SEC Info - Carter’s, Inc. - ‘10-Q’ for 10/1/22

ASSETS

Current assets:

Cash and cash equivalents

i 121,649

i 984,294

i 943,025

Accounts receivable, net of allowance for credit losses of $ i 6,290, $ i 7,281, and $ i 8,678, respectively

i 265,593

i 231,354

i 261,182

Finished goods inventories, net of inventory reserves of $ i 25,628, $ i 14,378, and $ i 23,698, respectively

i 899,326

i 647,742

i 722,396

Prepaid expenses and other current assets

i 73,578

i 50,131

i 56,182

Total current assets

i 1,360,146

i 1,913,521

i 1,982,785

Property, plant, and equipment, net of accumulated depreciation of $ i 559,085, $ i 528,926, and $ i 557,164, respectively

i 181,575

i 216,004

i 218,828

Operating lease assets

i 491,863

i 487,748

i 510,051

Tradenames, net

i 307,456

i 307,643

i 307,705

Goodwill

i 208,454

i 212,023

i 212,016

Customer relationships, net

i 31,386

i 33,969

i 34,843

Other assets

i 30,687

i 30,889

i 28,028

Total assets

i 2,611,567

i 3,201,797

i 3,294,256

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

i 318,026

i 407,044

i 388,726

Current operating lease liabilities

i 155,199

i 147,537

i 153,339

Other current liabilities

i 92,394

i 176,449

i 132,400

Total current liabilities

i 565,619

i 731,030

i 674,465

Long-term debt, net

i 736,448

i 991,370

i 990,900

Deferred income taxes

i 48,930

i 40,910

i 52,967

Long-term operating lease liabilities

i 430,479

i 441,861

i 464,660

Other long-term liabilities

i 41,889

i 46,440

i 56,390

Total liabilities

i 1,823,365

i 2,251,611

i 2,239,382

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 October 1, 2022, January 1, 2022, and October 2, 2021, respectively

i —

Common stock, voting; par value $ i i i 0.01 / / per share; i i i 150,000,000 / / shares authorized; i i 38,456,219 / , i i 41,148,870 / , and i i 42,946,790 / shares issued and outstanding at October 1, 2022, January 1, 2022, and October 2, 2021, respectively

i 385

i 411

i 429

Additional paid-in capital

i —

Accumulated other comprehensive loss

( i 40,575)

( i 28,897)

( i 32,689)

Retained earnings

i 828,392

i 978,672

i 1,087,134

Total stockholders’ equity

i 788,202

i 950,186

i 1,054,874

Total liabilities and stockholders’ equity

i 2,611,567

i 3,201,797

i 3,294,256

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

Three fiscal quarters ended

Net sales

i 818,624

i 890,586

i 2,300,603

i 2,424,347

Cost of goods sold

i 449,951

i 481,298

i 1,240,801

i 1,262,822

Adverse purchase commitments (inventory and raw materials), net

( i 1,855)

i 507

i 2,993

( i 7,923)

Gross profit

i 370,528

i 408,781

i 1,056,809

i 1,169,448

Royalty income, net

i 7,273

i 8,442

i 20,349

i 22,550

Selling, general, and administrative expenses

i 286,218

i 293,192

i 807,533

i 832,889

Operating income

i 91,583

i 124,031

i 269,625

i 359,109

Interest expense

i 9,712

i 15,196

i 33,496

i 45,839

Interest income

( i 257)

( i 335)

( i 867)

( i 761)

Other expense (income), net

i 1,270

i 844

i 776

( i 796)

Loss on extinguishment of debt

i —

i 19,940

i —

Income before income taxes

i 80,858

i 108,326

i 216,280

i 314,827

Income tax provision

i 15,901

i 23,350

i 46,421

i 72,052

Net income

i 64,957

i 84,976

i 169,859

i 242,775

Basic net income per common share

i 1.67

i 1.94

i 4.26

i 5.53

Diluted net income per common share

i 1.67

i 1.93

i 4.26

i 5.51

Dividend declared and paid per common share

i 0.75

i 0.40

i 2.25

i 0.80

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

Three fiscal quarters ended

Net income

i 64,957

i 84,976

i 169,859

i 242,775

Other comprehensive (loss) income:

Foreign currency translation adjustments

( i 8,372)

( i 5,426)

( i 11,677)

i 71

Comprehensive income

i 56,585

i 79,550

i 158,182

i 242,846

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

Exercise of stock options

i 30,464

i —

i 2,313

i —

i 2,313

Withholdings from vesting
of restricted stock

( i 1,885)

i —

( i 199)

i —

( i 199)

Restricted stock activity

i 3,030

i —

Stock-based compensation expense

—

i —

i 3,515

i —

i 3,515

Repurchase of common stock

( i 1,095,899)

( i 11)

( i 37,150)

i —

( i 73,101)

( i 110,262)

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

—

i —

( i 17,547)

Comprehensive (loss) income

—

i —

( i 5,426)

i 84,976

i 79,550

Balance at October 2, 2021

i 42,946,790

i 429

i —

( i 32,689)

i 1,087,134

i 1,054,874

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

Exercise of stock options

i 7,850

i —

i 465

i —

i 465

Withholdings from vesting
of restricted stock

( i 2,065)

i —

( i 169)

i —

( i 169)

Restricted stock activity

i 12,459

i —

Stock-based compensation expense

—

i —

i 5,003

i —

i 5,003

Repurchase of common stock

( i 877,119)

( i 8)

( i 5,299)

i —

( i 60,138)

( i 65,445)

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

—

i —

( i 29,103)

Comprehensive income

—

i —

( i 8,372)

i 64,957

i 56,585

Balance at October 1, 2022

i 38,456,219

i 385

i —

( i 40,575)

i 828,392

i 788,202

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	Three fiscal quarters ended
	October 1, 2022		October 2, 2021
Cash flows from operating activities:
Net income	$	i 169,859	$	i 242,775
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation of property, plant, and equipment	i 46,011		i 65,269
Amortization of intangible assets	i 2,798		i 2,799
Provisions for excess and obsolete inventory	i 11,488		i 9,507


Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries	i 251		i 1,988
Amortization of debt issuance costs	i 1,560		i 2,271
Stock-based compensation expense	i 17,221		i 15,837
Unrealized foreign currency exchange loss, net	i 268		i 95
(Recoveries of) provisions for doubtful accounts receivable from customers	( i 987)		i 2,754
Unrealized loss (gain) on investments	i 2,414		( i 1,910)
Loss on extinguishment of debt	i 19,940		i —
Deferred income taxes expense	i 8,220		i 894
Other	i 919		i —
Effect of changes in operating assets and liabilities:
Accounts receivable	( i 33,697)		( i 77,522)
Finished goods inventories	( i 270,696)		( i 132,999)
Prepaid expenses and other assets	( i 24,973)		i 2,483
Accounts payable and other liabilities	( i 168,076)		( i 126,922)
Net cash (used in) provided by operating activities	$	( i 217,480)	$	i 7,319

Cash flows from investing activities:
Capital expenditures	$	( i 26,862)	$	( i 28,663)
Proceeds from sale of investments	i —		i 5,000

Net cash used in investing activities	$	( i 26,862)	$	( i 23,663)

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 240,000		i —

Repurchases of common stock	( i 241,751)		( i 110,262)
Dividends paid	( i 89,562)		( i 35,143)
Withholdings from vesting of restricted stock	( i 6,850)		( i 3,897)
Proceeds from exercises of stock options	i 776		i 7,460
Other	( i 919)		i —
Net cash used in financing activities	$	( i 616,404)	$	( i 142,065)

Net effect of exchange rate changes on cash and cash equivalents	( i 1,899)		( i 889)
Net decrease in cash and cash equivalents	$	( i 862,645)	$	( i 159,298)
Cash and cash equivalents, beginning of period	i 984,294		i 1,102,323
Cash and cash equivalents, end of period	$	i 121,649	$	i 943,025

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 B’gosh (or “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 October 1, 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 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 October 1, 2022 were $ i 899.3 million compared to $ i 722.4 million at October 2, 2021 and $ i 647.7 million at January 1, 2022. The increase of $ i 176.9 million, or i 24.5%, at October 1, 2022 compared to October 2, 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 October 1, 2022 is not comparable to the inventories balance at January 1, 2022.

Inventory reserves at October 1, 2022 increased i 8.2% compared to October 2, 2021. Although inventory levels have increased as of October 1, 2022, excess inventory reserve rates have remained relatively stable due to the overall quality and planned use of the inventory. The liability for adverse inventory and fabric purchase commitments increased from $ i 0.8 million as of October 2, 2021 to $ i 3.1 million as of October 1, 2022 primarily due to lower estimated customer demand.

/ i

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)

Recent Accounting Pronouncements

Supplier Finance Programs (ASU 2022-04)

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). This new guidance is designed to enhance transparency around supplier finance programs by requiring new disclosures that would allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The effect of the adoption of ASU 2022-04 is not expected to be material to the Company’s consolidated financial statements.

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 third quarter and three quarters ended fiscal 2022 and 2021 were as follows:

Fiscal quarter ended October 1, 2022

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 288,454

i 50,489

i 338,943

Direct-to-consumer

i 408,209

i —

i 71,472

i 479,681

i 408,209

i 288,454

i 121,961

i 818,624

Royalty income, net

i 3,073

i 3,349

i 851

i 7,273

Three fiscal quarters ended October 1, 2022

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 819,772

i 137,940

i 957,712

Direct-to-consumer

i 1,153,664

i —

i 189,227

i 1,342,891

i 1,153,664

i 819,772

i 327,167

i 2,300,603

Royalty income, net

i 7,631

i 9,664

i 3,054

i 20,349

Fiscal quarter ended October 2, 2021

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 294,180

i 48,935

i 343,115

Direct-to-consumer

i 465,711

i —

i 81,760

i 547,471

i 465,711

i 294,180

i 130,695

i 890,586

Royalty income, net

i 2,500

i 5,226

i 716

i 8,442

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three fiscal quarters ended October 2, 2021

(dollars in thousands)

U.S. Retail

U.S. Wholesale

International

Total

Wholesale channel

i —

i 809,186

i 125,337

i 934,523

Direct-to-consumer

i 1,296,405

i —

i 193,419

i 1,489,824

i 1,296,405

i 809,186

i 318,756

i 2,424,347

Royalty income, net

i 7,930

i 11,877

i 2,743

i 22,550

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 260,635

i 233,928

i 262,770

Royalties receivable

i 6,823

i 5,769

i 7,932

Tenant allowances and other receivables

i 13,673

i 10,352

i 9,336

Total gross receivables

i 281,131

i 250,049

i 280,038

Less: Wholesale accounts receivable reserves(*)

( i 15,538)

( i 18,695)

( i 18,856)

Accounts receivable, net

i 265,593

i 231,354

i 261,182

(*)Includes allowance for credit losses of $ i 6.3 million, $ i 7.3 million, and $ i 8.7 million for the periods ended October 1, 2022, January 1, 2022, and October 2, 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 21,217

i 21,619

i 18,948

Unredeemed customer loyalty rewards

i 7,527

i 5,659

i 6,677

Carter’s credit card - upfront bonus(1)

i 714

Total contract liabilities - current(2)

i 29,458

i 27,992

i 26,339

Contract liabilities - non-current(3)

i 1,607

i 2,143

i 2,321

Total contract liabilities

i 31,065

i 30,135

i 28,660

(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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Fiscal quarter ended

Three fiscal quarters ended

(dollars in thousands)

Operating lease cost

i 40,231

i 40,917

i 118,857

i 125,715

Variable lease cost(*)

i 16,523

i 15,444

i 50,763

i 48,118

Net lease cost

i 56,754

i 56,361

i 169,620

i 173,833

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

As of October 1, 2022, the weighted average remaining operating lease term was i 4.7 years, and the weighted average discount rate for operating leases was i 3.52%.

Cash paid for amounts included in the measurement of operating lease liabilities in the third quarter and first three quarters of fiscal 2022 were $ i 43.2 million and $ i 129.0 million, respectively.

Operating lease assets obtained in exchange for operating lease liabilities in the third quarter and first three quarters of fiscal 2022 were $ i 77.8 million and $ i 108.6 million, respectively.

As of October 1, 2022, the maturities of lease liabilities were as follows:

(dollars in thousands)

Operating leases

Remainder of 2022

i 43,809

2023

i 170,693

2024

i 143,252

2025

i 100,305

2026

i 67,797

2027

i 45,608

After 2027

i 66,330

Total lease payments

i 637,794

Less: Interest

( i 52,116)

Present value of lease liabilities(*)

i 585,678

(*)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 October 1, 2022, the minimum rental commitments for additional operating lease contracts, primarily for retail stores, that have not yet commenced are $ i 11.2 million. These operating leases will commence between fiscal year 2022 and fiscal year 2023 with lease terms of i 3 years to i 12 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 32,980)

( i 21,302)

( i 21,236)

Pension and post-retirement obligations(*)

( i 7,595)

( i 11,453)

Total accumulated other comprehensive loss

( i 40,575)

( i 28,897)

( i 32,689)

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 240

Balance at October 2, 2021(*)

i 83,934

i 74,454

i 53,628

i 212,016

Balance at January 1, 2022

i 83,934

i 74,454

i 53,635

i 212,023

Foreign currency impact

i —

( i 3,569)

Balance at October 1, 2022(*)

i 83,934

i 74,454

i 50,066

i 208,454

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

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 1,688

i 2,223

i 3,911

i 1,501

i 2,410

Total tradenames, net

i 309,144

i 1,688

i 307,456

i 309,144

i 1,501

i 307,643

Skip Hop customer relationships

i 15 years

i 47,300

i 17,393

i 29,907

i 47,300

i 15,010

i 32,290

Carter’s Mexico customer relationships

i 10 years

i 3,076

i 1,597

i 1,479

i 3,047

i 1,368

i 1,679

Total customer relationships, net

i 50,376

i 18,990

i 31,386

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 1,439

i 2,472

Total tradenames, net

i 309,144

i 1,439

i 307,705

Skip Hop customer relationships

i 15 years

i 47,300

i 14,216

i 33,084

Carter’s Mexico customer relationships

i 10 years

i 3,053

i 1,294

i 1,759

Total customer relationships, net

i 50,353

i 15,510

i 34,843

Amortization expense for intangible assets subject to amortization was approximately $ i i 0.9 / million for both the third quarter of fiscal 2022 and the third quarter of fiscal 2021. Amortization expense was approximately $ i i 2.8 / million for both the first three quarters of fiscal 2022 and the first three quarters of fiscal 2021.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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


(dollars in thousands)	Amortization expense
Remainder of 2022	$	i 933
2023	$	i 3,690
2024	$	i 3,660
2025	$	i 3,660
2026	$	i 3,660
2027	$	i 3,533

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

Three fiscal quarters ended

Number of shares repurchased

i 877,119

i 1,095,899

i 2,942,481

i 1,095,899

Aggregate cost of shares repurchased (dollars in thousands)

i 65,445

i 110,262

i 241,751

i 110,262

Average price per share

i 74.61

i 100.61

i 82.16

i 100.61

(*)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. The Company reinstated its common stock share repurchase program in the third quarter 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 October 1, 2022 was approximately $ i 807.4 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 third quarter and first three quarters of fiscal 2022, the Board of Directors declared and the Company paid cash dividends per common share of $ i 0.75 and $ i 2.25, respectively. In the third quarter and first three quarters of fiscal 2021, the Board of Directors declared and the Company paid cash dividends per common share of $ i 0.40 and $ i 0.80, respectively. 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 3,552)

( i 8,630)

( i 9,100)

Senior notes, net

i 496,448

i 991,370

i 990,900

Secured revolving credit facility

i 240,000

i —

Total long-term debt, net

i 736,448

i 991,370

i 990,900

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 October 1, 2022, the Company had $ i 240.0 million in outstanding borrowings under its secured revolving credit facility, exclusive of $ i 3.6 million of outstanding letters of credit. As of October 1, 2022, approximately $ i 606.4 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 October 1, 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 October 1, 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 4.49%. There were i no Canadian dollar or other foreign currency borrowings outstanding on October 1, 2022.

As of October 1, 2022, the Company was in compliance with its financial and other covenants under the secured revolving credit facility.

NOTE 9 – i STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense as follows:

Fiscal quarter ended

Three fiscal quarters ended

(dollars in thousands)

Stock options

i 8

i 290

i 186

i 1,064

Restricted stock:

Time-based awards

i 4,506

i 3,665

i 13,961

i 11,070

Performance-based awards

i 489

( i 440)

i 1,368

i 2,463

Stock awards

i —

i 1,706

i 1,240

Total

i 5,003

i 3,515

i 17,221

i 15,837

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. During the third quarter of fiscal 2021, the achievement of performance target estimates related to certain performance-based grants were revised resulting in a reversal of $ i 0.7 million of previously recognized stock-based compensation expense.

NOTE 10 – i INCOME TAXES

As of October 1, 2022, the Company had gross unrecognized income tax benefits of approximately $ i 11.8 million, of which $ i 8.1 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 October 1, 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 third fiscal quarter ended October 1, 2022 and October 2, 2021. Interest expense recorded on uncertain tax positions was $ i i 0.4 / million for both the first three quarters of fiscal 2022 and fiscal 2021, respectively. The Company had approximately $ i 2.3 million, $ i 1.8 million, and $ i 2.3 million of interest accrued on uncertain tax positions as of October 1, 2022, January 1, 2022, and October 2, 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 15.1 million, $ i 17.5 million,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

and $ i 17.1 million at October 1, 2022, January 1, 2022, and October 2, 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 0.5 million and $ i 2.4 million for the third quarter and the first three quarters of fiscal 2022, respectively. Gains on investments in marketable securities were $ i 0.6 million and $ i 1.9 million for the third quarter and the first three 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 October 1, 2022, the Company had $ i 240.0 million in outstanding borrowings under its secured revolving credit facility, exclusive of $ i 3.6 million of outstanding letters of credit.

The fair value of the Company’s senior notes at October 1, 2022 was approximately $ i 468.4 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.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three fiscal quarters ended

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

Basic number of common shares outstanding

i 38,222,151

i 43,260,471

i 39,279,293

i 43,358,998

Dilutive effect of equity awards

i 23,222

i 155,575

i 34,835

i 153,252

Diluted number of common and common equivalent shares outstanding

i 38,245,373

i 43,416,046

i 39,314,128

i 43,512,250

Earnings per share:

(dollars in thousands, except per share data)

Basic net income per common share:

Net income

i 64,957

i 84,976

i 169,859

i 242,775

Income allocated to participating securities

( i 1,013)

( i 1,024)

( i 2,478)

( i 2,919)

Net income available to common shareholders

i 63,944

i 83,952

i 167,381

i 239,856

Basic net income per common share

i 1.67

i 1.94

i 4.26

i 5.53

Diluted net income per common share:

Net income

i 64,957

i 84,976

i 169,859

i 242,775

Income allocated to participating securities

( i 1,012)

( i 1,021)

( i 2,477)

( i 2,910)

Net income available to common shareholders

i 63,945

i 83,955

i 167,382

i 239,865

Diluted net income per common share

i 1.67

i 1.93

i 4.26

i 5.51

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

i 525,349

i 164,080

i 465,529

i 187,245

(*)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 21,217

i 21,619

i 18,948

Accrued employee benefits

i 14,131

i 26,517

i 21,035

Accrued taxes

i 11,190

i 12,883

i 13,985

Income taxes payable

i 7,911

i 13,850

i 3,710

Accrued salaries and wages

i 6,113

i 10,821

i 5,683

Accrued interest

i 1,917

i 11,942

i 11,827

Accrued bonuses and incentive compensation

i 1,260

i 47,363

i 28,159

Accrued other

i 28,655

i 31,454

i 29,053

Other current liabilities

i 92,394

i 176,449

i 132,400

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three fiscal quarters ended

(dollars in thousands)

% of
consolidated
net sales