SEC Info - Carter’s, Inc. - ‘10-Q’ for 7/2/22

ASSETS

Current assets:

Cash and cash equivalents

i 231,339

i 984,294

i 1,120,901

Accounts receivable, net of allowance for credit losses of $ i 5,758, $ i 7,281, and $ i 7,130, respectively

i 183,920

i 231,354

i 163,957

Finished goods inventories, net of inventory reserves of $ i 18,057, $ i 14,378, and $ i 15,726, respectively

i 858,258

i 647,742

i 619,617

Prepaid expenses and other current assets

i 81,482

i 50,131

i 66,549

Total current assets

i 1,354,999

i 1,913,521

i 1,971,024

Property, plant, and equipment, net of accumulated depreciation of $ i 548,013, $ i 528,926, and $ i 545,702, respectively

i 186,778

i 216,004

i 231,944

Operating lease assets

i 449,350

i 487,748

i 527,121

Tradenames, net

i 307,518

i 307,643

i 307,768

Goodwill

i 211,247

i 212,023

i 213,195

Customer relationships, net

i 32,248

i 33,969

i 35,777

Other assets

i 31,747

i 30,889

i 29,097

Total assets

i 2,573,887

i 3,201,797

i 3,315,926

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

i 408,006

i 407,044

i 356,826

Current operating lease liabilities

i 142,981

i 147,537

i 158,270

Other current liabilities

i 96,102

i 176,449

i 113,240

Total current liabilities

i 647,089

i 731,030

i 628,336

Long-term debt, net

i 616,275

i 991,370

i 990,437

Deferred income taxes

i 45,730

i 40,910

i 58,150

Long-term operating lease liabilities

i 400,046

i 441,861

i 484,881

Other long-term liabilities

i 43,881

i 46,440

i 56,618

Total liabilities

i 1,753,021

i 2,251,611

i 2,218,422

Commitments and contingencies - Note 14

Stockholders’ equity:

Preferred stock; par value $ i i i 0.01 / / per share; i i i 100,000 / / shares authorized; i i i i i i none / / / / / issued or outstanding at July 2, 2022, January 1, 2022, and July 3, 2021

i —

Common stock, voting; par value $ i i i 0.01 / / per share; i i i 150,000,000 / / shares authorized; i i 39,315,094 / , i i 41,148,870 / , and i i 44,011,080 / shares issued and outstanding at July 2, 2022, January 1, 2022, and July 3, 2021, respectively

i 393

i 411

i 440

Additional paid-in capital

i —

i 31,521

Accumulated other comprehensive loss

( i 32,203)

( i 28,897)

( i 27,263)

Retained earnings

i 852,676

i 978,672

i 1,092,806

Total stockholders’ equity

i 820,866

i 950,186

i 1,097,504

Total liabilities and stockholders’ equity

i 2,573,887

i 3,201,797

i 3,315,926

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)

Fiscal quarter ended

Two fiscal quarters ended

Net sales

i 700,695

i 746,400

i 1,481,980

i 1,533,761

Cost of goods sold

i 364,657

i 379,793

i 790,851

i 781,524

Adverse purchase commitments (inventory and raw materials), net

i 4,799

( i 2,100)

i 4,848

( i 8,430)

Gross profit

i 331,239

i 368,707

i 686,281

i 760,667

Royalty income, net

i 5,602

i 6,645

i 13,076

i 14,108

Selling, general, and administrative expenses

i 261,423

i 267,770

i 521,315

i 539,697

Operating income

i 75,418

i 107,582

i 178,042

i 235,078

Interest expense

i 8,652

i 15,295

i 23,784

i 30,643

Interest income

( i 272)

( i 201)

( i 610)

( i 426)

Other expense (income), net

i 17

( i 723)

( i 494)

( i 1,640)

Loss on extinguishment of debt

i 19,940

i —

i 19,940

i —

Income before income taxes

i 47,081

i 93,211

i 135,422

i 206,501

Income tax provision

i 10,111

i 21,608

i 30,519

i 48,702

Net income

i 36,970

i 71,603

i 104,903

i 157,799

Basic net income per common share

i 0.93

i 1.63

i 2.60

i 3.59

Diluted net income per common share

i 0.93

i 1.62

i 2.59

i 3.58

Dividend declared and paid per common share

i 0.75

i 0.40

i 1.50

i 0.40

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(dollars in thousands)

(unaudited)

Fiscal quarter ended

Two fiscal quarters ended

Net income

i 36,970

i 71,603

i 104,903

i 157,799

Other comprehensive (loss) income:

Foreign currency translation adjustments

( i 6,088)

i 4,271

( i 3,306)

i 5,497

Comprehensive income

i 30,882

i 75,874

i 101,597

i 163,296

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except share amounts)

(unaudited)

Common stock - shares

Common

stock - $

Additional

paid-in

capital

Accumulated other comprehensive

loss

Retained

earnings

Total

stockholders’

equity

Balance at January 2, 2021

i 43,780,075

i 438

i 17,752

( i 32,760)

i 952,603

i 938,033

Exercise of stock options

i 12,065

i —

i 811

i —

i 811

Withholdings from vesting
of restricted stock

( i 37,444)

i —

( i 3,588)

i —

( i 3,588)

Restricted stock activity

i 192,963

i 2

( i 2)

i —

Stock-based compensation expense

—

i —

i 6,931

i —

i 6,931

Comprehensive income

—

i —

i 1,226

i 86,196

i 87,422

Balance at April 3, 2021

i 43,947,659

i 440

i 21,904

( i 31,534)

i 1,038,799

i 1,029,609

Exercise of stock options

i 57,274

i —

i 4,336

i —

i 4,336

Withholdings from vesting
of restricted stock

( i 1,057)

i —

( i 110)

i —

( i 110)

Restricted stock activity

i 7,204

i —

Stock-based compensation expense

—

i —

i 5,391

i —

i 5,391

Cash dividends declared and paid of $ i 0.40 per common share

—

i —

( i 17,596)

Comprehensive income

—

i —

i 4,271

i 71,603

i 75,874

Balance at July 3, 2021

i 44,011,080

i 440

i 31,521

( i 27,263)

i 1,092,806

i 1,097,504

Common stock - shares

Common

stock - $

Additional

paid-in

capital

Accumulated other comprehensive

loss

Retained

earnings

Total

stockholders’

equity

Balance at January 1, 2022

i 41,148,870

i 411

i —

( i 28,897)

i 978,672

i 950,186

Exercise of stock options

i 5,100

i —

i 222

i —

i 222

Withholdings from vesting
of restricted stock

( i 70,452)

i —

( i 6,623)

i —

( i 6,623)

Restricted stock activity

i 265,412

i 3

( i 3)

i —

Stock-based compensation expense

—

i —

i 5,859

i —

i 5,859

Repurchase of common stock

( i 793,008)

( i 8)

i 545

i —

( i 75,033)

( i 74,496)

Cash dividends declared and paid of $ i 0.75 per common share

—

i —

( i 30,573)

Comprehensive income

—

i —

i 2,782

i 67,933

i 70,715

Balance at April 2, 2022

i 40,555,922

i 406

i —

( i 26,115)

i 940,999

i 915,290

Exercise of stock options

i 1,500

i —

i 89

i —

i 89

Withholdings from vesting
of restricted stock

( i 705)

i —

( i 58)

i —

( i 58)

Restricted stock activity

i 30,731

i —

Stock-based compensation expense

—

i —

i 6,359

i —

i 6,359

Repurchase of common stock

( i 1,272,354)

( i 13)

( i 6,390)

i —

( i 95,407)

( i 101,810)

Cash dividends declared and paid of $ i 0.75 per common share

—

i —

( i 29,886)

Comprehensive income

—

i —

( i 6,088)

i 36,970

i 30,882

Balance at July 2, 2022

i 39,315,094

i 393

i —

( i 32,203)

i 852,676

i 820,866

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	Two fiscal quarters ended
	July 2, 2022		July 3, 2021
Cash flows from operating activities:
Net income	$	i 104,903	$	i 157,799
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation of property, plant, and equipment	i 29,838		i 44,613
Amortization of intangible assets	i 1,865		i 1,866
Provisions for excess and obsolete inventory	i 3,709		i 1,451


Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries	i 246		i 2,056
Amortization of debt issuance costs	i 1,173		i 1,497
Stock-based compensation expense	i 12,218		i 12,322
Unrealized foreign currency exchange (gain) loss, net	( i 32)		i 61
(Recoveries of) provisions for doubtful accounts receivable from customers	( i 1,520)		i 1,206
Unrealized loss (gain) on investments	i 1,867		( i 1,279)
Loss on extinguishment of debt	i 19,940		i —
Deferred income taxes expense	i 4,762		i 5,817
Other	i 1,019		i —
Effect of changes in operating assets and liabilities:
Accounts receivable	i 48,973		i 21,620
Finished goods inventories	( i 215,519)		( i 19,663)
Prepaid expenses and other assets	( i 32,308)		( i 8,724)
Accounts payable and other liabilities	( i 74,729)		( i 171,119)
Net cash (used in) provided by operating activities	$	( i 93,595)	$	i 49,523

Cash flows from investing activities:
Capital expenditures	$	( i 16,313)	$	( i 20,506)
Proceeds from sale of investments	i —		i 5,000

Net cash used in investing activities	$	( i 16,313)	$	( i 15,506)

Cash flows from financing activities:


Payment of senior notes due 2025	$	( i 500,000)	$	i —
Premiums paid to extinguish debt	( i 15,678)		i —
Payment of debt issuance costs	( i 2,420)		( i 223)
Borrowings under secured revolving credit facility	i 120,000		i —

Repurchases of common stock	( i 176,306)		i —
Dividends paid	( i 60,460)		( i 17,596)
Withholdings from vesting of restricted stock	( i 6,681)		( i 3,698)
Proceeds from exercises of stock options	i 311		i 5,147
Other	( i 321)		i —
Net cash used in financing activities	$	( i 641,555)	$	( i 16,370)

Net effect of exchange rate changes on cash and cash equivalents	( i 1,492)		i 931
Net (decrease) increase in cash and cash equivalents	$	( i 752,955)	$	i 18,578
Cash and cash equivalents, beginning of period	i 984,294		i 1,102,323
Cash and cash equivalents, end of period	$	i 231,339	$	i 1,120,901

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – i THE COMPANY

Carter’s, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) design, source, and market branded childrenswear under the Carter’s, OshKosh, Skip Hop, Child of Mine, Just One You, Simple Joys, Carter’s My First Love, Little Planet, and other brands. The Company’s products are sourced through contractual arrangements with manufacturers worldwide for: 1) wholesale distribution to leading department stores, national chains, and specialty retailers domestically and internationally and 2) distribution to the Company’s own retail stores and eCommerce sites that market its brand name merchandise and other licensed products manufactured by other companies.

NOTE 2 – i BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, comprehensive income, statement of stockholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the fiscal quarter ended July 2, 2022 are not necessarily indicative of the results that may be expected for the current fiscal year ending December 31, 2022.

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

The accompanying condensed consolidated balance sheet as of January 1, 2022 was derived from the Company’s audited consolidated financial statements included in its most recently filed Annual Report on Form 10-K. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.

Inventories

Our inventories, which consist primarily of finished goods, are stated approximately at the lower of cost (first-in, first-out basis for wholesale inventory and average cost for retail inventories) or net realizable value. Inventories at July 2, 2022 were $ i 858.3 million compared to $ i 619.6 million at July 3, 2021 and $ i 647.7 million at January 1, 2022. The increase of $ i 238.7 million, or i 38.5%, at July 2, 2022 compared to July 3, 2021 is primarily due to planned earlier inventory ownership to offset transportation delays, longer holding periods for inventory to be sold in future periods, increased product costs, and lower than projected net sales. Due to the seasonal nature of our operations, the inventories balance at July 2, 2022 is not comparable to the inventories balance at January 1, 2022.

Inventory reserves at July 2, 2022 increased i 14.8% compared to July 3, 2021. Although inventory levels have increased as of July 2, 2022, excess inventory reserve rates have remained relatively stable due to the overall health and planned use of the inventory. The liability for adverse inventory and fabric purchase commitments increased from $ i 0.8 million as of July 3, 2021 to $ i 5.2 million as of July 2, 2022 primarily due to reduced forward inventory commitments to better align with estimated lower customer demand.

The Company anticipates an increased supply of inventory to continue for the remainder of fiscal 2022.

Accounting Policies

The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K. There have been no material changes to these accounting policies.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 - i REVENUE RECOGNITION

The Company’s revenues are earned from contracts or arrangements with retail and wholesale customers and licensees. Contracts include written agreements, as well as arrangements that are implied by customary practices or law.

Disaggregation of Revenue

The Company sells its products directly to consumers (“direct-to-consumer”) and to other retail companies and partners that subsequently sell the products directly to their own retail customers. The Company also earns royalties from certain of its licensees. i Disaggregated revenues from these sources for the second quarter and two quarters ended fiscal 2022 and 2021 were as follows:

Fiscal quarter ended July 2, 2022

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 224,016

i 37,019

i 261,035

Direct-to-consumer

i 379,097

i —

i 60,563

i 439,660

i 379,097

i 224,016

i 97,582

i 700,695

Royalty income, net

i 1,317

i 2,885

i 1,400

i 5,602

Two fiscal quarters ended July 2, 2022

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 531,317

i 87,452

i 618,769

Direct-to-consumer

i 745,455

i —

i 117,756

i 863,211

i 745,455

i 531,317

i 205,208

i 1,481,980

Royalty income, net

i 4,558

i 6,315

i 2,203

i 13,076

Fiscal quarter ended July 3, 2021

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 231,630

i 33,610

i 265,240

Direct-to-consumer

i 423,627

i —

i 57,533

i 481,160

i 423,627

i 231,630

i 91,143

i 746,400

Royalty income, net

i 2,360

i 2,876

i 1,409

i 6,645

Two fiscal quarters ended July 3, 2021

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 515,007

i 76,402

i 591,409

Direct-to-consumer

i 830,694

i —

i 111,658

i 942,352

i 830,694

i 515,007

i 188,060

i 1,533,761

Royalty income, net

i 5,430

i 6,651

i 2,027

i 14,108

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accounts Receivable from Customers and Licensees

The components of Accounts receivable, net, were as follows:

(dollars in thousands)

Trade receivables from wholesale customers, net

i 182,253

i 233,928

i 164,591

Royalties receivable

i 5,203

i 5,769

i 5,991

Tenant allowances and other receivables

i 10,671

i 10,352

i 9,478

Total gross receivables

i 198,127

i 250,049

i 180,060

Less: Wholesale accounts receivable reserves(*)

( i 14,207)

( i 18,695)

( i 16,103)

Accounts receivable, net

i 183,920

i 231,354

i 163,957

(*)Includes allowance for credit losses of $ i 5.8 million, $ i 7.3 million, and $ i 7.1 million for the periods ended July 2, 2022, January 1, 2022, and July 3, 2021, respectively.

Contract Assets and Liabilities

The Company’s contract assets are not material.

Contract Liabilities

The Company recognizes a contract liability when it has received consideration from a customer and has a future obligation to transfer goods to the customer. i Total contract liabilities consisted of the following amounts:

(dollars in thousands)

Contract liabilities - current:

Unredeemed gift cards

i 21,251

i 21,619

i 18,049

Unredeemed customer loyalty rewards

i 4,456

i 5,659

i 4,829

Carter’s credit card - upfront bonus(1)

i 714

Total contract liabilities - current(2)

i 26,421

i 27,992

i 23,592

Contract liabilities - non-current(3)

i 1,786

i 2,143

i 2,500

Total contract liabilities

i 28,207

i 30,135

i 26,092

(1)The Company received an upfront signing bonus from a third-party financial institution, which will be recognized as revenue on a straight-line basis over the term of the agreement. This amount reflects the current portion of this bonus to be recognized as revenue over the next twelve months.

(2)Included with Other current liabilities on the Company’s consolidated balance sheet.

(3)This amount reflects the non-current portion of the Carter’s credit card upfront bonus.

NOTE 4 - i LEASES

The Company has operating leases for retail stores, distribution centers, corporate offices, data centers, and certain equipment. The Company’s leases generally have initial terms ranging from i 1 year to i 10 years, some of which may include options to extend the leases for up to i 5 years, and some of which may include options to early terminate the lease.

As of the periods presented, the Company’s finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or consolidated statements of cash flows.

The following components of lease expense are included in Selling, general, and administrative expenses on the Company’s consolidated statements of operations for the second quarter and first two quarters of fiscal 2022 and 2021:

Fiscal quarter ended

Two fiscal quarters ended

(dollars in thousands)

Operating lease cost

i 39,169

i 42,100

i 78,626

i 84,798

Variable lease cost(*)

i 17,173

i 16,276

i 34,241

i 32,674

Net lease cost

i 56,342

i 58,376

i 112,867

i 117,472

(*)Includes short-term leases, which are not material, and operating lease asset impairment charges.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of July 2, 2022, the weighted average remaining operating lease term was i 4.7 years, and the weighted average discount rate for operating leases was i 3.32%.

Cash paid for amounts included in the measurement of operating lease liabilities in the second quarter and first two quarters of fiscal 2022 were $ i 42.5 million and $ i 85.8 million, respectively.

Operating lease assets obtained in exchange for operating lease liabilities in the second quarter and first two quarters of fiscal 2022 were $ i 14.5 million and $ i 30.8 million, respectively.

As of July 2, 2022, the maturities of lease liabilities were as follows:

(dollars in thousands)

Operating leases

Remainder of 2022

i 81,872

2023

i 148,893

2024

i 120,016

2025

i 85,642

2026

i 61,239

2027

i 39,305

After 2027

i 51,565

Total lease payments

i 588,532

Less: Interest

( i 45,505)

Present value of lease liabilities(*)

i 543,027

(*)As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate is applied based on information available at commencement date to determine the present value of lease payments.

As of July 2, 2022, the minimum rental commitments for additional operating lease contracts, primarily for retail stores, that have not yet commenced are $ i 21.7 million. These operating leases will commence between fiscal year 2022 and fiscal year 2023 with lease terms of i 3 years to i 10 years.

NOTE 5 – i ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of Accumulated other comprehensive loss consisted of the following:

(dollars in thousands)

Cumulative foreign currency translation adjustments

( i 24,608)

( i 21,302)

( i 15,810)

Pension and post-retirement obligations(*)

( i 7,595)

( i 11,453)

Total accumulated other comprehensive loss

( i 32,203)

( i 28,897)

( i 27,263)

(*)Net of income taxes of $ i 2.4 million, $ i 2.4 million, and $ i 3.5 million for the period ended July 2, 2022, January 1, 2022, and July 3, 2021, respectively.

During the first two quarters of both fiscal 2022 and fiscal 2021, no amounts were reclassified from Accumulated other comprehensive loss to the consolidated statement of operations.

NOTE 6 – i GOODWILL AND INTANGIBLE ASSETS

The balances and changes in the carrying amount of Goodwill attributable to each segment were as follows:

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Balance at January 2, 2021

i 83,934

i 74,454

i 53,388

i 211,776

Foreign currency impact

i —

i 1,419

Balance at July 3, 2021(*)

i 83,934

i 74,454

i 54,807

i 213,195

Balance at January 1, 2022

i 83,934

i 74,454

i 53,635

i 212,023

Foreign currency impact

i —

( i 776)

Balance at July 2, 2022(*)

i 83,934

i 74,454

i 52,859

i 211,247

(*)Goodwill for the International reporting unit is net of accumulated impairment losses of $ i i 17.7 / million.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the carrying value of the Company’s intangible assets were as follows:

(dollars in thousands)

Weighted-average useful life

Gross amount

Accumulated amortization

Net amount

Gross amount

Accumulated amortization

Net amount

Carter’s tradename

Indefinite

i 220,233

—

i 220,233

—

i 220,233

OshKosh tradename

Indefinite

i 70,000

—

i 70,000

—

i 70,000

Skip Hop tradename

Indefinite

i 15,000

—

i 15,000

—

i 15,000

Finite-life tradenames

i 5- i 20 years

i 3,911

i 1,626

i 2,285

i 3,911

i 1,501

i 2,410

Total tradenames, net

i 309,144

i 1,626

i 307,518

i 309,144

i 1,501

i 307,643

Skip Hop customer relationships

i 15 years

i 47,300

i 16,598

i 30,702

i 47,300

i 15,010

i 32,290

Carter’s Mexico customer relationships

i 10 years

i 3,066

i 1,520

i 1,546

i 3,047

i 1,368

i 1,679

Total customer relationships, net

i 50,366

i 18,118

i 32,248

i 50,347

i 16,378

i 33,969

(dollars in thousands)

Weighted-average useful life

Gross amount

Accumulated amortization

Net amount

Carter’s tradename

Indefinite

i 220,233

—

i 220,233

OshKosh tradename

Indefinite

i 70,000

—

i 70,000

Skip Hop tradename

Indefinite

i 15,000

—

i 15,000

Finite-life tradenames

i 5- i 20 years

i 3,911

i 1,376

i 2,535

Total tradenames, net

i 309,144

i 1,376

i 307,768

Skip Hop customer relationships

i 15 years

i 47,300

i 13,422

i 33,878

Carter’s Mexico customer relationships

i 10 years

i 3,116

i 1,217

i 1,899

Total customer relationships, net

i 50,416

i 14,639

i 35,777

Amortization expense for intangible assets subject to amortization was approximately $ i i 0.9 / million for both the second quarter of fiscal 2022 and the second quarter of fiscal 2021. Amortization expense was approximately $ i i 1.9 / million for both the first two quarters of fiscal 2022 and the first two quarters of fiscal 2021.

The estimated amortization expense for the next five fiscal years is as follows:


(dollars in thousands)	Amortization expense
Remainder of 2022	$	i 1,865
2023	$	i 3,688
2024	$	i 3,658
2025	$	i 3,658
2026	$	i 3,658
2027	$	i 3,532

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – i COMMON STOCK

Open Market Share Repurchases

The Company repurchased and retired shares in open market transactions in the following amounts for the fiscal periods indicated:

Fiscal quarter ended

Two fiscal quarters ended

Number of shares repurchased

i 1,272,354

i —

i 2,065,362

i —

Aggregate cost of shares repurchased (dollars in thousands)

i 101,810

i —

i 176,306

i —

Average price per share

i 80.02

i —

i 85.36

i —

(*)As a result of actions taken in connection with the COVID-19 pandemic, the Company did not repurchase or retire any shares in open market transactions in the first two quarters of fiscal 2021.

On February 24, 2022, the Company’s Board of Directors authorized share repurchases up to $ i 1.00 billion, inclusive of approximately $ i 301.9 million remaining under previous authorizations. The total aggregate remaining capacity under outstanding repurchase authorizations as of July 2, 2022 was approximately $ i 872.9 million. The share repurchase authorizations have no expiration date.

Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise. The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s secured revolving credit facility and considerations given to market conditions, stock price, other investment priorities, and other factors.

Dividends

In the second quarter and first two quarters of fiscal 2022, the Board of Directors declared and the Company paid cash dividends per common share of $ i 0.75 and $ i 1.50, respectively. In the second quarter of fiscal 2021, the Board of Directors declared and the Company paid cash dividends per common share of $ i 0.40. As a result of actions taken in connection with the COVID-19 pandemic, the Board of Directors did not declare and the Company did not pay cash dividends for the first quarter of fiscal 2021. The Board of Directors will evaluate future dividend declarations based on a number of factors, including restrictions under the Company’s secured revolving credit facility, business conditions, the Company’s financial performance, and other considerations.

Provisions in the Company’s secured revolving credit facility could have the effect of restricting the Company’s ability to pay cash dividends on, or make future repurchases of, its common stock.

NOTE 8 – i LONG-TERM DEBT

Long-term debt consisted of the following:

(dollars in thousands)

$500 million i 5.500% senior notes due May 15, 2025

i —

i 500,000

$500 million i 5.625% senior notes due March 15, 2027

i 500,000

Total senior notes

i 500,000

i 1,000,000

Less unamortized issuance-related costs for senior notes

( i 3,725)

( i 8,630)

( i 9,563)

Senior notes, net

i 496,275

i 991,370

i 990,437

Secured revolving credit facility

i 120,000

i —

Total long-term debt, net

i 616,275

i 991,370

i 990,437

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On April 4, 2022, the Company, through its wholly-owned subsidiary, The William Carter Company (“TWCC”) redeemed the $ i 500 million principal amount of senior notes, bearing interest at a rate of i 5.500% per annum, and originally maturing on May 15, 2025. Pursuant to the optional redemption provisions described in the Indenture dated as of May 11, 2020, TWCC paid the outstanding principal plus accrued interest and an Applicable Premium as defined in the Indenture. This debt redemption resulted in a loss on extinguishment of debt of approximately $ i 19.9 million, primarily consisting of $ i 15.7 million of the Applicable Premium and $ i 4.3 million related to the write-off of unamortized debt issuance costs.

Secured Revolving Credit Facility

As of July 2, 2022, the Company had $ i 120.0 million in outstanding borrowings under its secured revolving credit facility, exclusive of $ i 3.6 million of outstanding letters of credit. As of July 2, 2022, approximately $ i 726.4 million remained available for future borrowing. Any outstanding borrowings under the Company’s secured revolving credit facility are classified as non-current liabilities on the Company’s consolidated balance sheets because of the contractual repayment terms under the credit facility.

On April 11, 2022, the Company, through TWCC entered into Amendment No. 4 to its fourth amended and restated credit agreement (“Amendment No. 4”) that, among other things, increased the borrowing capacity of the secured revolving credit facility to $ i 850.0 million (combined U.S. dollar and multicurrency facility borrowings), extended the maturity from September 2023 to April 2027, and reduced the number of financial maintenance covenants from two to one.

In particular, Amendment No. 4 provides for the following:

•increases the borrowing capacity of the secured revolving credit facility from $ i 750 million to $ i 850 million - the U.S. Dollar facility commitment increases to $ i 750 million from $ i 650 million and the multicurrency facility commitment remains at $ i 100 million;

•extends the maturity of the secured revolving credit facility from September 2023 to April 2027;

•adds a Springing Maturity Date provision, which states that if the Company has not redeemed or refinanced at least $ i 250 million of the senior notes due 2027 prior to the 91st day before the maturity of the senior notes due March 15, 2027, then the maturity date of the secured revolving credit facility will be the 91st day before the original maturity of the senior notes due 2027;

•reduces the number of financial maintenance covenants from two to one - the Lease Adjusted Leverage Ratio has been simplified to a Consolidated Total Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio has been eliminated. The Consolidated Total Leverage Ratio maximum permitted shall be 3.50:1.00 and temporarily increases to 4.00:1:00 in the event of a Material Acquisition;

•Term Benchmark Loans bear interest at a rate determined by reference to the Adjusted Term SOFR (Secured Overnight Financing Rate), CDOR (Canadian Dollar Offered Rate), or the Adjusted EURIBOR (Euro Interbank Offered Rate). Each Term Benchmark Loan is subject to interest charges equal to the per annum respective benchmark rate plus an initial applicable rate of i 1.375% which may be adjusted from i 1.125% to i 1.625% based upon a leverage-based pricing schedule; and

•Other Base, Prime, and Overnight Rate Loans are subject to interest charges equal to the per annum, respective, benchmark rate plus an initial applicable rate of i 0.375% which may be adjusted from i 0.125% to i 0.625% based upon a leverage-based pricing schedule. An Applicable Commitment Fee initially equal to i 0.20% per annum and ranging from i 0.15% per annum to i 0.25% per annum, based upon a leverage-based pricing grid, is payable quarterly in arrears with respect to the average daily unused portion of the revolving loan commitments. Capitalized items are Defined Terms pursuant to Amendment No. 4, dated as of April 11, 2022.

Approximately $ i 2.4 million, including both bank fees and other third-party expenses, has been capitalized in connection with Amendment No. 4 and is being amortized over the remaining term of the secured revolving credit facility.

As of July 2, 2022, the interest rate margins applicable to the secured revolving credit facility were i 1.375% for adjusted term SOFR rate loans and i 0.375% for base rate loans.

As of July 2, 2022, U.S. dollar borrowings outstanding under the secured revolving credit facility accrued interest at an adjusted term SOFR rate plus the applicable margin, which resulted in a weighted-average borrowing rate of i 2.95%. There were i no Canadian dollar or other foreign currency borrowings outstanding on July 2, 2022.

As of July 2, 2022, the Company was in compliance with its financial and other covenants under the secured revolving credit facility.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – i STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense as follows:

Fiscal quarter ended

Two fiscal quarters ended

(dollars in thousands)

Stock options

i 12

i 300

i 178

i 774

Restricted stock:

Time-based awards

i 4,296

i 3,504

i 9,455

i 7,404

Performance-based awards

i 345

i 347

i 879

i 2,904

Stock awards

i 1,706

i 1,240

i 1,706

i 1,240

Total

i 6,359

i 5,391

i 12,218

i 12,322

The Company recognizes compensation cost ratably over the applicable performance periods based on the estimated probability of achievement of its performance targets at the end of each period.

NOTE 10 – i INCOME TAXES

As of July 2, 2022, the Company had gross unrecognized income tax benefits of approximately $ i 11.3 million, of which $ i 7.9 million, if ultimately recognized, may affect the Company’s effective income tax rate in the periods settled. The Company has recorded tax positions for which the ultimate deductibility is more likely than not, but for which there is uncertainty about the timing of such deductions.

Included in the reserves for unrecognized tax benefits at July 2, 2022 is approximately $ i 2.8 million of reserves for which the statute of limitations is expected to expire within the next 12 months. If these tax benefits are ultimately recognized, such recognition, net of federal income taxes, may affect the annual effective income tax rate for fiscal 2022 and/or fiscal 2023 along with the effective income tax rate in the quarter in which the benefits are recognized.

The Company recognizes interest related to unrecognized tax benefits as a component of interest expense and recognizes penalties related to unrecognized income tax benefits as a component of income tax expense. Interest expense recorded on uncertain tax positions was not material for the second fiscal quarter ended July 2, 2022 and July 3, 2021. Interest expense recorded on uncertain tax positions was $ i 0.3 million and $ i 0.2 million for the first two quarters of fiscal 2022 and fiscal 2021, respectively. The Company had approximately $ i 2.1 million, $ i 1.8 million, and $ i 2.2 million of interest accrued on uncertain tax positions as of July 2, 2022, January 1, 2022, and July 3, 2021, respectively.

NOTE 11 – i FAIR VALUE MEASUREMENTS

Investments

The Company invests in marketable securities, principally equity-based mutual funds, to mitigate the risk associated with the investment return on employee deferrals of compensation. All of the marketable securities are included in Other assets on the accompanying consolidated balance sheets, and their aggregate fair values were approximately $ i 15.7 million, $ i 17.5 million, and $ i 16.5 million at July 2, 2022, January 1, 2022, and July 3, 2021, respectively. These investments are classified as Level 1 within the fair value hierarchy. The change in the aggregate fair values of marketable securities is due to the net activity of gains and losses and any contributions and distributions during the period. Losses on investments in marketable securities were $ i 0.9 million and $ i 1.9 million for the second quarter and the first two quarters of fiscal 2022, respectively. Gains on investments in marketable securities were $ i 1.1 million and $ i 1.3 million for the second quarter and the first two quarters of fiscal 2021, respectively. These amounts are included in Other (income) expense, net on the Company’s consolidated statement of operations.

Borrowings

As of July 2, 2022, the Company had $ i 120.0 million in outstanding borrowings under its secured revolving credit facility.

The fair value of the Company’s senior notes at July 2, 2022 was approximately $ i 471.0 million. The fair value of the senior notes with a notional value and carrying value (gross of debt issuance costs) of $ i 500.0 million was estimated using a quoted price as provided in the secondary market, which considers the Company’s credit risk and market related conditions, and is therefore within Level 2 of the fair value hierarchy.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Goodwill, Intangible, and Long-Lived Tangible Assets

Some assets are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances. These assets can include goodwill, indefinite-lived intangible assets, and long-lived tangible assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

NOTE 12 – i EARNINGS PER SHARE

The following is a reconciliation of basic common shares outstanding to diluted common and common equivalent shares outstanding:

Fiscal quarter ended

Two fiscal quarters ended

Weighted-average number of common and common equivalent shares outstanding:

Basic number of common shares outstanding

i 39,344,834

i 43,445,780

i 39,807,354

i 43,408,262

Dilutive effect of equity awards

i 29,153

i 169,631

i 48,274

i 151,468

Diluted number of common and common equivalent shares outstanding

i 39,373,987

i 43,615,411

i 39,855,628

i 43,559,730

Earnings per share:

(dollars in thousands, except per share data)

Basic net income per common share:

Net income

i 36,970

i 71,603

i 104,903

i 157,799

Income allocated to participating securities

( i 536)

( i 860)

( i 1,480)

( i 1,896)

Net income available to common shareholders

i 36,434

i 70,743

i 103,423

i 155,903

Basic net income per common share

i 0.93

i 1.63

i 2.60

i 3.59

Diluted net income per common share:

Net income

i 36,970

i 71,603

i 104,903

i 157,799

Income allocated to participating securities

( i 536)

( i 857)

( i 1,479)

( i 1,890)

Net income available to common shareholders

i 36,434

i 70,746

i 103,424

i 155,909

Diluted net income per common share

i 0.93

i 1.62

i 2.59

i 3.58

Anti-dilutive awards excluded from diluted earnings per share computation(*)

i 532,432

i 171,653

i 288,800

i 288,122

(*)The volume of anti-dilutive awards is, in part, due to the related unamortized compensation costs.

NOTE 13 – i OTHER CURRENT LIABILITIES

Other current liabilities at the end of any comparable period, were as follows:

(dollars in thousands)

Unredeemed gift cards

i 21,251

i 21,619

i 18,049

Accrued employee benefits

i 12,208

i 26,517

i 18,970

Accrued salaries and wages

i 11,644

i 10,821

i 10,974

Accrued taxes

i 8,782

i 12,883

i 9,954

Accrued interest

i 8,724

i 11,942

i 12,078

Income taxes payable

i 5,904

i 13,850

i —

Accrued bonuses and incentive compensation

i 3,199

i 47,363

i 17,168

Accrued other

i 24,390

i 31,454

i 26,047

Other current liabilities

i 96,102

i 176,449

i 113,240

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14 – i COMMITMENTS AND CONTINGENCIES

The Company is subject to various claims and pending or threatened lawsuits in the normal course of business. The Company is not currently a party to any legal proceedings that it believes would have a material adverse impact on its financial position, results of operations, or cash flows.

The Company’s contractual obligations and commitments include obligations associated with leases, the secured revolving credit agreement, senior notes, employee benefit plans.

NOTE 15 – i SEGMENT INFORMATION

The tables below presents certain information for the Company’s reportable segments and unallocated corporate expenses for the periods indicated:

Fiscal quarter ended

Two fiscal quarters ended

(dollars in thousands)

% of
consolidated
net sales