legal and tax advice of its own advisors, and not that of any member of the Principal Financial Group or any representative of a member company of the Principal Financial Group.
For the Employer, |
By: /S/ PAUL CHRISTENSEN |
Vice President Human Resources |
Business Title |
February 11, 2004 |
Date |
(4-49731)-1
GOOD FAITH COMPLIANCE AMENDMENT FOR THE
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 (EGTRRA)
This amendment of the Plan is adopted to reflect certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This amendment is intended as good faith compliance with the requirements of EGTRRA and is to be construed in accordance with EGTRRA and guidance issued thereunder. Except as otherwise provided, this amendment shall be effective as of the first day of the first Plan Year beginning after December 31, 2001. This amendment shall continue to apply to the Plan, including the Plan as later amended, until such provisions are integrated into the Plan or the good faith compliance EGTRRA amendment provisions are specifically amended.
This amendment shall supersede the provisions of the Plan to the extent those provisions are inconsistent with the provisions of this amendment.
OSHKOSH B' GOSH, INC. 401(k) PLAN
The Plan named above gives the Employer the right to amend it at any time. According to that right, the Plan is amended as follows:
INCREASE IN COMPENSATION LIMIT
For Plan Years beginning on and after January 1, 2002, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $200,000, as adjusted for increases in the cost-of-living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year.
If Compensation for any prior determination period is taken into account in determining a Participant's contributions or benefits for the current Plan Year, the Compensation for such prior determination period is subject to the applicable annual compensation limit in effect for that determination period. For this purpose, in determining contributions or benefits in Plan Years beginning on or after January 1, 2002, the annual Compensation limit in effect for determination periods beginning before that date is $200,000.
LIMITATIONS ON CONTRIBUTIONS
Effective date. This section shall be effective for Limitation Years beginning after December 31, 2001.
Maximum Annual Addition. Except to the extent permitted in the Catch-up Contributions section of this amendment that provides for catch-up contributions under EGTRRA section 631 and Code Section 414(v), if applicable, the Annual Addition that may be contributed or allocated to a Participant's Account under the Plan for any Limitation Year shall not exceed the lesser of:
$40,000, as adjusted for increases in the cost-of-living under Code Section 415(d), or
100 percent of the Participant's Compensation, for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any contribution for medical benefits after separation from service (within the meaning of Code Section 401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition.
ELECTIVE DEFERRALS -- CONTRIBUTION LIMITATION
No Participant shall be permitted to have Elective Deferral Contributions, as defined in the EXCESS AMOUNTS Section, made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year in excess of the dollar limitation contained in Code Section 402(g) in effect for such taxable year, except to the extent permitted in the Catch-up Contributions section of this amendment that provides for catch-up contributions under EGTRRA section 631 and Code Section 414(v), if applicable.
CATCH-UP CONTRIBUTIONS
Effective Date. This section shall apply to Contributions received after December 31, 2001.
Catch-up Contributions. All employees who are eligible to make Elective Deferral Contributions under this Plan and who have attained age 50 before the close of the Plan Year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Code Section 414(v), unless otherwise specified below. Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Code Sections 402(g) and 415. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Code Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b), or 416, as applicable, by reason of the making of such catch-up contributions.
DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS
Effective date. This section shall apply to distributions made after December 31, 2001. The provisions of the second modification of this section shall not apply if the Plan does not provide for hardship distributions. The provisions of the third modification of this section shall not apply if the Plan does not have after-tax employee contributions.
Modification of definition of Eligible Retirement Plan. For purposes of the DIRECT ROLLOVER Section, an Eligible Retirement Plan shall also mean an annuity contract described in Code Section 403(b) and an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan. The definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p).
Modification of definition of Eligible Rollover Distribution to exclude hardship distributions. For purposes of the DIRECT ROLLOVER Section, any amount that is distributed on account of hardship shall not be an Eligible Rollover Distribution and the Distributee may not elect to have any portion of such a distribution paid directly to an Eligible Retirement Plan.
Modification of definition of Eligible Rollover Distribution to include after-tax employee contributions. For purposes of the DIRECT ROLLOVER Section, a portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or individual retirement annuity described in Code Section 408(a) or (b), or to a qualified defined contribution plan described in Code Section 401(a) or 403(a) that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible.
ROLLOVERS FROM OTHER PLANS
The Plan will accept Participant Rollover Contributions and/or direct rollovers of distributions made after December 31, 2001 from the types of plans specified below beginning January 1, 2002. The Plan will accept all of the following sources of rollovers, unless otherwise specified in (a) below.
Direct Rollovers
The Plan will accept a direct rollover of an Eligible Rollover Distribution from:
a qualified plan described in Code Section 401(a) or 403(a), including after-tax employee contributions.
an annuity contract described in Code Section 403(b), excluding after-tax employee contributions.
an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.
Participant Rollover Contributions from Other Plans
The Plan will accept a Participant contribution of an Eligible Rollover Distribution from:
a qualified plan described in Code Section 401(a) or 403(a).
an annuity contract described in Code Section 403(b).
an eligible plan under Code Section 457(b) which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state.
Participant Rollover Contributions from IRAs
The Plan will accept a Participant Rollover Contribution of the portion of a distribution from an individual retirement account or individual retirement annuity described in Code Section 408(a) or (b) that is eligible to be rolled over and would otherwise be includible in gross income.
The Plan will accept Participant Rollover Contributions and/or direct rollovers of distributions made after December 31, 2001 from the types of plans specified below beginning January 1, 2002. (Select any that apply.)
Direct Rollovers
The Plan will accept a direct rollover of an Eligible Rollover Distribution from:
a qualified plan described in Code Section 401(a) or 403(a), excluding after-tax employee contributions. (Cannot select if (i) is selected.)
an annuity contract described in Code Section 403(b), excluding after-tax employee contributions.
REPEAL OF MULTIPLE USE TEST
The multiple use test described in Treasury Regulation section 1.401(m)-2 and the EXCESS AMOUNTS Section shall not apply for Plan Years beginning after December 31, 2001.
DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT
Effective date. This section shall apply for distributions due to severance from employment occurring after December 31, 2001 and distributions that are processed after December 31, 2001 regardless of when the severance from employment occurred.
New distributable event -- Distribution Upon Severance From Employment. A Participant's Elective Deferral Contributions, Qualified Nonelective Contributions, if any, Qualified Matching Contributions, if any, and earnings attributable to these Contributions shall be distributed on account of the Participant's severance from employment. However, such a distribution shall be subject to the other provisions of the Plan regarding distributions, other than provisions that require a separation from service before such amounts may be distributed.
SUSPENSION PERIOD FOLLOWING HARDSHIP DISTRIBUTION
The suspension period following a hardship distribution will be decreased, unless otherwise specified in (a) below. A Participant who receives a distribution of elective deferrals after December 31, 2001, on account of hardship shall be prohibited from making elective deferrals and participant contributions under this and all other plans of the Employer for six months after receipt of the distribution. A Participant who receives a distribution of elective deferrals in calendar year 2001 on account of hardship shall be prohibited from making elective deferrals and participant contributions under this and all other plans of the Employer for six months after receipt of the distribution or until January 1, 2002, if later.
MODIFICATION OF TOP-HEAVY RULES
Effective date. This section shall apply for purposes of determining whether the Plan is a Top-heavy Plan for Plan Years beginning after December 31, 2001, and whether the Plan satisfies the minimum benefits requirements of Code Section 416(c) for such years. This section amends the Top-heavy Plan Requirements Article of the Plan.
Determination of top-heavy status.
Key Employee means any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the determination period was:
a) an officer of the Employer if such individual's annual Compensation is more than $130,000 (as adjusted under Code Section 416(i)(1) for Plan Years beginning after December 31, 2002),
b) a 5-percent owner of the Employer, or
c) a 1-percent owner of the Employer who has annual Compensation of more than $150,000.
The determination period is the Plan Year containing the Determination Date.
The determination of who is a Key Employee shall be made according to Code Section 416(i)(1) and the applicable regulations and other guidance of general applicability issued thereunder.
Determination of present values and amounts. This section shall apply for purposes of determining the present values of accrued benefits and the amounts of account balances of Employees as of the Determination Date.
Distributions during year ending on the Determination Date. The present values of accrued benefits and the amounts of account balances of an Employee as of the Determination Date shall be increased by the distributions made with respect to the Employee under the Plan and any plan aggregated with the Plan under Code Section 416(g)(2) during the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Code Section 416(g)(2)(A)(i). In the case of a distribution made for a reason other than separation from service, death, or disability, this provision shall be applied by substituting "five-year period" for "one-year period."
Employees not performing services during year ending on the Determination Date. The accrued benefits and accounts of any individual who has not performed services for the Employer during the one-year period ending on the Determination Date shall not be taken into account.
Minimum benefits.
Matching contributions. Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Code Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect to Matching Contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Code Section 401(m).
Contributions under other plans. The Employer may provide in the Plan that the minimum benefit requirement shall be met in another plan (including another plan that consists solely of a cash or deferred arrangement which meets the requirements of Code Section 401(k)(12) and matching contributions with respect to which the requirements of Code Section 401(m)(11) are met).
PLAN LOANS FOR OWNER-EMPLOYEES AND SHAREHOLDER EMPLOYEES
Effective for plan loans made after December 31, 2001, plan provisions prohibiting loans to any shareholder-employee or Owner-employee shall cease to apply.
This amendment is made an integral part of the aforesaid Plan and is controlling over the terms of said Plan with respect to the particular items addressed expressly therein. All other provisions of the Plan remain unchanged and controlling.
Unless otherwise stated on any page of this amendment, eligibility for benefits and the amount of any benefits payable to or on behalf of an individual who is an Inactive Participant on the effective date(s) stated above, shall be determined according to the provisions of the aforesaid Plan as in effect on the day before he became an Inactive Participant.
Signing this amendment, the Employer, as plan sponsor, has made the decision to adopt this plan amendment. The Employer is acting in reliance on its own discretion and on the legal and tax advice of its own advisors, and not that of any member of the Principal Financial Group or any representative of a member company of the Principal Financial Group.
Signed this 31 day of December , 2003.
For the Employer |
By /S/ DAVID L. OMACHINSKI |
Title Exec VP, COO, CFO & Treasurer |
AMENDMENT TO ADD TRANSACTION PROCESSING SECTION
OSHKOSH B'GOSH, INC. 401(K) PLAN
The Plan named above gives the Employer the right to amend it at any time. According to that right, the Plan is amended effective as of the signature date below, as follows:
By adding to the Table of Contents the following Section 9.08:
Section 9.08 ----- Transaction Processing
By adding the following Section 9.08 to Article IX:
SECTION 9.08--TRANSACTION PROCESSING.
Transactions (including, but not limited to, investment directions, trades, loans, and distributions) shall be processed as soon as administratively practicable after proper directions are received from the Participant or such other parties. No guarantee is made by the Plan, Plan Administrator, Trustee, Insurer, or Employer that such transactions will be processed on a daily or other basis, and no guarantee is made in any respect regarding the processing time of such transactions.
Notwithstanding any other provision of the Plan, the Employer, the Plan Administrator, or the Trustee reserves the right to not value an investment option on any given Valuation Date for any reason deemed appropriate by the Employer, the Plan Administrator, or the Trustee. Administrative practicality will be determined by legitimate business factors (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and correction for errors or omissions or the errors or omissions of any service provider) and in no event will be deemed to be less than 14 days. The processing date of a transaction shall be binding for all purposes of the Plan and considered the applicable Valuation Date for any transaction.
This amendment is made an integral part of the aforesaid Plan and is controlling over the terms of said Plan with respect to the particular items addressed expressly herein. All other provisions of the Plan remain unchanged and controlling.
Unless otherwise stated on any page of this amendment, eligibility for benefits and the amount of any benefits payable to or on behalf of an individual who is an Inactive Participant on the effective date(s) stated above, shall be determined according to the provisions of the aforesaid Plan as in effect on the day before he became an Inactive Participant.
Signed this 31 day of December , 2003.
For the Employer |
By /S/ DAVID L. OMACHINSKI |
Title Exec VP, COO, CFO & Treasurer |
EXHIBIT 10.3
OSHKOSH B'GOSH, INC.
EXECUTIVE NON-QUALIFIED PROFIT SHARING PLAN
(As Amended and Restated as of January 1, 2003)
OshKosh B'Gosh, Inc. (the "Company") maintained the OshKosh B'Gosh, Inc. Profit Sharing Plan (the "Profit Sharing Plan"), a tax-qualified deferred profit sharing plan, which effective January 1, 1989 was amended to exclude certain classes of employees formerly eligible from participation therein including the President, all Vice Presidents and any employee whose title included designation as a director of a particular aspect of the Company's business (the "Excluded Key Employee Group"), which exclusion was continued until January 1, 1995 (the period from January 1, 1989 to January 1, 1995 being hereafter referred to as the "Exclusion Period"), and
The intent hereof is that the balance in each Participant's Account under this Non-Qualified Plan from time to time shall be equal to the balance that would have existed in the discretionary contribution component of the 401(k) Plan (or for years prior to 2003, the Profit Sharing Plan) from time to time to reflect post-January 1, 1989 Company or Participating Employer contributions, forfeitures and investment adjustments thereon that would have occurred under the terms of the discretionary contribution component of the 401(k) Plan (or for years prior to 2003, the Profit Sharing Plan) if the Participant had been able to continue thereunder or, as the case may be, begin participation thereunder at any later date and continue until the date of termination of service with the Company and all controlled group members, in either case as if the discretionary contribution component of the 401(k) Plan (or for years prior to 2003, the Profit Sharing Plan) had not included a Participant Compensation Ceiling.
3. Vesting. All individuals who are Participants as of December 31, 1996 shall at all times have a 100% vested interest in the Account balance established for them under this Non-Qualified Plan. All individuals who become Participants on or after January 1, 1997 shall become vested in their Account balances established hereunder on the same terms and conditions as apply under the discretionary contribution component of the 401(k) Plan (or, for years prior to 2003, the Profit Sharing Plan), all of which are hereby incorporated by reference.
4. Participating Employer. A Participating Employer is an employer included in the Company's "controlled group" (as that term is defined in the 401(k) Plan), which is authorized by the Company to participate in this Non-Qualified Plan, by extending the same to such Participating Employer's eligible employees.
5. Incorporation by Reference. The applicable terms and conditions related to the discretionary contribution component of the 401(k) Plan (or, for years prior to 2003, the Profit Sharing Plan), as amended from time to time, are hereby incorporated by reference into this Non-Qualified Plan (subject however to the 100% vesting provision for accounts as set forth in paragraph 3 above). It is intended that the Accounts in this Non-Qualified Plan be subject to all of the terms and conditions of the 401(k) Plan described above, subject only to the following special limitations:
(a) Prevented Allocations and Prevented Investment Adjustments shall be determined and credited or debited to Accounts hereunder, as the case may be, at the same time and in like amount as if the Account were held under the discretionary contribution component of the 401(k) Plan (or for years prior to 2003, the Profit Sharing Plan.)
(b) The Company or Participating Employer shall commence payments of the vested Account balances under this Non-Qualified Plan on or about March 15th of the year following the year in which the Participant's service terminates, in accordance with (c) below.
(c) Account balances under the Non-Qualified Plan shall be paid to the Participant (or Beneficiary, as the case may be), in one of the following methods:
Anniversary of |
Portion of Participant's |
1st |
1/9 |
2nd |
1/8 |
3rd |
1/7 |
4th |
1/6 |
5th |
1/5 |
6th |
1/4 |
7th |
1/3 |
8th |
1/2 |
9th |
Remainder |
6. Claims Procedure. The claims procedure in the 401(k) Plan (or, for years prior to 2003, the Profit Sharing Plan) shall apply in full to this Non-Qualified Plan.
7. Company or Committee to Administer. The Company or the retirement committee described in the 401(k) Plan shall have full and complete discretionary power and authority to construe and interpret this Non-Qualified Plan and to resolve all questions hereunder. Neither the Company, the Participating Employers, nor any member of the retirement committee or any other person shall be liable for any act or failure to act hereunder, except for gross negligence or fraud.
8. Unsecured Creditor. To the extent that any person acquires a right to receive payments from the Company or a Participating Employer under this Plan, such right shall be no greater than the right of an unsecured creditor.
EXHIBIT A
The following is a listing of employees currently (as of January 1, 2003) participating in the Oshkosh B'Gosh, Inc. Executive Non-Qualified Profit Sharing Plan:
(LIST)
EXHIBIT 10.9
AMENDMENT NO. 1 TO CREDIT AGREEMENT AND ASSIGNMENT AND
ACCEPTANCE AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT AND ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Amendment"), entered into as of October 30, 2003, is among OshKosh B'Gosh, Inc., a Delaware corporation (the "Borrower"), U.S. Bank National Association ("U.S. Bank"), for itself as a Bank, an LOC Bank and as Agent (the "Agent") for all Banks from time to time party to the Credit Agreement (defined below), each of the Banks signatory hereto and each of the LOC Banks signatory hereto.
W I T N E S S E T H:
WHEREAS, Borrower, Agent, the Banks signatory thereto and the LOC Banks signatory thereto are parties to a Credit Agreement dated as of November 1, 2002 (the "Credit Agreement"), pursuant to which the Banks have agreed to make certain revolving and swingline loans and to extend credit to Borrower of up to the amount of $75,000,000 upon the terms and subject to the conditions set forth therein; and
WHEREAS, the parties to this Amendment desire to amend the Credit Agreement to extend the final maturity of the Revolving Credit Notes, to modify the required Consolidated Debt to EBITDA Ratio and to reflect the assignment by Harris Trust and Savings Bank ("Harris") and the acceptance by Fifth Third Bank (the "Assignee") of Harris' interest in the Credit Agreement, as amended hereby, Loans, Notes and Commitments, as set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions contained herein, the parties hereto hereby agree as follows:
"Organization. The Company is a corporation duly organized and existing in good standing under the laws of Delaware, and has all requisite power and authority, corporate or otherwise, to conduct its business and to own its properties. Each of its Subsidiaries is a corporation, a limited liability company or a partnership duly organized and existing and in good standing under the laws of the jurisdiction under which it was organized, and has all requisite power and authority to conduct its business and to own its properties. Set forth in Schedule 4.1 (dated 10/21/03 for reference purposes) is a complete and accurate list of all of its Subsidiaries, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the percentage of the outstanding shares of each class of capital stock or limited liability company or partnership interests owned (directly or indirectly) by the Company and the number of shares or limited liability company or partnership interests covered by all outstanding options, warrants, rights of conversion or purchase, and similar rights. All of the outstanding stock of all of the corporate Subsidiaries has been legally and validly issued, is fully paid and non-assessable except as provided by section 180.0622(2)(b) of the Wisconsin Business Corporation Law and its predecessor statute, as judicially interpreted. All of the limited liability company and partnership interests of the non-corporate Subsidiaries have been legally and validly issued. All of the outstanding stock of the corporate Subsidiaries and all of the limited liability company and partnership interests of the non-corporate Subsidiaries is owned by the Company or one or more other Subsidiaries free and clear of all pledges, liens, security interests and other charges or encumbrances. The Company is duly licensed or qualified to do business in all jurisdictions in which such qualification is required, and failure to so qualify could have a material adverse effect on the property, financial condition or business operations of the Company."
"(5) any indebtedness payable to the Guarantor by the Company,"
"At the end of the second fiscal quarter of each year, a Consolidated Debt to EBITDA Ratio for the four consecutive fiscal quarters then ended not greater than 1.75 to 1; and at the end of every other fiscal quarter, a Consolidated Debt to EBITDA Ratio for the four consecutive fiscal quarters then ended not greater than 1.00 to 1."
[Signature Pages Follow]
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.
OSHKOSH B'GOSH, INC. |
|
By: |
/S/ David L. Omachinski |
Name: |
David L. Omachinski |
Title: |
Executive Vice President, Chief Operating and Financial Officer and Treasurer |
(Signature Page 1 of 6 to Amendment No. 1 to Credit Agreement)
U.S. BANK NATIONAL ASSOCIATION, |
|
By: |
/S/ Jeffrey Janza |
Name: |
Jeffrey Janza |
Title: |
Vice President |
(Signature Page 2 of 6 to Amendment No. 1 to Credit Agreement)
HARRIS TRUST AND SAVINGS BANK, |
|
By: |
/S/ Michael M. Fordney |
Name: |
Michael M Fordney |
Title: |
Vice President |
(Signature Page 3 of 6 to Amendment No. 1 to Credit Agreement)
FIFTH THIRD BANK, |
|
By: |
/S/ Ann Pierson |
Name: |
Ann Pierson |
Title: |
Assistant Vice President |
(Signature Page 4 of 6 to Amendment No. 1 to Credit Agreement)
WELLS FARGO HSBC TRADE BANK N.A., as a Bank |
|
By: |
/S/ Gregory J. Klinger |
Name: |
Gregory J. Klinger |
Title: |
Vice President |
(Signature Page 5 of 6 to Amendment No. 1 to Credit Agreement)
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, as an LOC Bank |
|
By: |
/S/ Helen H. Chui |
Name: |
Helen H. Chui |
Title: |
Relationship Manager |
(Signature Page 6 of 6 to Amendment No. 1 to Credit Agreement)
SCHEDULE I
SCHEDULE FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
1. The Borrower: OshKosh B'Gosh, Inc.
2. Name and Date of Credit Agreement:
Credit Agreement, dated as of November 1, 2002 among the Borrower, the banks from time to time party thereto, and U.S. Bank National Association, as Agent, as amended, restated, supplemented or otherwise modified.
3. Date of assignment: October 30, 2003
4. Amounts (as of date of item #3 above):
Aggregate |
||
a. Aggregate Amount for all Banks |
$75,000,000 |
|
b. Assigned Share |
26.666666666667% |
|
c. Amount of Assigned Share |
$20,000,000 |
5. Settlement Date: October 30, 2003
6. Rate of Interest to the Assignee: As set forth in Section 2.1 of the Credit Agreement.
7. Commitment Fee to
the Assignee: As set forth in Section 1.6 of the Credit Agreement.
8. Utilization Fee to
the Assignee As set forth in Section 1.7 of the Credit Agreement
9. Letter of Credit Fee to
the Assignee: As set forth in Section 1.4 of the Credit Agreement.
9. Address for Notices: ASSIGNEE:
Fifth Third Bank |
EXHIBIT A
REVOLVING CREDIT NOTE
$_____________ October 30, 2003
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of ___________________________________, the principal sum of _________________________________ Dollars ($____________) at the main office of U.S. Bank National Association, in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
(CORPORATE SEAL)
OSHKOSH B'GOSH, INC. |
|
By: |
|
Name: |
David L. Omachinski |
Title: |
Executive Vice President and Chief Operating and Financial Officer and Treasurer |
REVOLVING CREDIT NOTE
$20,000,000 October 30, 2003
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of Fifth Third Bank, the principal sum of Twenty Million Dollars ($20,000,000) at the main office of U.S. Bank National Association, in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
(CORPORATE SEAL)
OSHKOSH B'GOSH, INC. |
|
By: |
/S/ David L. Omachinski |
Name: |
David L. Omachinski |
Title: |
Executive Vice President and Chief Operating and Financial Officer and Treasurer |
EXHIBIT B
CONFIRMATION OF GUARANTY
OshKosh B'Gosh Investments, Inc., a Nevada corporation (the "Guarantor"), hereby refers to its Corporate Guaranty Agreement (the "Guaranty") dated as of November 1, 2002, relating to the obligations of OshKosh B'Gosh, Inc., a Delaware corporation (the "Borrower"), under that Credit Agreement dated as of November 1, 2002, as amended from time to time (the "Credit Agreement") with the Banks named therein (the "Banks") and U.S. Bank National Association, as Agent for the Banks (the "Agent").
The Borrower, Agent, the Banks and the LOC Banks have entered into an Amendment No. 1 to Credit Agreement of even date herewith (the "Amendment"). Effectiveness of the Amendment is subject to, among other things, execution and delivery of this Confirmation of Guaranty by the Guarantor.
It is necessary for the business purposes of the Guarantor that the Borrower continue to obtain credit from the Banks under the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. The Guarantor is a direct wholly-owned subsidiary of the Borrower.
The Guarantor hereby acknowledges and consents to the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time and the transactions contemplated thereby and agrees that its Guaranty shall remain in full force and effect with respect to the obligations of the Borrower under the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. The Guarantor hereby further confirms that all references in the Guaranty to the "Credit Agreement" shall be deemed to be references to the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. In addition, the Guarantor hereby confirms and agrees that the provisions of the Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or ot her law affecting the rights of creditors generally, if the obligations of the Guarantor under the Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of the Guarantor's liability under the Guaranty, then, notwithstanding any other provision of the Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor, the Banks, the LOC Banks or Agent, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding.
Dated as of October 30, 2003.
OSHKOSH B'GOSH INVESTMENTS |
|
By: |
|
Name: |
|
Title: |
CONFIRMATION OF GUARANTY
OshKosh B'Gosh Investments, Inc., a Nevada corporation (the "Guarantor"), hereby refers to its Corporate Guaranty Agreement (the "Guaranty") dated as of November 1, 2002, relating to the obligations of OshKosh B'Gosh, Inc., a Delaware corporation (the "Borrower"), under that Credit Agreement dated as of November 1, 2002, as amended from time to time (the "Credit Agreement") with the Banks named therein (the "Banks") and U.S. Bank National Association, as Agent for the Banks (the "Agent").
The Borrower, Agent, the Banks and the LOC Banks have entered into an Amendment No. 1 to Credit Agreement of even date herewith (the "Amendment"). Effectiveness of the Amendment is subject to, among other things, execution and delivery of this Confirmation of Guaranty by the Guarantor.
It is necessary for the business purposes of the Guarantor that the Borrower continue to obtain credit from the Banks under the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. The Guarantor is a direct wholly-owned subsidiary of the Borrower.
The Guarantor hereby acknowledges and consents to the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time and the transactions contemplated thereby and agrees that its Guaranty shall remain in full force and effect with respect to the obligations of the Borrower under the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. The Guarantor hereby further confirms that all references in the Guaranty to the "Credit Agreement" shall be deemed to be references to the Credit Agreement as amended by the Amendment, and as it may be further amended, restated, or otherwise modified from time to time. In addition, the Guarantor hereby confirms and agrees that the provisions of the Guaranty are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or ot her law affecting the rights of creditors generally, if the obligations of the Guarantor under the Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of the Guarantor's liability under the Guaranty, then, notwithstanding any other provision of the Guaranty to the contrary, the amount of such liability shall, without any further action by the Guarantor, the Banks, the LOC Banks or Agent, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding.
Dated as of October 30, 2003.
OSHKOSH B'GOSH INVESTMENTS |
|
By: |
/S/ William A. Uelmen |
Name: |
William A. Uelmen |
Title: |
President |
APPENDIX A
Schedule of Banks
Bank |
Address for Notice |
Commitment |
Percentage |
U.S. Bank National Association Agent |
Mr. Stephen E. Carlton |
||
U.S. Bank National Association Bank |
Mr. Jeffrey J. Janza |
30,000,000 |
40.000000000000% |
FIFTH THIRD BANK |
Ms. Ann-Drea Burns |
20,000,000 |
26.666666666667% |
Wells Fargo HSBC Trade Bank N.A. |
Ms. Colleen H. Fritschel |
25,000,000 |
33.333333333333% |
OshKosh B'Gosh, Inc.
112 Otter Avenue
Oshkosh, Wisconsin 54901-5008
CREDIT AGREEMENT
as of November 1, 2002
U.S. Bank National Association, individually and as Agent 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 |
Wells Fargo HSBC Trade Bank N.A. 6th and Marquette Minneapolis, Minnesota 55479 |
Harris Trust and Savings Bank, 111 West Monroe Street Chicago, Illinois 60603 |
Ladies/Gentlemen:
OshKosh B'Gosh, Inc., a Delaware corporation with its principal offices located in the City of Oshkosh, Wisconsin (the "Company"), hereby agrees with each of you (collectively the "Banks" and individually a "Bank"), and U.S. Bank National Association, as Agent (the "Agent"), as follows:
Upon its receipt of such notice from the Company, the Agent shall promptly give notice to the other Banks, each of which shall have its respective portion of the requested Loan available to the Agent in Milwaukee in immediately available funds not later than 2:00 p.m., Milwaukee time, on the Borrowing Date. Out of the funds received from each Bank for the making of the Loans hereunder, the Agent will make a Loan to the Company in such amount on behalf of such Banks. Notes and other required documents delivered to the Agent for the account of each Bank shall be promptly delivered to such Bank, or in accordance with instructions received from it, together with copies of such other documents received in connection with the borrowing as such Bank shall request.
Unless the Agent shall have been notified by telephone, confirmed promptly thereafter in writing, by a Bank not later than 1:00 p.m., Milwaukee time, on a Borrowing Date that such Bank will not make available to the Agent such Bank's pro rata share of a requested Loan, the Agent may assume that such Bank has made such amount available to the Agent and, in reliance upon such assumption, make available to the Company on such Borrowing Date a corresponding amount. If and to the extent that such Bank, without giving such notice, shall not have so made such amount available to the Agent, such Bank and the Company severally agree to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Agent made such amount available to the Company to the date such amount is repaid to the Agent, at (i) in the case of the Company, the rate applicable to such Loan, and (ii) in the case of such Bank, the Federal Funds Rate f or each of the first three days (or fraction thereof) after the date of demand and the Variable Rate for each day (or fraction thereof) thereafter.
then, [a] such Bank will promptly notify the Company thereof, and [b] so long as such circumstances continue, such Bank will not be under any obligation to make any new Adjusted LIBOR Rate Loan so affected.
and the result of any of the foregoing is to increase the cost to (or in the case of Regulation D or any other analogous law, rule or regulation, to impose a cost on) such Bank of making or maintaining any Loans or issuing Letters of Credit hereunder, or to reduce the amount of any sum received or receivable by such Bank under this Agreement and any document or instrument related hereto; then upon notice from such Bank (which notice shall be sent to the Agent and the Company and shall be accompanied by a statement setting forth in reasonable detail the basis of such increased cost or other effect on the Loans or Letters of Credit), the Company shall pay directly to such Bank, on demand, such additional amount or amounts as will compensate such Bank for such increased cost or such reduction.
Without limiting any of the other terms of this Agreement, none of the Banks shall be required to make any Loan to the Company hereunder or issue any Letter of Credit unless each of the following conditions has been satisfied:
In order to induce the Banks to make the Loans as provided herein, the Company represents and warrants to the Banks as follows:
While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid or any Letter of Credit Obligation remains outstanding, the Company shall not do any of the following, or permit any Subsidiary to do any of the following, without the prior written consent of the Required Banks:
While any part of the credit granted to the Company is available and while any part of the principal of or interest on any Note remains unpaid or any Letter of Credit Obligation is outstanding, and unless waived in writing by the Required Banks, the Company shall:
The financial statements referred to in (a) and (b) above shall be accompanied by a certificate by the chief financial officer of the Company demonstrating compliance with the covenants in section 6.1 during the relevant period and stating that, as of the close of the last period covered in such financial statements, no condition or event had occurred which constitutes a Default hereunder or which, after notice or lapse of time or both, would constitute a Default hereunder (or if there was such a condition or event, specifying the same). The Agent shall promptly furnish to each of the Banks (i) copies of the certificates delivered to the Agent pursuant to this paragraph, and (ii) copies of any statements delivered to the Agent pursuant to section 6.6(d) or (e) above.
Adjusted LIBOR Rate = |
LIBOR Rate |
+ 0.75% per annum |
1 - LIBOR Reserve Requirement |
all as determined in accordance with generally accepted accounting principles applied on a consolidated basis to the Company and its Subsidiaries.
all as determined in accordance with generally accepted accounting principles applied on a consolidated basis to the Company and its Subsidiaries.
all as determined in accordance with generally accepted accounting principles applied on a consolidated basis to the Company and its Subsidiaries.
Minus:
all as determined in accordance with generally accepted accounting principles as applied on a consolidated basis to the Company and its Subsidiaries.
No amendment of any provision of this Agreement relating to the Agent, any LOC Bank or the Swingline Lender shall be effective without the written consent of the Agent, such LOC Bank, or the Swingline Lender, respectively.
Upon execution, delivery, and acceptance of such assignment, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Bank hereunder and the assigning Bank shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this section 9.11(a), the assignor, the Agent and the Company shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee.
[Remainder of Page Intentionally Left Blank]
If the foregoing is satisfactory to you, please sign the form of acceptance below and return a signed counterpart hereof to the Company. When this instrument has been executed and delivered by all of the Banks, it will evidence a binding agreement between the Banks and the Company.
Very truly yours, OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
(CORPORATE SEAL)
[Bank signature pages follow]
The foregoing Agreement is hereby confirmed and accepted as of the date thereof.
U.S. BANK NATIONAL ASSOCIATION, |
By: /S/ JEFF JANZA |
HARRIS TRUST AND SAVINGS BANK |
By: /S/ MICHAEL M. FORDNEY |
WELLS FARGO HSBC TRADE BANK N.A. |
By: /S/ COLLEEN FRITSCHEL |
THE HONGKONG AND SHANGHAI |
By: /S/ HELEN H CHUI |
EXHIBIT 1.1
(Form of Revolving Credit Note)
REVOLVING CREDIT NOTE
$____________ __________________, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of ________________________________________________, the principal sum of __________________ Dollars ($_______________) at the main office of U.S. Bank National Association in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC.
By:
Vice President of Finance
(CORPORATE SEAL)
EXHIBIT 1.2
(Form of Swingline Note)
SWINGLINE NOTE
$____________ __________________, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of U.S. Bank National Association, without setoff or counterclaim, the principal sum of (a) _________ Million Dollars ($________) or, if less, (b) the aggregate unpaid principal amount of all Swingline Loans made to the undersigned pursuant to section 1.2 of the Credit Agreement referred to below, at the Main Office of U.S. Bank National Association, in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). This Note shall bear interest payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. All amounts payable under this Note and the Credit Agreement shall be payable in lawful money of the United States of America.
This Note constitutes the Swingline Note issued under a Credit Agreement dated as of November 1, 2002 (the "Credit Agreement"), among the undersigned, U.S. Bank National Association, for itself and as Agent, and the Banks from time to time party thereto, to which Credit Agreement reference is hereby made for a statement of the terms and conditions on which Swingline Loans evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC.
By:
Vice President of Finance
(CORPORATE SEAL)
EXHIBIT 2.2
LOAN REQUEST/COMMERCIAL PAPER REPORT
[DATE]
U.S. Bank National Association
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Re: Credit Agreement Dated as of November 1, 2002, as amended (the "Credit Agreement")
Gentlemen:
Part 1: Loan Request
OshKosh B'Gosh, Inc. (the "Company") hereby applies to you, as Agent, for Revolving Credit Loans under the Credit Agreement to be made on ____________, ____ in the aggregate principal amount of $_______________.
The undersigned hereby certifies as follows:
The loans will bear interest at the:
[check appropriate box]
[_____] Variable Rate
[_____] Adjusted LIBOR Rate
If the loans will bear interest at the Adjusted LIBOR Rate, the Interest Period shall be ____ months (one, two, three or six months).
Part 2: Commercial Paper Report
After giving effect to all Commercial Paper transactions entered into by the Company through the date hereof, the aggregate principal amount of all Commercial Paper of the Company now outstanding is $____________.
Capitalized definitional terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
Very truly yours,
OSHKOSH B'GOSH, INC.
By: _________________________________
Vice President of Finance
EXHIBIT 2.5
CONVERSION/CONTINUATION REQUEST
_______________, ____
U.S. Bank National Association
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Re: Credit Agreement Dated as
of November 1, 2002 (the "Agreement")
Gentlemen:
The undersigned elects to convert/continue the following portion of the outstanding Loans under the Agreement:
[check appropriate box]
[_____] Variable Rate Loans
[_____] Adjusted LIBOR Rate Loans
$_________________________
[check appropriate box]
[_____] Variable Rate Loans
[_____] Adjusted LIBOR Rate Loans
$_____________________ (applicable only to Adjusted LIBOR Rate Loans)
Very truly yours,
OSHKOSH B'GOSH, INC.
By: ________________________________
Vice President of Finance
EXHIBIT 5.4
(Form of Corporate Guaranty)
CORPORATE GUARANTY AGREEMENT
THIS AGREEMENT is made as of __________________, ____, by _______________________________, a _______________ corporation (hereinafter called "Guarantor").
R E C I T A L S :
C O V E N A N T S :
IN CONSIDERATION OF these premises and any credit or financial accommodation now or hereafter granted by Creditors to any Debtor, it is agreed that:
__________________________________________
By: ____________________________________
Title: _______________________________
(CORPORATE SEAL)
Attest: ______________________________
Title: _________________________
APPENDIX A
Schedule of Banks
Bank |
Address for Notice |
Commitment Amount |
Percentage Interest |
U.S. Bank National Association Agent |
Mr. Stephen E. Carlton |
||
U.S. Bank National Association Bank |
Mr. Jeffrey J. Janza |
30,000,000 |
40.000000000000% |
Harris Trust and Savings Bank |
Mr. Michael Fordney |
20,000,000 |
26.666666666667% |
Wells Fargo HSBC Trade Bank N.A. |
Ms. Colleen H. Fritschel |
25,000,000 |
33.333333333333% |
REVOLVING CREDIT NOTE
$30,000,000 November 1, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of U.S. Bank National Asdsociation, the principal sum of Thirty Million Dollars ($30,000,000) at the main office of U.S. Bank National Association in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
(CORPORATE SEAL)
REVOLVING CREDIT NOTE
$20,000,000 November 1, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of Harris Trust and Savings Bank, the principal sum of Twenty Million Dollars ($20,000,000) at the main office of U.S. Bank National Association in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
(CORPORATE SEAL)
REVOLVING CREDIT NOTE
$25,000,000 November 1, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of Wells Fargo HSBC Trade Bank N.A., the principal sum of Twenty Five Million Dollars ($25,000,000) at the main office of U.S. Bank National Association in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). The unpaid principal balance hereof shall bear interest, payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. Principal of and interest on this Note shall be payable in lawful money of the United States of America.
This Note constitutes one of the Revolving Credit Notes issued under a Credit Agreement dated as of November 1, 2002, as amended from time to time, among the undersigned and U.S. Bank National Association, for itself and as Agent, and the other Banks party thereto, to which Agreement reference is hereby made for a statement of the terms and conditions on which Loans in part evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
(CORPORATE SEAL)
SWINGLINE NOTE
$5,000,000 November 1, 2002
FOR VALUE RECEIVED, OshKosh B'Gosh, Inc., a Delaware corporation, promises to pay to the order of U.S. Bank National Association, without setoff or counterclaim, the principal sum of (a) Five Million Dollars ($5,000,000) or, if less, (b) the aggregate unpaid principal amount of all Swingline Loans made to the undersigned pursuant to section 1.2 of the Credit Agreement referred to below, at the Main Office of U.S. Bank National Association, in Milwaukee, Wisconsin, on the Termination Date (as defined in the Credit Agreement referred to below). This Note shall bear interest payable on the dates and at the rate or rates set forth in the Credit Agreement referred to below. All amounts payable under this Note and the Credit Agreement shall be payable in lawful money of the United States of America.
This Note constitutes the Swingline Note issued under a Credit Agreement dated as of November 1, 2002 (the "Credit Agreement"), among the undersigned, U.S. Bank National Association, for itself and as Agent, and the Banks from time to time party thereto, to which Credit Agreement reference is hereby made for a statement of the terms and conditions on which Swingline Loans evidenced hereby were or may be made, and for a description of the conditions upon which this Note may be prepaid, in whole or in part, or its maturity accelerated.
This Note shall be construed in accordance with laws of the State of Wisconsin, except to the extent superseded by federal law. The undersigned waives presentment, protest, and notice of dishonor and agrees, in the event of default hereunder, to pay all costs and expenses of collection, including reasonable attorneys' fees.
OSHKOSH B'GOSH, INC. |
By: /S/ DAVID L. OMACHINSKI |
(CORPORATE SEAL)
CORPORATE GUARANTY AGREEMENT
THIS AGREEMENT is made as of November 1, 2002, by OshKosh B'Gosh Investments, Inc., a Nevada corporation (hereinafter called "Guarantor").
R E C I T A L S :
C O V E N A N T S :
IN CONSIDERATION OF these premises and any credit or financial accommodation now or hereafter granted by Creditors to any Debtor, it is agreed that:
(a) The execution, delivery and performance of this Agreement by the Guarantor are within the corporate powers of the Guarantor, have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the stockholders of the Guarantor which has not been obtained, (ii) violate any provision of the articles of incorporation or by-laws of the Guarantor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Guarantor or any subsidiary of the Guarantor; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority, or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of the Guarantor or any subsidiary of the Guarantor pursuant to, any indenture or other agreement or instrument under which the Guarantor or any subsidiary of the Guarantor is a party or by which it or any of its properties may be bound or affected.
OSHKOSH B'GOSH INVESTMENTS, INC. |
By: /S/ WILLIAM UELMEN |
(CORPORATE SEAL)
EXHIBIT 21
The following is a list of subsidiaries of the Company as of January 3, 2004. The consolidated financial statements reflect the operations of all subsidiaries as they existed on January 3, 2004.
Name of Subsidiary |
State or Other |
|
Manufacturera International Apparel, S.A. |
Honduras |
|
OshKosh B'Gosh Asia/Pacific Ltd. (Inactive) |
Hong Kong |
|
OshKosh B'Gosh Investments, Inc. |
Nevada |
|
OshKosh B'Gosh Retail, Inc. |
Delaware |
|
OBG Distribution Company, LLC |
Wisconsin |
|
OBG Manufacturing Company |
Kentucky |
|
OBG Product Development, Inc. |
Delaware |
|
OshKosh B'Gosh Operations, LLC |
Wisconsin |
|
Millennia Manufacturing SRL de CV |
Mexico |
|
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements Nos. 333-01051 and 333-74038 on Form S-8 of OshKosh B'Gosh, Inc. of our report dated February 10, 2004 appearing in this Annual Report of Form 10-K of OshKosh B'Gosh, Inc. for the year ended January 3, 2004.
/S/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
March 16, 2004
EXHIBIT 31.1
CERTIFICATION
I, Douglas W. Hyde, certify that:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Date: March 16, 2004 |
By: |
/S/ DOUGLAS W. HYDE |
Douglas W. Hyde |
||
Chief Executive Officer |
||
EXHIBIT 31.2
CERTIFICATION
I, Michael L. Heider, certify that:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Date: March 16, 2004 |
By: |
/S/ MICHAEL L. HEIDER |
Michael L. Heider |
||
Vice President Finance, Treasurer and |
||
Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of OshKosh B'Gosh, Inc. (the "Company") on Form 10-K for the period ended January 3, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Douglas W. Hyde, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/S/ DOUGLAS W. HYDE |
Douglas W. Hyde |
Chief Executive Officer |
March 16, 2004 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to OshKosh B'Gosh, Inc. and will be retained by OshKosh B'Gosh, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of OshKosh B'Gosh, Inc. (the "Company") on Form 10-K for the period ended January 3, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael L. Heider, Vice President Finance, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/S/ MICHAEL L. HEIDER |
Michael L. Heider |
Vice President Finance, Treasurer and Chief Financial Officer |
March 16, 2004 |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to OshKosh B'Gosh, Inc. and will be retained by OshKosh B'Gosh, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.