NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY
Carter's, Inc. and its wholly owned subsidiaries (collectively, the "Company") design, source, and market branded childrenswear under the
Carter’s
,
Child of
Mine
,
Just One You
,
Precious Firsts
,
OshKosh
,
and other brands. The Company's products are sourced through contractual arrangements with manufacturers worldwide for wholesale distribution to major domestic and international retailers and for the Company's own retail stores and websites. As of
December 31, 2016
, the Company operated
495
Carter's and
138
OshKosh stand-alone stores in the U.S.,
159
"side-by-side" and "co-branded" stores in the U.S., and
164
"co-branded' stores in Canada.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Carter's, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday in December or January nearest the last day of December, resulting in an additional week of results every five or six fiscal years. Fiscal
2016
, which ended on
December 31, 2016
, and fiscal
2015
, which ended on
January 2, 2016
, both contained 52 weeks. Fiscal
2014
, which ended on
January 3, 2015
, contained 53 weeks.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Translation adjustments
The functional currency of substantially all of the Company's foreign operations is the local currency. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the average exchange rates for the period. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within the accompanying consolidated balance sheet.
Transaction adjustments
The Company also recognizes gains and losses on transactions that are denominated in a currency other than the respective entity's functional currency. Foreign currency transaction gains and losses also include intercompany loans with foreign subsidiaries that are of a short-term investment nature. Foreign currency transaction gains and losses are recognized in earnings, as a separate component of other expense, net, within the consolidated statements of operations.
Foreign Currency Contracts
As part of the Company's overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily between the U.S. dollar and Canadian dollar, the Company may use foreign currency forward contracts to hedge purchases that are made in U.S. dollars, primarily for inventory purchases in its Canadian operations. As part of this
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
hedging strategy, the Company may use foreign currency forward exchange contracts with maturities of less than 12 months to provide continuing coverage throughout the hedging period. Historically, these contracts were not designated for hedge accounting treatment, and therefore changes in the fair value of these contracts were recorded in other expense (income), net in the Company's consolidated statement of operations. Such foreign currency gains and losses typically include the mark-to-market fair value adjustments at the end of each reporting period related to open contracts, as well as any realized gains and losses on contracts settled during the reporting period. The fair values of any unsettled currency contracts are included in other current assets or other current liabilities on the Company's consolidated balance sheet. On the consolidated statement of cash flows, the Company includes all activity, including cash settlement of any contracts, as a component of cash flows from operations. As of December 31, 2016, the Company had no unsettled foreign currency exchange contracts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments that have original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of deposit accounts and cash management funds invested in U.S. government instruments. These investments are stated at cost, which approximates fair value. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions; these amounts typically settle in less than five days.
Concentration of cash deposits risk
As of
December 31, 2016
, the Company had approximately
$299.4 million
of cash and cash equivalents in major financial institutions, including approximately
$58.5 million
in financial institutions located outside of the U.S. The Company maintains cash deposits with major financial institutions that exceed the insurance coverage limits provided by the Federal Deposit Insurance Corporation in the U.S. and by similar insurers for deposits located outside the U.S. To mitigate this risk, the Company utilizes a policy of allocating cash deposits among major financial institutions that have been evaluated by the Company and third-party rating agencies.
ACCOUNTS RECEIVABLE
The components of accounts receivable, net, as of
December 31, 2016
and
January 2, 2016
were as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2016
|
|
January 2,
2016
|
Trade receivables from wholesale customers, net
|
$
|
182,194
|
|
|
$
|
185,046
|
|
Royalties receivable
|
9,218
|
|
|
11,164
|
|
Tenant allowances and other receivables
|
19,810
|
|
|
20,303
|
|
Total gross receivables
|
$
|
211,222
|
|
|
$
|
216,513
|
|
Less:
|
|
|
|
Wholesale accounts receivable reserves
|
(8,751
|
)
|
|
(8,543
|
)
|
Wholesale sales returns reserve
|
—
|
|
|
(400
|
)
|
Total reserves
|
(8,751
|
)
|
|
(8,943
|
)
|
Accounts receivable, net
|
$
|
202,471
|
|
|
$
|
207,570
|
|
Concentration of credit risk
In each of fiscal
2016
, 2015, and 2014, no one customer accounted for 10% or more of the Company's consolidated net sales.
At
December 31, 2016
,
two
wholesale customers each had individual receivable balances in excess of
10%
of gross accounts receivable, and the total receivable balances due from these
two
wholesale customers in the aggregate equaled approximately
30%
of total gross accounts receivable outstanding. At
January 2, 2016
,
five
wholesale customers each had individual receivable balances in excess of
10%
of gross accounts receivable, and the total receivable balances due from these five wholesale customers in the aggregate equaled approximately
60%
of total gross accounts receivable outstanding.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
VALUATION ACCOUNTS FOR WHOLESALE ACCOUNTS RECEIVABLE
Accounts receivable reserves
The Company's accounts receivable reserves for wholesale customers include an allowance for doubtful accounts and an allowance for chargebacks. The allowance for doubtful accounts includes estimated losses resulting from the inability of its customers to make payments. If the financial condition of a customer were to deteriorate, resulting in an impairment of its ability to make payments, an additional allowance could be required. Past due balances over 90 days are reviewed individually for collectibility. The Company's credit and collections department reviews all other balances regularly. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. Provisions for the allowance for doubtful accounts are reflected in Selling, general and administrative expenses on the consolidated statement of operations and provisions for chargebacks are reflected as a reduction in Net sales on the consolidated statement of operations.
Sales returns reserves
Except in very limited instances, the Company does not allow its wholesale customers to return goods to the Company.
INVENTORIES
Inventories, which consist primarily of finished goods, are stated at the approximate lower of cost (first-in, first-out basis for wholesale inventory and average cost for retail inventories) or market. Obsolete, damaged, and excess inventory is carried at net realizable value by establishing reserves after assessing historical recovery rates, current market conditions, and future marketing and sales plans. Rebates, discounts and other cash consideration received from a vendor related to inventory purchases are reflected as reductions in the cost of the related inventory item, and are therefore reflected in cost of sales when the related inventory item is sold.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost, less accumulated depreciation and amortization. When fixed assets are sold or otherwise disposed of, the accounts are relieved of the original cost of the assets and the related accumulated depreciation or amortization and any resulting profit or loss is credited or charged to income. For financial reporting purposes, depreciation and amortization are computed on the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements from
15
to
26
years, retail store fixtures, equipment, and computers from
3
to
10
years. Leasehold improvements and fixed assets purchased under capital lease are amortized over the lesser of the asset life or related lease term. The Company capitalizes the cost of its fixtures designed and purchased for use at major wholesale accounts. The cost of these fixtures is amortized over
3
years.
INTERNAL-USE SOFTWARE
The Company purchases software from external vendors and also develops software internally using Company employees and consultants. Software costs, including certain costs to internally develop software, that meet the applicable criteria are capitalized while all other costs are expensed as incurred. Capitalized software is depreciated or amortized on the straight-line method over its estimated useful lives, from
3
to
10
years.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's goodwill balances are comprised of amounts related to the acquisition of Carter's, Inc. by a predecessor entity and the acquisition of Bonnie Togs. The goodwill balances have indefinite useful lives and are not deductible for income tax purposes. The Company's other intangible assets are comprised of tradenames. The tradenames include
Carter's
,
OshKosh, Carter's Watch the Wear, H.W. Carter & Sons,
and the
Carter's
tradename in the country of Chile
.
The
Carter's
and
OshKosh
tradenames
have indefinite useful lives and are not being amortized. The
Carter's
tradename in Chile is being amortized over an estimated life of
20
years. The
Carter's Watch the Wear
and
H.W. Carter & Sons
tradenames were amortized on an accelerated basis over
three
years and have been fully amortized as of December 31, 2016.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Annual impairment reviews
The carrying values of the goodwill and indefinite-lived tradename assets are subject to annual impairment reviews which are performed as of the last day of each fiscal year. Additionally, a review for potential impairment is performed whenever significant events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Significant assumptions in the impairment models include estimates of future cash flows, discount rates, and, in the case of tradenames, royalty rates. Based upon the Company's most recent assessment, performed as of
December 31, 2016
, there were no impairments in the values of goodwill or indefinite-lived tradename assets and no reporting units were at risk of an impairment.
Goodwill
The Company performs impairment tests of its goodwill at the reporting unit level. Qualitative and quantitative methods are used to assess for impairment, including the use of discounted cash flows ("income approach") and relevant data from guideline public companies ("market approach").
Under a qualitative assessment, the Company determines if it is "more likely than not" that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, but are not limited to: macroeconomic conditions, industry and market considerations, cost factors that may have a negative effect on earnings, overall financial performance, and other relevant entity-specific events. If the Company determines that it is "more likely than not" that the fair value of the reporting unit is less than its carrying value, then the Company performs the two-step goodwill impairment test as required. If it is determined that it is "not likely" that the fair value of the reporting unit is less than its carrying value, then no further testing is required and the Company documents the relevant qualitative factors that support the strength in the fair value.
The first step of a quantitative assessment is to compare the fair value of the reporting unit to its carrying value, including goodwill. The Company uses a discounted cash flow model to determine the fair value, using assumptions consistent with those of hypothetical marketplace participants. If the fair value of a reporting unit is less than its carrying value, the second step of the impairment test must be performed. The second step compares the implied fair value of the reporting unit goodwill with the carrying value of that goodwill, in order to determine the amount of the impairment loss and charge to the consolidated statement of operations.
Indefinite-lived tradenames
For indefinite-lived tradenames, the Company may utilize a qualitative assessment, as described above, to determine whether the fair value of an indefinite-lived asset is less than its carrying value. If a quantitative assessment is necessary, the Company determines fair value using a discounted cash flow model that uses the relief-from-royalty method. If the carrying amount exceeds the fair value of the tradename, an impairment charge is recognized in the amount of the excess.
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
The Company reviews other long-lived assets, including property, plant, and equipment, and licensing agreements, for impairment whenever events or changes in circumstances indicate that the carrying amount of such an asset may not be recoverable. Management will determine whether there has been a permanent impairment on such assets held for use in the business by comparing anticipated undiscounted future cash flows from the use and eventual disposition of the asset or asset group to the carrying value of the asset. The amount of any resulting impairment will be calculated by comparing the carrying value to fair value, which may be estimated using the present value of the same cash flows. Long-lived assets that meet the definition of held for sale will be valued at the lower of carrying amount or fair value, less costs to sell.
DEFERRED DEBT ISSUANCE COSTS
Debt issuance costs associated with the Company's secured revolving credit facility and senior tern notes are deferred and amortized to interest expense over the term of the related debt using the effective interest method. Debt issuance costs associated with Company's senior notes are presented on the Company's consolidated balance sheet as a direct reduction in the carrying value of the associated debt liability. Fees paid to lenders by the Company to obtain its secured revolving credit facility are included within Other assets on the Company's consolidated balance sheet and classified as either current or non-
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
current based on the expiration date of the credit facility. See the subsequent section under "Recent Accounting Pronouncements" in this Note 2 for information on the retrospective adoption of new accounting guidance related to the presentation of debt costs.
FAIR VALUE MEASUREMENTS
The fair value framework requires the Company to categorize certain assets and liabilities into three levels, based upon the assumptions used to price those assets or liabilities. The three levels are defined as follows:
|
|
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
Level 2:
|
Quoted prices for similar assets and liabilities in active markets or inputs that are observable.
|
Level
3:
|
Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability.
|
The Company measures its pension assets, deferred compensation plan investment assets, unsettled foreign currency forward contracts, and contingent consideration liability for acquisitions at fair value. T
he Company's cash and cash equivalents, accounts receivable, and accounts payable are short-term in nature. As such, their carrying value approximates fair value.
The carrying
values of the Company’s outstanding borrowings are not required to be remeasured and adjusted to the then-current fair values at the end of each reporting period. Instead, the fair values of the Company's outstanding borrowings are disclosed at the end of each reporting period in Note 7,
Long-Term Debt
, to the accompanying consolidated financial statements. Had the Company been required to remeasure and adjust the carrying values of its outstanding borrowings to fair value at the end of each reporting period, such fair value measurements would have been disclosed as a Level 2 liability in the fair value hierarchy.
REVENUE RECOGNITION
Revenues consist of sales to customers, net of returns, discounts, chargebacks, and cooperative advertising. The Company considers revenue realized or realizable and earned when the product has been shipped, when title passes, when all risks and rewards of ownership have transferred, the sales price is fixed or determinable, and collectibility is reasonably assured. In certain cases, in which the Company retains the risk of loss during shipment, revenue recognition does not occur until the goods have reached the specified customer.
The Company records its cooperative advertising arrangements with certain of its major wholesale customers at fair value. Fair value is determined based upon, among other factors, comparable market analysis for similar advertisements. The Company has included the fair value of these arrangements of approximately
$3.7 million
for fiscal 2016, and
$3.9 million
for both of the fiscal years 2015 and 2014 as a component of selling, general, and administrative expenses on the accompanying consolidated statements of operations, rather than as a reduction of net sales. Amounts determined to be in excess of the fair value of these arrangements are recorded as a reduction of net sales.
Retail store revenues are recognized at the point of sale. Retail sales through the Company's on-line channels are recognized at time of delivery to the customer. The Company recognizes retail sales returns at the time of transaction by recording adjustments to both revenue and cost of goods sold. Additionally, the Company maintains a liability for retail sales returns in Other current liabilities on its consolidated balance sheet for estimated future returns. There are no accounts receivable associated with the Company's retail customers.
COSTS OF GOODS SOLD
Cost of goods sold (CoGS) consists mainly of the cost of merchandise, inventory provisions, and certain costs associated with our sourcing and distribution centers operations.
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Shipping costs consisting of payments to third-party shippers and handling costs consisting of labor costs, shipping supplies, and certain distribution overhead. Such costs for our domestic and international wholesale businesses totaled
$66.4 million
,
$67.2 million
, and
$72.1 million
for fiscal years 2016, 2015, and 2014, respectively. Such costs for our domestic and international retail businesses totaled
$87.3 million
,
$75.4 million
,
$74.3 million
. The Company recognizes shipping and handling costs in the "Selling, general, and administrative expenses" line on its consolidated statements of operations.
INCOME FROM ROYALTIES AND LICENSE FEES
The Company licenses the
Carter's, Just One You, Precious Firsts, Child of Mine, OshKosh B'gosh
,
OshKosh
,
and
Genuine Kids
from OshKosh
trademarks to other companies for use on baby and young children's products, including bedding, outerwear, sleepwear, shoes, underwear, socks, room décor, toys, stationery, hair accessories, furniture, and related products. These royalties are recorded as earned, based upon the sales of licensed products by licensees and reported as royalty income in the statements of operations.
ADVERTISING EXPENSES
Costs associated with the production of advertising, such as writing, copy, printing, and other costs, are expensed as incurred. Costs associated with communicating advertising that has been produced, such as magazine costs and website banners, are expensed when the advertising event takes place.
STOCK-BASED COMPENSATION ARRANGEMENTS
The Company recognizes the cost resulting from all stock-based payment transactions in the financial statements at grant date fair value. Stock-based compensation expense is recognized over the requisite service period, net of estimated forfeitures.
Stock Options
The Company determines the fair value of stock options using the Black-Scholes option pricing model, which requires the use of the following subjective assumptions:
Volatility
- This is a measure of the amount by which a stock price has fluctuated or is expected to fluctuate. The Company uses actual monthly historical changes in the market value of its stock covering the expected life of options being valued. An increase in the expected volatility will increase the fair value of the stock option and related compensation expense.
Risk-free interest rate
- This is the U.S. Treasury rate as of the grant date having a term equal to the expected term of the stock option. An increase in the risk-free interest rate will increase the fair value of the stock option and related compensation expense.
Expected term
- This is the period of time over which the stock options granted are expected to remain outstanding and is based on historical experience and estimated future exercise behavior. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. An increase in the expected term will increase the fair value of the stock option and the related compensation expense.
Dividend yield
- The Company estimates a dividend yield based on the current dividend amount as a percentage of the current stock price. An increase in the dividend yield will decrease the fair value of the stock option and the related compensation expenses.
Forfeitures
- The Company estimates forfeitures of stock-based awards based on historical experience and expected future activity.
Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation expense and the related amount recognized in the consolidated statements of operations.
Time-Based Restricted Stock Awards
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of time-based restricted stock awards is determined based on the quoted closing price of the Company's common stock on the date of grant and is recognized as compensation expense over the vesting term of the awards, net of estimated forfeitures.
Performance-Based Restricted Stock Awards
The Company accounts for its performance-based restricted stock awards based on the quoted closing price of the Company's common stock on the date of grant and records stock-based compensation expense over the vesting term of the awards based on the probability that the performance criteria will be achieved, net of estimated forfeitures. The Company reassesses the probability of vesting at each reporting period and prospectively adjusts stock-based compensation expense based on its probability assessment.
Stock Awards
The fair value of stock granted to non-management board members is determined based on the quoted closing price of the Company's common stock on the date of grant. The Company records the stock-based compensation expense immediately as there are no vesting terms.
INCOME TAXES
The accompanying consolidated financial statements reflect current and deferred tax provisions. The deferred tax provision is determined under the liability method. Deferred tax assets and liabilities are recognized based on differences between the book and tax bases of assets and liabilities using presently enacted tax rates. Valuation allowances are established when it is "more likely than not" that a deferred tax asset will not be recovered. The provision for income taxes is the sum of the amount of income taxes paid or payable for the year as determined by applying the provisions of enacted tax laws to the taxable income for that year, the net change during the year in deferred tax assets and liabilities, and the net change during the year in any valuation allowances.
The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances, and information available at the reporting dates. The Company determines whether it is "more likely than not" that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. For those tax positions where it is not "more likely than not" that a tax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. Interest is recorded as a component of interest expense and penalties, if any, are recorded within the provision for incomes taxes in the consolidated statements of operations and are classified on the consolidated balance sheets with the related liability for uncertain tax contingency liabilities.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash approximated
$25.4 million
,
$25.1 million
, and
$26.1 million
for fiscal years 2016, 2015, and 2014, respectively. Income taxes paid in cash approximated
$120.6 million
,
$108.4 million
and
$95.8 million
for fiscal years 2016, 2015, and 2014, respectively.
Additions to property, plant and equipment of approximately
$2.6 million
,
$6.1 million
, and
$2.0 million
were excluded from capital expenditures on the Company's consolidated statements of cash flows for fiscal years 2016, 2015, and 2014, respectively, since these amounts were accrued and unpaid at the end of each respective fiscal year.
The Company's consolidated statement of cash flows shows the following sources and uses of financing cash flows related to the Company's revolving credit facility during fiscal 2015. In the first quarter of fiscal 2015, the Company replaced
$20.0 million
of outstanding borrowings under the then-existing amended revolving credit facility with CAD
25.5 million
of borrowings, which approximated
$20.3 million
. Additionally, because of a change in the lead administrative agent and certain changes in commitment amounts among the lenders in the syndication, the third quarter amendment to the Company's secured revolving credit facility led to the repayment and simultaneous re-borrowing of the then-outstanding balance on the secured revolving credit agreement of approximately
$185.2 million
.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EARNINGS PER SHARE
The Company calculates basic and diluted net income per common share under the two-class method for unvested share-based payment awards that contain participating rights to dividends or dividend equivalents (whether paid or unpaid).
Basic net income per share is calculated by dividing net income for the period by the weighted-average common shares outstanding for the period. Diluted net income per share includes the effect of dilutive instruments and uses the average share price for the period in determining the number of shares that are to be added to the weighted-average number of shares outstanding.
OPEN MARKET REPURCHASES OF COMMON STOCK
Shares of the Company's common stock that are repurchased by the Company through open market transactions are retired. Through the end of fiscal 2016, all such open market repurchases have been at prices that exceeded the par value of the repurchased common stock, and the amounts of the purchase prices that exceeded par value were charged to additional paid-in capital or to retained earnings if the balance in additional paid-in capital was not sufficient.
EMPLOYEE BENEFIT PLANS
The Company has several defined benefit plans. Various actuarial methods and assumptions are used in determining net pension and post-retirement costs and obligations. Key assumptions include the discount rate used to determine the present value of future benefits and the expected long-term rate of return on plan assets. The over-funded or under-funded status of the defined benefit plans is recorded as an asset or liability on the consolidated balance sheet. The gains or losses that arise during the period are recognized as a component of comprehensive income, net of tax. These costs are then subsequently recognized as components of net periodic benefit cost in the consolidated statements of operations. See "Recent Accounting Pronouncements" in this Note 2 for information on the adoption of new accounting guidance.
FACILITY CLOSURE AND OFFICE CONSOLIDATION
The Company records severance costs when the appropriate notifications have been made to affected employees or when the decision is made, if the benefits are contractual. When employees are required to work for a period before termination, the severance costs are recognized over the required service period. Relocation and recruitment costs are expensed as incurred. For operating leases, lease termination costs are recognized at fair value at the date the Company ceases to use the leased property, and adjusted for the effects of deferred items recognized under the lease and reduced by estimated sub-lease rental income. Useful lives assigned to fixed assets at the facility to be closed are revised based on the specifics of the exit plan, resulting in accelerated depreciation expense.
LEASES AND DEFERRED RENT
The Company enters into a significant number of lease transactions related to properties for its retail stores in addition to leases for offices, distribution facilities, and other uses. The lease agreements may contain provisions related to allowances for property improvements, rent escalation, and free rent periods. Substantially all of these leases are classified as operating leases for accounting purposes.
For property improvement allowances, the Company records a deferred lease credit on the consolidated balance sheet and amortizes the deferred lease credit as a reduction of rent expense over the terms of the applicable lease. For scheduled rent escalation clauses during the lease term, the Company records rent expense on a straight-line basis over the term of the lease. The difference between the rent expense and the amount payable under the lease is included within the Company's liabilities on the consolidated balance sheet. The term of the lease over which the Company amortizes allowances and minimum rental expenses on a straight-line basis begins on the date of initial possession, which is generally when the Company enters the space and/or begins construction.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Where leases provide for contingent rents, which are generally determined as a percentage of gross sales, the Company records additional rent expense when management determines that achieving the specified level of revenue during the fiscal year is probable. Amounts accrued for contingent rent are included within the Company's liabilities on the consolidated balance sheet.
SEASONALITY
The Company experiences seasonal fluctuations in its sales and profitability due to the timing of certain holidays and key retail shopping periods, typically resulting in lower sales and gross profit in the first half of its fiscal year. Accordingly, the Company's results of operations during the first half of the year may not be indicative of the results for the full year.
RECENT ACCOUNTING PRONOUNCEMENTS
Adopted in Fiscal 2016
Accounting for Fees Paid in a Cloud-Computing Arrangement (ASU 2015-05)
The Company prospectively adopted the provisions of Accounting Standards Update ("ASU") No. 2015-05,
Customer's Accounting for Fees Paid in a Cloud Computing Arrangement,
at the beginning of fiscal 2016 for fees paid in connection with cloud-based software arrangements. ASU 2015-05 provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting for other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. The adoption of this guidance did not have a material effect on the Company's financial position, results of operations, or cash flows.
Presentation of Debt Issuance Costs for Term Debt (ASU 2015-03)
The Company retrospectively adopted the provisions of ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
("ASU 2015-03"), at the beginning of fiscal 2016. This new guidance requires that debt issuance costs related to term debt be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of a debt discount. Prior to the issuance of ASU 2015-03, all debt issuance costs were required to be presented as deferred charge assets, separate from the related debt liability. The guidance did not change the recognition and measurement requirements for debt issuance costs. The Company reclassified approximately
$4.6 million
and
$5.5 million
of unamortized issuance-related debt costs associated with the Company's senior notes from Other assets (non-current) to Long-term debt, net within its consolidated balance sheets as of December 31, 2016 and January 2, 2016, respectively. Other than this balance sheet reclassification, the adoption of ASU 2015-03 did not have an impact on the Company's consolidated financial statements. Fees paid to lenders to secure revolving lines of credit continue to be presented as a deferred charge (asset) on the balance sheet.
Simplified Measurement Date for Defined Benefit Plan Assets and Obligations (ASU 2015-04)
The Company adopted the provisions of ASU No. 2015-04,
Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets
("ASU 2015-04"), at the beginning of fiscal 2016. ASU 2015-04 allows employers with fiscal year ends that do not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end (i.e., on an alternative measurement date). An employer that makes this election must consistently apply the alternative measurement date from year to year and to all of its defined benefit plans. Upon adoption of ASU 2015-04, the Company elected an accounting policy to use December 31 as the alternative measurement date for all of its defined benefit plan assets and obligations for fiscal 2016 and subsequent years. Since the Company's fiscal 2016 ended on December 31, 2016, it was not be necessary for the Company to utilize an alternative measurement date for fiscal 2016, and thus the initial adoption of ASU 2015-04 for fiscal 2016 did not have an impact on the Company's results of operations, financial condition, or cash flows.
Required Assessment of Going Concern (ASU 2014-15)
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth quarter of fiscal 2016, the Company adopted the provisions of ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
("ASU 2014-15")
.
Regardless of financial condition, ASU 2014-15 requires every entity to assess its ability to continue operating as a going concern for the period of time that extends one year from the issuance of interim or annual financial statements. If a quarterly or annual assessment indicates the presence of one or more conditions that raise substantial doubt, as defined in ASU 2014-15, about an entity's ability to continue as a going concern for the upcoming one-year period, the ASU requires disclosures in the footnotes that accompany the financial statements. Otherwise, no disclosure is required about the assessment results. The Company's adoption of ASU 2014-15 had no impact on its consolidated financial statements or related disclosures.
To Be Adopted After Fiscal 2016
Accounting for Share-Based Payments to Employees (ASU 2016-09)
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"), which amends ASC Topic 718,
Stock Compensation
.
ASU 2019-09 requires that all tax benefits and deficiencies related to share-based payments be recognized and recorded through the statement of operations for all awards settled or expiring after the adoption of ASU 2016-09. Under prior guidance, tax benefits in excess of compensation costs ("windfalls") were recorded in equity, and any tax deficiencies ("shortfalls") were recorded in equity to the extent of previous windfalls and then to the statement of operations. ASU 2016-09 also requires, either prospectively or retrospectively, that all tax-related cash flows resulting from share-based payments be reported as operating activities on the statement of cash flows, a change from prior guidance that required windfall tax benefits to be presented as an inflow from financing activities and an outflow from operating activities on the statement of cash flows.
Additionally, ASU 2016-09 allows entities to make an accounting policy election for the impact of most types of forfeitures on the recognition of expense for share-based payment awards by allowing the forfeitures to be either estimated, as was required under prior guidance, or recognized when they actually occur.
Under ASU 2016-09, it is possible for equity awards to have a more dilutive effect on earnings per share (EPS). Under prior guidance, anticipated income tax windfalls and shortfalls were included in the calculation of assumed proceeds when applying the treasury stock method for computing the dilutive effect of share-based awards in the calculation of diluted EPS. Because there is no longer any excess tax benefits recognized in additional paid capital under ASU 2016-09, when applying the treasury stock method for computing diluted EPS, the assumed proceeds do not include any windfall tax benefits. As a result, fewer hypothetical shares can be repurchased under the treasury stock method, resulting in an assumption of more incremental shares being issued upon the exercise of shared-based awards. Therefore, equity awards have a more dilutive effect on EPS for any period where the average market price of an entity's underlying stock exceeds the average fair value of outstanding dilutive equity awards for the period.
The provisions of ASU 2016-09 are effective for the Company at the beginning of fiscal 2017. The impact of ASU 2016-09 on the Company's income tax expense or benefit and related cash flows during and after the period of adoption are dependent in part upon future grants and vesting of stock-based compensation awards and other factors that are not fully controllable or predicable by the Company such as the future market price of the Company's common stock, the timing of employee exercises of vested stock options, and the future achievement of performance criteria that affect performance-based awards. Under ASU 2016-09, the Company will continue estimating expected forfeitures.
Simplified Subsequent Measurement of Inventory (ASU 2015-11)
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
("ASU 2015-11"). Upon adoption, ASU 2015-11 simplifies subsequent measurements of inventory by replacing the lower of cost or market test, required under prior guidance, with a lower of cost and net realizable value test. ASU 2015-11 applies only to inventories for which cost is determined by methods other than last-in-first-out (LIFO) and the retail inventory method. For inventory within the scope of ASU 2015-11, entities are required to compare the cost of inventory to only one measure, its net realizable value, and not the three measures required by prior guidance ("market," "subject to a floor," and a "ceiling"). When evidence exists that the net realizable value of inventory is less than its cost (due to damage, physical deterioration, obsolescence, changes in price levels or other causes), entities recognize the difference as a loss in earnings in the period in
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
which it occurs. The provisions of ASU 2015-11 are effective for the Company at the beginning of fiscal 2017. The adoption of ASU 2015-11 is not material to the Company's consolidated financial condition, results of operations, or cash flows.
Balance Sheet Classification of Deferred Taxes (ASU 2015-17)
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
("ASU 2015-17"). Prior GAAP required the deferred taxes for each tax jurisdiction (or tax-paying component of a jurisdiction) to be presented as a net current asset or liability and net non-current asset or liability. ASU 2015-17 requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate based on the period in which the attribute is expected to be realized. Under the provisions of ASU 2015-17, all deferred tax assets and liabilities are classified as non-current on an entity's balance sheet. As a result, each jurisdiction has only one net non-current deferred tax asset or liability. ASU 2015-17 does not change the existing guidance that prohibits the offsetting of deferred tax liabilities of one jurisdiction against the deferred tax assets of another jurisdiction. The provisions of ASU 2015-17 are effective for the Company at the beginning of fiscal 2017. The adoption of ASU 2015-17 only involves reclassification of certain deferred tax assets and liabilities on the Company's consolidated balance sheet and therefore does not impact the Company's results of operations or cash flows.
Revenue Recognition (ASC 606)
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which since has been codified in Accounting Standards Codification ("ASC") 606,
Revenue from Contracts with Customers
("ASC 606"). This guidance clarifies the principles for recognizing revenue and will be applicable to all contracts with customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance will require improved disclosures as well as additional disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Since its original issuance, the FASB has issued several amendments and updates to this guidance, and additional amendments and updates are possible. The standard will be effective for the Company at the beginning of fiscal 2018, including interim periods within that fiscal year. Upon adoption, the Company will apply the provisions of ASC 606 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. Based on an assessment of the Company's significant sources of revenue, at this time the Company does not believe that the adoption of ASC 606, including any of the policy elections required or permitted by ASC 606, will have a material impact on its consolidated financial position, results of operations and cash flows. Based on this assessment, at this time the Company does not believe the adoption of ASC 606 will have a significant impact on processes, systems, or controls.
Leases (ASU 2016-02)
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02,
Leases
. Under this new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases): 1) a lease liability equal to the lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a right-of-use asset which will represent the lessee's right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 will have little or no impact on an entity's results of operations or cash flows. The new standard will be effective for the Company at the beginning of fiscal 2019, including interim periods within the year of adoption. The new standard requires a modified retrospective basis, and early adoption is permitted. The Company is still evaluating the potential impacts of ASU 2016-02 on its consolidated balance sheet. However, the Company expects that the adoption of ASU 2016-02 will require the Company to recognize right-of-use assets and lease liabilities that will be material to the Company's consolidated balance sheet.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 – ACQUISITION OF BONNIE TOGS
In fiscal 2011, the Company purchased all of the outstanding shares of capital stock of Bonnie Togs in Canada for total consideration of up to CAD
$95 million
, of which USD
$61.2 million
was paid in cash at closing. The Company made payments of approximately USD
$14.7 million
and USD
$8.9 million
related to the contingent consideration liability based on the achievement of interim earnings targets through fiscal 2013 and fiscal 2014, respectively. In fiscal 2015, the Company made a final payment under the contingent consideration obligation of approximately USD
$8.6 million
. Of this amount, approximately USD
$7.6 million
was reported in the Company's consolidated statement of cash flows as a financing activity and the remaining portion, which represented the contingency adjustment recognized in the second quarter of fiscal 2015, was reported as an operating activity.
The following table summarizes the changes in the contingent consideration liability related to the 2011 acquisition of Bonnie Togs during fiscal 2014 and fiscal 2015 (dollars in thousands):
|
|
|
|
|
Balance at Beginning of Fiscal 2014
|
$16,348
|
Payments made in fiscal 2014
|
(8,901
|
)
|
Accretion expense in fiscal 2014
|
1,348
|
|
Foreign currency translation adjustment in fiscal 2014
|
(1,084
|
)
|
Balance at End of Fiscal 2014
|
7,711
|
|
Payments made in fiscal 2015
|
(8,568
|
)
|
Accretion expense in fiscal 2015
|
809
|
|
Foreign currency translation adjustment in fiscal 2015
|
(1,029
|
)
|
Final contingent adjustment
|
1,077
|
|
Balance at End of Fiscal 2015
|
$
|
—
|
|
As the end of fiscal 2015 and fiscal 2016, the Company had no remaining contingent consideration liability related to the acquisition of Bonnie Togs.
NOTE 4 – PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2016
|
|
January 2,
2016
|
Fixtures, equipment, computer hardware and software
|
$
|
398,536
|
|
|
$
|
367,593
|
|
Land, building, and leasehold improvements
|
305,844
|
|
|
260,809
|
|
Marketing fixtures
|
7,015
|
|
|
12,336
|
|
Construction in progress
|
20,386
|
|
|
21,602
|
|
|
731,781
|
|
|
662,340
|
|
Accumulated depreciation and amortization
|
(345,907
|
)
|
|
(290,636
|
)
|
Total
|
$
|
385,874
|
|
|
$
|
371,704
|
|
Depreciation and amortization expense related to property, plant, and equipment was approximately
$71.5 million
,
$62.0 million
, and
$58.5 million
for fiscal years
2016
,
2015
, and
2014
, respectively.
NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS
Acquisition of Tradenames
In December 2014, the Company acquired the exclusive rights to the
Carter's
brands including trademark registrations in Chile. The Company acquired these rights in order to freely operate in Chile by offering products and service under the
Carter's
brand. The total consideration paid was approximately
$3.6 million
in cash and was accounted for as an asset acquisition. This tradename is being amortized over
20 years
using a straight-line method.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In 2013, the Company acquired worldwide rights to the
Carter's Watch the Wear
and
H.W. Carter & Sons
brands, including trademark registrations. The Company acquired these worldwide rights for defensive purposes to reduce brand confusion and facilitate expansion in certain key international markets. The total consideration paid was approximately
$38.0 million
in cash and was accounted for as an asset acquisition. These tradenames were amortized over
three years
using an accelerated amortization method and have been fully amortized as of December 31, 2016.
Balance Sheet Components
The following table summarizes the Company’s goodwill and other intangible assets at the end of the fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
January 2, 2016
|
(dollars in thousands)
|
Weighted-average useful life
|
|
Gross amount
|
|
Accumulated amortization
|
|
Net amount
|
|
|
Gross amount
|
|
Accumulated amortization
|
|
Net amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter’s goodwill
(1)
|
Indefinite
|
|
$
|
136,570
|
|
|
$
|
—
|
|
|
$
|
136,570
|
|
|
|
$
|
136,570
|
|
|
$
|
—
|
|
|
$
|
136,570
|
|
Bonnie Togs goodwill
(2)
|
Indefinite
|
|
39,439
|
|
|
—
|
|
|
39,439
|
|
|
|
38,304
|
|
|
—
|
|
|
38,304
|
|
Total goodwill
|
|
|
$
|
176,009
|
|
|
$
|
—
|
|
|
$
|
176,009
|
|
|
|
$
|
174,874
|
|
|
$
|
—
|
|
|
$
|
174,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter’s
tradename
|
Indefinite
|
|
$
|
220,233
|
|
|
$
|
—
|
|
|
$
|
220,233
|
|
|
|
$
|
220,233
|
|
|
$
|
—
|
|
|
$
|
220,233
|
|
OshKosh
tradename
|
Indefinite
|
|
85,500
|
|
|
—
|
|
|
85,500
|
|
|
|
85,500
|
|
|
—
|
|
|
85,500
|
|
Other tradenames (3)
|
2 - 20 years
|
|
42,005
|
|
|
38,810
|
|
|
3,195
|
|
|
|
41,992
|
|
|
36,877
|
|
|
5,115
|
|
Total tradenames and other intangibles, net
|
|
|
$
|
347,738
|
|
|
$
|
38,810
|
|
|
$
|
308,928
|
|
|
|
$
|
347,725
|
|
|
$
|
36,877
|
|
|
$
|
310,848
|
|
|
|
(1)
|
$45.9 million
is assigned to the Carter’s wholesale segment,
$82.0 million
is assigned to the Carter’s retail segment, and
$8.6 million
is assigned to the International segment.
|
|
|
(2)
|
Assigned to the International segment. The change in the gross amount of goodwill and other intangible assets in the International segment reflects foreign currency translation adjustments for the applicable periods.
|
|
|
(3)
|
Relates to the acquisition of rights to the
Carter's
brand in Chile in December 2014, the
Carter's Watch the Wear
and
H.W. Carter & Sons
brands worldwide in 2013, and the Bonnie Togs (Canada) acquisition in 2011. At December 31, 2016, the remaining unamortized balance relates only to the
Carter's
brand in Chile.
|
Amortization expense for the tradename intangible assets subject to amortization was approximately
$1.9 million
,
$6.4 million
, and
$16.5 million
for fiscal years
2016
,
2015
, and
2014
, respectively. Future amortization expense is estimated to be approximately
$0.2 million
for each of the next five fiscal years and relates only to the Chile rights as all other tradenames are fully amortized at the end of fiscal 2016 .
NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other
comprehensive (loss) income is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Pension liability adjustment
|
|
Post-retirement liability adjustment
|
|
Cumulative translation adjustment
|
|
Accumulated other comprehensive (loss) income
|
Balance at December 28, 2013
|
$
|
(4,025
|
)
|
|
$
|
1,495
|
|
|
$
|
(7,552
|
)
|
|
$
|
(10,082
|
)
|
Fiscal year 2014 change
|
(4,963
|
)
|
|
(14
|
)
|
|
(7,845
|
)
|
|
(12,955
|
)
|
Balance at January 3, 2015
|
(8,988
|
)
|
|
1,348
|
|
|
(15,397
|
)
|
|
(23,037
|
)
|
Fiscal year 2015 change
|
803
|
|
|
56
|
|
|
(14,189
|
)
|
|
(13,330
|
)
|
Balance at January 2, 2016
|
(8,185
|
)
|
|
1,404
|
|
|
(29,586
|
)
|
|
(36,367
|
)
|
Fiscal year 2016 change
|
(666
|
)
|
|
331
|
|
|
1,962
|
|
|
1,627
|
|
Balance at December 31, 2016
|
$
|
(8,851
|
)
|
|
$
|
1,735
|
|
|
$
|
(27,624
|
)
|
|
$
|
(34,740
|
)
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of
December 31, 2016
and
January 2, 2016
, the cumulative pension liability adjustments were, net of tax effect,
$5.2 million
and
$4.8 million
, respectively. As of
December 31, 2016
and
January 2, 2016
, the post-retirement liability adjustments were, net of tax effect, approximately
$1.0 million
and
$0.8 million
, respectively.
For the fiscal years ended
December 31, 2016
and
January 2, 2016
, amounts reclassified from accumulated other comprehensive loss to the consolidated statements of operations consisted of amortization of actuarial gains and losses related to the Company's defined benefit retirement plans. Such amortization amounts are included in the net periodic cost or benefit recognized for these plans during the respective fiscal year. See
Note 10, Employee Benefit Plans
, for additional details. Also, during fiscal year 2014, approximately
$0.1 million
was reclassified from cumulative translation adjustment into other expense, net on the consolidated statement of operations
as a result of the completion of the Company's exit from retail operations in Japan.
NOTE 7 – LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31,
2016
|
|
January 2,
2016
|
Senior notes at amounts repayable
|
$
|
400,000
|
|
|
$
|
400,000
|
|
Less: unamortized issuance-related costs for senior notes (1)
|
(4,601
|
)
|
|
(5,459
|
)
|
Senior notes, net
|
$
|
395,399
|
|
|
$
|
394,541
|
|
Secured revolving credit facility (2)
|
184,977
|
|
|
184,431
|
|
Total long-term debt, net
|
$
|
580,376
|
|
|
$
|
578,972
|
|
|
|
|
(1) Required by the retrospective adoption of Accounting Standards Update No. 2015-03. See Note 2.
|
(2) Reported balance that is payable in Canadian dollars is subject to currency exchange rate changes.
SENIOR NOTES
During fiscal 2013, the Company's 100% owned subsidiary, The William Carter Company ("TWCC") issued
$400 million
principal amount of senior notes (the "senior notes") at par, bearing interest at a rate of
5.25%
per annum, and maturing on August 15, 2021, all of which were outstanding as of
December 31, 2016
. At issuance, TWCC received net proceeds from the offering of the senior notes of approximately
$394.2 million
, after deducting bank fees and other related fees. Approximately
$7.0 million
, including both bank fees and other third party expenses, was capitalized in connection with the issuance and is being amortized over the term of the senior notes.
The senior notes are unsecured and are fully and unconditionally guaranteed by Carter's, Inc. and certain subsidiaries of TWCC. The guarantor subsidiaries are 100% owned directly or indirectly by Carter's, Inc. and all guarantees are joint, several and unconditional.
At any time prior to August 15, 2017, TWCC may redeem all or part of the senior notes at
100%
of the principal amount redeemed plus an applicable premium and accrued and unpaid interest. On and after August 15, 2017, TWCC may redeem all or part of the senior notes at the redemption prices (expressed as percentages of principal amount of the senior notes to be redeemed) set forth below, plus accrued and unpaid interest. The redemption price applicable where the redemption occurs during the twelve-month period beginning on August 15 of each of the years indicated is as follows:
|
|
|
|
|
Year
|
|
Percentage
|
2017
|
|
102.63
|
%
|
2018
|
|
101.31
|
%
|
2019 and thereafter
|
|
100.00
|
%
|
Upon the occurrence of specific kinds of changes of control, unless a redemption notice with respect to all the outstanding senior notes has previously or concurrently been mailed or delivered, TWCC will be required to make an offer to purchase the senior notes at
101%
of their principal amount. In addition, if TWCC or any of its restricted subsidiaries engages in certain asset sales,
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
under certain circumstances TWCC will be required to use the net proceeds to make an offer to purchase the senior notes at
100%
of their principal amount.
The indenture governing the senior notes includes a number of covenants, that, among other things and subject to certain exceptions, restrict TWCC's ability and the ability of certain of its subsidiaries to: (a) incur, assume or guarantee additional indebtedness; (b) issue disqualified stock and preferred stock; (c) pay dividends or make distributions or other restricted payments; (d) prepay, redeem or repurchase certain debt; (e) make loans and investments (including joint ventures); (f) incur liens; (g) create restrictions on the payment of dividends or other amounts from restricted subsidiaries that are not guarantors of the notes; (h) sell or otherwise dispose of assets, including capital stock of subsidiaries; (i) consolidate or merge with or into, or sell substantially all of TWCC's assets to, another person; (j) designate subsidiaries as unrestricted subsidiaries; and (k) enter into transactions with affiliates. Specific provisions restrict the ability of the Company's operating subsidiary, TWCC, from paying cash dividends to Carter’s, Inc. in excess of
$100.0 million
plus an additional amount that builds based on
50%
of our consolidated net income on a cumulative basis beginning with the third fiscal quarter of 2013 and subject to certain conditions, unless TWCC and its consolidated subsidiaries meet a leverage ratio requirement under the indenture, which could restrict Carter's, Inc. from paying cash dividends on our common stock. Additionally, the terms of the notes contain customary affirmative covenants and provide for events of default which, if certain of them occur, would permit the trustee or the holders of at least
25%
in principal amount of the then total outstanding senior notes to declare all amounts owning under the notes to be due and payable. Carter's, Inc. is not subject to these covenants.
SECURED REVOLVING CREDIT FACILITY
On
October 15, 2010
, the Company entered into a
$375 million
(
$130 million
sub-limit for letters of credit and a swing line sub-limit of
$40 million
) secured revolving credit facility with Bank of America as sole lead arranger and administrative agent, JP Morgan Chase Bank as syndication agent, and other financial institutions. On December 22, 2011, the Company amended and restated the secured revolving credit facility to, among other things, provide a U.S. dollar secured revolving facility of
$340 million
(including a
$130 million
sub-limit for letters of credit and a swing line sub-limit of
$40 million
) and a
$35 million
multicurrency secured revolving facility (including a
$15 million
sub-limit for letters of credit and a swing line sub-limit of
$5 million
), which is available for borrowings by either TWCC or its Canadian subsidiary, in U.S. dollars or Canadian dollars.
On August 31, 2012, the Company and lenders amended and restated the secured revolving credit facility to, among other things, improve interest rates applicable to pricing, extend the maturity of the facility, and allow borrowings in currencies other than U.S. dollars or Canadian dollars subject to the consent of all multicurrency lenders. The aggregate principal amount of the facility remained unchanged at
$375 million
consisting of a
$340 million
U.S. dollar secured revolving credit facility and a
$35 million
multicurrency secured revolving credit facility (although the sub-limit for U.S. dollar letters of credit was increased to
$175 million
).
Amended and Restated Credit Facility
On
September 16, 2015
, the Company and a syndicate of lenders amended and restated the secured revolving credit facility (the "amended revolving credit facility") to
, among other things: (i) refinance the Company's existing credit facility in order to achieve better pricing terms and (ii) provide additional liquidity to be used for ongoing working capital purposes and for general corporate purposes.
The aggregate principal amount of the amended revolving credit facility was increased from
$375 million
to
$500 million
to provide for (i) a
$400 million
U.S. dollar revolving facility (including a
$175 million
sub-limit for letters of credit and a swing line sub-limit of
$50 million
) available for borrowings by TWCC and (ii) a
$100 million
multicurrency revolving facility (including a
$40 million
sub-limit for letters of credit and a swing line sub-limit of
$15 million
), available for borrowing by TWCC and certain other subsidiaries of TWCC, in U.S. dollars, Canadian dollars, Euros, Pounds Sterling, or other currencies agreed to by the applicable lenders.
In connection with the amendment, the Company paid approximately
$1.6 million
in debt issuance costs in connection with the amended and restated secured revolving credit agreement in fiscal 2015. These newly-incurred debt issuance costs, together with certain existing unamortized debt issuance costs, are being amortized over the remaining term of the amended revolving credit facility (
five
years). The amended revolving credit facility matures
September 16, 2020
.
As of
December 31, 2016
, the Company had approximately
$185.0 million
in outstanding borrowings under its secured revolving credit facility, exclusive of
$4.8 million
of outstanding letters of credit. As of
December 31, 2016
, there was approximately
$310.2 million
available for future borrowing.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of
December 31, 2016
, the interest rate margins applicable to the amended revolving credit facility were
1.375%
for
LIBOR
(London Interbank Offered Rate) rate loans (which may be adjusted based on a leverage-based pricing grid ranging from
1.125%
to
1.875%
) and
0.375%
for base rate loans (which may be adjusted based on a leverage-based pricing grid ranging from
0.125%
to
0.875%
).
At
December 31, 2016
, U.S. dollar borrowings outstanding under the secured revolving credit facility accrued interest at a
LIBOR
rate plus the applicable base rate, which was
2.08%
on that date, and Canadian borrowing outstanding accrued interest at a
CDOR
rate plus the applicable base rate, which was
2.28%
on that date.
Covenants
Subject to certain customary exceptions, the amended revolving credit facility contains covenants that restrict the Company's ability to, among other things: (i) create or incur liens, debt, guarantees or other investments, (ii) engage in mergers and consolidations, (iii) pay dividends or other distributions to, and redemptions and repurchases from, equity holders, (iv) prepay, redeem or repurchase subordinated or junior debt, (v) amend organizational documents, and (vi) engage in certain transactions with affiliates.
The amended revolving credit facility also contains affirmative financial covenants. Specifically, TWCC and its subsidiaries will not (i) permit at the end of any four consecutive fiscal quarters the Lease Adjusted Leverage Ratio (defined as, with certain adjustments, the ratio of the Company's consolidated indebtedness plus six times rent expense, as defined, to consolidated net income before interest, taxes, depreciation, amortization, and rent expense ("EBITDAR")) to exceed
4.00
:1.00 (provided, however, that if any "Material Acquisition" occurs and the Lease Adjusted Leverage Ratio on a pro forma basis giving effect to the consummation of the Material Acquisition is less than
4.00
:1.00, then the maximum Lease Adjusted Leverage Ratio may be increased to
4.50
:1.00 for the fiscal quarter in which such Material Acquisition is consummated and the three fiscal quarters immediately following the fiscal quarter in which such Material Acquisition occurs) or (ii) permit at the end of any four consecutive fiscal quarters the Consolidated Fixed Charge Coverage Ratio (defined as, with certain adjustments, the ratio of consolidated EBITDAR to consolidated fixed charges (defined as interest plus rent expense)), for any such period to be less than
2.25
:1.00 (provided, however, that if any Material Acquisition occurs and the Consolidated Fixed Charge Coverage Ratio on a pro forma basis giving effect to the consummation of the Material Acquisition is at least
2.25
:1.00, then the minimum Consolidated Fixed Charge Coverage Ratio may be decreased to
2.00
:1.00 for the fiscal quarter in which such Material Acquisition is consummated and the three fiscal quarters immediately following the fiscal quarter in which such Material Acquisition occurs).
The amended revolving credit facility also provides that certain covenants fall away and that the liens over the collateral securing each of the Company and certain subsidiaries' collective obligations are released following, among other things, the achievement of, and during the maintenance of, investment grade ratings by Moody's Investor Services, Inc. and Standard & Poor's Ratings Services.
The amended revolving credit facility also provides for incremental facilities in an aggregate amount not to exceed
$250 million
, either in the form of a commitment increase under the existing credit facility or the incurrence of one or more tranches of term loans (with the aggregate U.S. dollar amount available to the Company not to exceed
$200 million
and the aggregate multicurrency amount available not to exceed
$50 million
).
As of
December 31, 2016
, the Company was in compliance with its financial debt covenants under the secured revolving credit facility.
NOTE 8 – COMMON STOCK
SHARE REPURCHASES
In fiscal years prior to
2014
, the Company's Board of Directors authorized the repurchase of shares of the Company's common stock in amounts up to
$462.5 million
. On February 24, 2016, the Company's Board of Directors authorized an additional
$500 million
of share repurchases, thereby authorizing repurchase amounts up to
$962.5 million
.
Open-market repurchases of our common stock during fiscal years 2016, 2015 and 2014 were as follows:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended
|
|
December 31, 2016
|
|
January 2, 2016
|
|
January 3, 2015
|
Number of shares repurchased
|
3,049,381
|
|
|
1,154,288
|
|
|
1,111,899
|
|
Aggregate cost of shares repurchased (dollars in thousands)
|
$
|
300,445
|
|
|
$
|
110,290
|
|
|
$
|
82,099
|
|
Average price per share
|
$
|
98.53
|
|
|
$
|
95.55
|
|
|
$
|
73.84
|
|
In addition to the open-market repurchases completed in fiscal years
2016
,
2015
and
2014
, the Company completed additional open-market repurchases totaling approximately
$195.3 million
in fiscal year prior to
2014
.
The total remaining capacity under the repurchase authorizations as of
December 31, 2016
was
$274.4 million
.
Future share repurchases may occur from time to time in the open market, in negotiated transactions, or otherwise. The timing and amount of any repurchases will be determined by the Company based on its evaluation of market conditions, share price, other investment priorities, and other factors. The share repurchase authorizations have no expiration dates.
DIVIDENDS
In fiscal 2016, the Company's Board of Directors declared and paid quarterly cash dividends of
$0.33
per share during all four quarters. In fiscal 2015, the Company's Board of Directors paid quarterly cash dividends of
$0.22
per share during all four quarters.
On February 15, 2017, the Company's Board of Directors authorized a quarterly cash dividend payment of
$0.37
per common share, payable on March 24, 2017 to shareholders of record at the close of business on March 10, 2017.
Future declarations of dividends and the establishment of future record and payment dates are at the discretion of the Company's Board of Directors based on a number of factors, including the Company's future financial performance and other investment priorities.
Provisions in the Company's secured revolving credit facility and indenture governing its senior notes could have the effect of restricting the Company’s ability to pay future cash dividends on or make future repurchases of its common stock, as further described in
Note 7, Long-Term Debt
.
NOTE 9 – STOCK-BASED COMPENSATION
Under the Company’s Amended and Restated Equity Incentive Plan (the "Plan"), the Compensation Committee of the Board of Directors may award incentive stock options, stock appreciation rights, restricted stock, unrestricted stock, stock deliverable on a deferred basis (including restricted stock units), and performance-based stock awards.
At the Company's May 13, 2011 shareholders' meeting, the shareholders approved an amendment to the Plan to (i) increase the maximum number of shares of stock available under the existing Plan by
3,725,000
shares from
12,053,392
shares to
15,778,392
shares and (ii) eliminate the Company's ability to grant cash awards and provide tax gross-ups under the Plan. The Plan was last approved for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, at the Company's May 11, 2016 Shareholders' meeting. As of
December 31, 2016
, there were
1,625,371
shares available for grant under the Plan. The Plan makes provision for the treatment of awards upon termination of service or in the case of a merger or similar corporate transaction. Participation in the Plan is limited to members of the Company's board of directors, executive officers and other key employees.
The limit on shares available under the Plan, the individual limits, and other award terms are subject to adjustment to reflect stock splits or stock dividends, combinations, and certain other events. All stock options issued under the Plan expire no later than ten years from the date of grant. The Company believes that the current level of authorized shares is sufficient to satisfy future grants for the foreseeable future.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recorded stock-based compensation cost as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
Stock options
|
$
|
4,237
|
|
|
$
|
4,350
|
|
|
$
|
4,672
|
|
Restricted stock:
|
|
|
|
|
|
Time-based awards
|
7,451
|
|
|
6,855
|
|
|
7,018
|
|
Performance-based awards
|
3,974
|
|
|
4,728
|
|
|
4,827
|
|
Stock awards
|
1,185
|
|
|
1,096
|
|
|
1,081
|
|
Total
|
$
|
16,847
|
|
|
$
|
17,029
|
|
|
$
|
17,598
|
|
STOCK OPTIONS
Stock options vest in equal annual installments over a
four
-year period. The Company issues new shares to satisfy stock option exercises.
Changes in the Company's stock options for the fiscal year ended
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
Weighted- average exercise price
|
|
Weighted-average remaining contractual terms (years)
|
|
Aggregate intrinsic value
(in thousands)
|
|
|
|
|
|
|
|
|
Outstanding, January 2, 2016
|
1,423,660
|
|
|
$46.56
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
221,740
|
|
|
$91.23
|
|
|
|
|
Exercised
|
(160,200
|
)
|
|
$44.73
|
|
|
|
|
Forfeited
|
(43,315
|
)
|
|
$77.31
|
|
|
|
|
Expired
|
(675
|
)
|
|
$72.10
|
|
|
|
|
Outstanding, December 31, 2016
|
1,441,210
|
|
|
$52.70
|
|
5.62
|
|
$
|
49,696
|
|
|
|
|
|
|
|
|
|
Vested and Expected to Vest, December 31, 2016
|
1,384,830
|
|
|
$51.34
|
|
5.50
|
|
$
|
49,504
|
|
Exercisable, December 31, 2016
|
953,780
|
|
|
$38.08
|
|
4.31
|
|
$
|
46,103
|
|
The intrinsic value of stock options exercised during the fiscal years ended
December 31, 2016
,
January 2, 2016
, and
January 3, 2015
was approximately
$9.0 million
,
$13.2 million
, and
$12.9 million
, respectively. At
December 31, 2016
, there was approximately
$6.4 million
of unrecognized compensation cost (net of estimated forfeitures) related to stock options which is expected to be recognized over a weighted-average period of approximately
2.5
years.
The table below presents the assumptions used to calculate the fair value of options granted in each of the respective fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
Expected volatility
|
26.95
|
%
|
|
31.65
|
%
|
|
30.85
|
%
|
Risk-free interest rate
|
1.33
|
%
|
|
1.65
|
%
|
|
1.82
|
%
|
Expected term (years)
|
6.0
|
|
6.0
|
|
6.0
|
Dividend yield
|
1.45
|
%
|
|
1.06
|
%
|
|
1.11
|
%
|
Weighted average fair value of options granted
|
$
|
21.41
|
|
|
$
|
24.59
|
|
|
$
|
19.86
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RESTRICTED STOCK AWARDS
Restricted stock awards issued under the Plan vest based upon continued service (time-based) or performance (performance-based) targets.
The following table summarizes activity related to all restricted stock awards during the fiscal year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
Restricted
stock
awards
|
|
Weighted-average grant-date
fair value
|
Outstanding, January 2, 2016
|
460,727
|
|
|
$
|
68.14
|
|
Granted
|
190,092
|
|
|
$
|
91.66
|
|
Vested
|
(218,335
|
)
|
|
$
|
62.98
|
|
Forfeited
|
(26,785
|
)
|
|
$
|
77.91
|
|
Outstanding, December 31, 2016
|
405,699
|
|
|
$
|
81.29
|
|
During fiscal
2015
, a total of
352,396
shares of restricted stock vested with a weighted-average fair value of
$43.20
per share. During fiscal
2014
, a total of
184,133
shares of restricted stock vested with a weighted-average fair value of
$42.24
per share. At December 31, 2016, there was approximately
$17.5 million
of unrecognized compensation cost (net of estimated forfeitures) related to all restricted stock awards which is expected to be recognized over a weighted-average period of approximately
2.4
years.
Time-based Restricted Stock Awards
Time-based restricted stock awards vest in equal annual installments or cliff vest after a three- or four-year period. During fiscal years
2016
,
2015
, and
2014
, a total of
124,135
shares,
148,396
shares, and
184,133
shares, respectively, of time-based restricted stock vested with a weighted-average fair value of
$65.80
per share,
$51.67
per share, and
$42.24
per share, respectively. At
December 31, 2016
, there was approximately
$12.8 million
of unrecognized compensation cost (net of estimated forfeitures) related to time-based restricted stock which is expected to be recognized over a weighted-average period of approximately
2.6
years.
Performance-based Restricted Stock Awards
|
|
|
|
|
|
|
|
|
Fiscal year
|
|
Number of shares granted
|
|
Weighted-average fair value per share
|
2014
|
|
61,200
|
|
|
$
|
68.49
|
|
2015
|
|
50,600
|
|
|
$
|
82.40
|
|
2016
|
|
53,070
|
|
|
$
|
90.66
|
|
During the fiscal year ended
December 31, 2016
, a total of
94,200
performance shares vested with a weighted-average fair value of
$59.27
per share. As of
December 31, 2016
, a total of
151,810
performance shares were unvested with a weighted-average fair value of
$80.47
per share. Vesting of these
151,810
performance shares is based on the performance targets for the shares granted in fiscal
2016
,
2015
, and
2014
. As of
December 31, 2016
, there was approximately
$4.7 million
of unrecognized compensation cost (net of estimated forfeitures) related to the unvested performance-based restricted stock awards which is expected to be recognized over a weighted-average period of approximately
1.7
years.
The Company estimates that all of the performance targets will be fully achieved and is recognizing compensation cost ratably over the applicable performance periods based on estimated achievement at the end of each reporting period.
Stock Awards
Included in restricted stock awards are grants to non-management members of the Company's Board of Directors. At issuance, these awards were fully vested and issued as shares of the Company's common stock. During fiscal years 2016, 2015, and 2014, such awards were as follows:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
Number of shares issued
|
|
Fair value per share
|
|
Aggregate value (in thousands)
|
2014
|
14,859
|
|
$72.72
|
|
$1,081
|
2015
|
10,933
|
|
$100.21
|
|
$1,096
|
2016
|
12,758
|
|
$101.10
|
|
$1,290
|
The Company received no proceeds from the issuance of these shares.
NOTE 10 – EMPLOYEE BENEFIT PLANS
The Company maintains defined contribution plans, a deferred compensation plan, and two defined benefit plans. The two defined benefit plans include the OshKosh B'Gosh pension plan and a post-retirement life and medical plan.
OSHKOSH B'GOSH PENSION PLAN
Funded Status
The retirement benefits under the OshKosh B'Gosh pension plan were frozen as of December 31, 2005. A reconciliation of changes in the projected pension benefit obligation and plan assets is as follows:
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
Change in projected benefit obligation:
|
|
|
|
Projected benefit obligation at beginning of fiscal year
|
$
|
60,375
|
|
|
$
|
63,515
|
|
Interest cost
|
2,515
|
|
|
2,493
|
|
Actuarial loss (gain)
|
1,697
|
|
|
(3,329
|
)
|
Benefits paid
|
(2,160
|
)
|
|
(2,304
|
)
|
Projected benefit obligation at end of fiscal year
|
$
|
62,427
|
|
|
$
|
60,375
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at beginning of fiscal year
|
$
|
50,619
|
|
|
$
|
52,484
|
|
Actual return on plan assets
|
2,754
|
|
|
439
|
|
Benefits paid
|
(2,160
|
)
|
|
(2,304
|
)
|
Fair value of plan assets at end of fiscal year
|
$
|
51,213
|
|
|
$
|
50,619
|
|
|
|
|
|
Unfunded status
|
$
|
11,214
|
|
|
$
|
9,756
|
|
The accumulated benefit obligation is equal to the projected benefit obligation as of
December 31, 2016
and
January 2, 2016
because the plan is frozen. The unfunded status is included in other long-term liabilities in the Company's consolidated balance sheet. The Company does not expect to make any contributions to the OshKosh B'Gosh pension plan during fiscal 2017 as the plan's funding exceeds the minimum funding requirements. The actuarial loss incurred in fiscal 2016 was primarily attributable to a lower discount rate. The actuarial gain incurred in fiscal year 2015 was primarily attributable to a higher discount rate.
Net Periodic Pension Cost (Benefit) and Changes Recognized in Other Comprehensive Income or Loss
The components of net periodic pension cost (benefit) recognized in the statement of operations and changes recognized in other comprehensive income or loss were as follows:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
|
January 3, 2015
|
Recognized in the statement of operations:
|
|
|
|
|
|
Interest cost
|
$
|
2,515
|
|
|
$
|
2,493
|
|
|
$
|
2,488
|
|
Expected return on plan assets
|
(2,701
|
)
|
|
(3,138
|
)
|
|
(3,193
|
)
|
Recognized actuarial loss (a)
|
578
|
|
|
643
|
|
|
85
|
|
Net periodic pension cost (benefit)
|
$
|
392
|
|
|
$
|
(2
|
)
|
|
$
|
(620
|
)
|
|
|
|
|
|
|
Changes recognized in other comprehensive income or loss:
|
Net loss (gain) arising during the fiscal year
|
$
|
1,644
|
|
|
$
|
(630
|
)
|
|
$
|
7,968
|
|
Amortization of net loss (a)
|
(578
|
)
|
|
(643
|
)
|
|
(85
|
)
|
Total changes recognized in other comprehensive income or loss
|
$
|
1,066
|
|
|
$
|
(1,273
|
)
|
|
$
|
7,883
|
|
Total net periodic cost (benefit) and changes recognized in other comprehensive income or loss
|
$
|
1,458
|
|
|
$
|
(1,275
|
)
|
|
$
|
7,263
|
|
(a) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2017, approximately
$0.7 million
is expected to be reclassified from accumulated other comprehensive loss to a component of net periodic pension cost.
Assumptions
The actuarial computations utilized the following assumptions, using year-end measurement dates:
|
|
|
|
|
|
|
Benefit obligation
|
2016
|
|
2015
|
|
|
Discount rate
|
4.00%
|
|
4.25%
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
4.25%
|
|
4.00%
|
|
4.75%
|
Expected long-term rate of return on assets
|
6.00%
|
|
6.00%
|
|
6.50%
|
The discount rates used at
December 31, 2016
,
January 2, 2016
, and
January 3, 2015
were determined with consideration given to the Citigroup Pension Discount and Liability Index and the Barclay Capital Aggregate AA Bond Index, adjusted for the timing of expected plan distributions. The Company believes these indexes reflect a risk-free rate consistent with a portfolio of high quality debt instruments with maturities that are comparable to the timing of the expected payments under the plan. The expected 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.
A
0.25%
change in the assumed discount rate would result in an increase or decrease in the amount of the pension plan's projected benefit obligation of approximately
$2.2 million
.
The Company currently expects benefit payments for its defined benefit pension plans as follows for the next ten fiscal years;
|
|
|
|
|
(dollars in thousands)
|
|
Fiscal Year
|
|
2017
|
$
|
2,540
|
|
2018
|
$
|
2,250
|
|
2019
|
$
|
2,290
|
|
2020
|
$
|
2,620
|
|
2021
|
$
|
2,640
|
|
2022-2026
|
$
|
16,400
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Plan Assets
The Company's investment strategy is to invest in a well-diversified portfolio consisting of approximately
10
mutual funds or group annuity contracts that minimize concentration of risks by utilizing a variety of asset types, fund strategies, and fund managers. The target allocation for plan assets is
40%
equity securities,
50%
bond funds, and
10%
real estate investments. Based on actual returns over a long-term basis, the Company believes that a
6.0%
annual return on plan assets can be achieved based on the current allocation and investment strategy.
Equity securities primarily include funds invested in large-cap and mid-cap companies, primarily located in the U.S., with up to
5%
of the plan assets invested in international equities. Fixed income securities include funds holding corporate bonds of companies from diverse industries, and U.S. Treasuries. Real estate funds include investments in actively managed mutual funds that invest in real estate.
The fair value of the Company's pension plan assets at
December 31, 2016
and
January 2, 2016
, by asset category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
January 2, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
Asset Category
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
Cash and cash equivalents
|
|
$
|
175
|
|
|
$
|
175
|
|
|
$
|
—
|
|
|
|
$
|
149
|
|
|
$
|
149
|
|
|
$
|
—
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Large-Cap blend (a)
|
|
8,462
|
|
|
4,221
|
|
|
4,241
|
|
|
|
8,438
|
|
|
4,222
|
|
|
4,216
|
|
U.S. Large-Cap growth
|
|
4,220
|
|
|
4,220
|
|
|
—
|
|
|
|
4,216
|
|
|
4,216
|
|
|
—
|
|
U.S. Mid-Cap growth
|
|
2,533
|
|
|
—
|
|
|
2,533
|
|
|
|
2,550
|
|
|
—
|
|
|
2,550
|
|
U.S. Small-Cap blend
|
|
2,514
|
|
|
2,514
|
|
|
—
|
|
|
|
2,523
|
|
|
2,523
|
|
|
—
|
|
International blend
|
|
2,569
|
|
|
2,569
|
|
|
—
|
|
|
|
2,523
|
|
|
2,523
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds (b)
|
|
25,573
|
|
|
25,573
|
|
|
—
|
|
|
|
25,097
|
|
|
25,097
|
|
|
—
|
|
Real estate (c)
|
|
5,167
|
|
|
5,167
|
|
|
—
|
|
|
|
5,123
|
|
|
5,123
|
|
|
—
|
|
|
|
$
|
51,213
|
|
|
$
|
44,439
|
|
|
$
|
6,774
|
|
|
|
$
|
50,619
|
|
|
$
|
43,853
|
|
|
$
|
6,766
|
|
(a) This category comprises low-cost equity index funds not actively managed that track the Standard & Poor's 500 Index.
(b) This category invests in both U.S. Treasuries and mid-term corporate debt from U.S. issuers from diverse industries.
(c) This category represents an investment in a mutual fund that invests primarily in real estate securities, including common stocks, preferred stock and other equity securities issued by real estate companies.
POST-RETIREMENT LIFE AND MEDICAL PLAN
Under a defined benefit plan frozen in 1991, the Company offers a comprehensive post-retirement medical plan to current and certain future retirees and their spouses. The Company also offers life insurance to current and certain future retirees. Employee contributions are required as a condition of participation for both medical benefits and life insurance and the Company's liabilities are net of these expected employee contributions.
Accumulated Post-Retirement Benefit Obligation
The following is a reconciliation of the accumulated post-retirement benefit obligation ("APBO") under this plan:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
APBO at beginning of fiscal year
|
$
|
4,938
|
|
|
$
|
5,331
|
|
Service cost
|
123
|
|
|
130
|
|
Interest cost
|
177
|
|
|
178
|
|
Actuarial (gain) loss
|
(740
|
)
|
|
(278
|
)
|
Plan participants' contribution
|
10
|
|
|
17
|
|
Prior service cost
|
11
|
|
|
—
|
|
Benefits paid
|
(394
|
)
|
|
(440
|
)
|
Curtailment gain
|
—
|
|
|
—
|
|
APBO at end of fiscal year
|
$
|
4,125
|
|
|
$
|
4,938
|
|
Approximately
$3.5 million
and
$4.3 million
of the APBO at the end of fiscal 2016 and 2015, respectively, were classified as other long term liabilities in the Company's consolidated balance sheets.
Net Periodic Post-Retirement Cost (Benefit) and Changes Recognized in Other Comprehensive Income or Loss
The components of net periodic post-retirement cost (benefit) recognized in the statement of operations and changes recognized in other comprehensive income or loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
|
|
|
|
|
|
|
Recognized in the statement of operations:
|
|
|
|
|
|
|
Service cost – benefits attributed to service during the period
|
|
$
|
123
|
|
|
$
|
130
|
|
|
$
|
113
|
|
Interest cost on accumulated post-retirement benefit obligation
|
|
177
|
|
|
178
|
|
|
230
|
|
Amortization net actuarial gain (a)
|
|
(198
|
)
|
|
(192
|
)
|
|
(206
|
)
|
Curtailment gain
|
|
—
|
|
|
—
|
|
|
(291
|
)
|
Net periodic post-retirement cost (benefit)
|
|
$
|
102
|
|
|
$
|
116
|
|
|
$
|
(154
|
)
|
|
|
|
|
|
|
|
Changes recognized in other comprehensive income or loss:
|
Net (gain) loss arising during the fiscal year
|
|
$
|
(740
|
)
|
|
$
|
(278
|
)
|
|
$
|
32
|
|
Prior service cost
|
|
11
|
|
|
—
|
|
|
—
|
|
Amortization of net gain (a)
|
|
198
|
|
|
192
|
|
|
206
|
|
Total changes recognized in other comprehensive income or loss
|
|
$
|
(531
|
)
|
|
$
|
(86
|
)
|
|
$
|
238
|
|
Total net periodic (benefit) cost and changes recognized in other comprehensive income or loss
|
|
$
|
(429
|
)
|
|
$
|
30
|
|
|
$
|
84
|
|
(a) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2017, approximately
$0.2 million
is expected to be reclassified from accumulated other comprehensive loss as a credit to periodic net periodic pension cost.
Curtailment
In fiscal 2014, a curtailment gain was recognized as a result of the Company's facility closures, which decreased the number of employees eligible for retiree medical benefits.
Assumptions
The actuarial computations utilized the following assumptions, using year-end measurement dates:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Benefit obligation
|
|
|
|
|
|
Discount rate
|
3.50%
|
|
3.75%
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net periodic pension cost
|
|
|
|
|
|
Discount rate
|
3.75%
|
|
3.50%
|
|
4.25%
|
The discount rates used at
December 31, 2016
,
January 2, 2016
, and
January 3, 2015
, were determined with primary consideration given to the Citigroup Pension Discount and Liability Index adjusted for the timing of expected plan distributions. The Company believes this index reflects a risk-free rate with maturities that are comparable to the timing of the expected payments under the plan.
The effects on the Company's plan of all future increases in health care costs are borne primarily by employees; accordingly, increasing medical costs are not expected to have any material effect on the Company's future financial results.
The Company's contribution for these post-retirement benefit obligations was approximately
$0.4 million
in both of the fiscal years 2016 and 2015, and
$0.5 million
in fiscal 2014. The Company expects that its contribution and benefit payments for post-retirement benefit obligations will be approximately
$0.4 million
for each fiscal year between 2017 and 2019, and
$0.3 million
for both fiscal years 2020 and 2021. For the five years subsequent to fiscal 2021, the aggregate contributions and benefit payments for post-retirement benefit obligations is expected to be approximately
$1.4 million
. The Company does not pre-fund this plan and as a result there are no plan assets. The measurement date used to determine the post-retirement benefit obligations is as of the end of the fiscal year.
DEFERRED COMPENSATION PLAN
The Company maintains a deferred compensation plan allowing voluntary salary and incentive compensation deferrals for qualifying employees as permitted by the Internal Revenue Code. Participant deferrals earn investment returns based on a select number of investment options, including equity, debt, and real estate mutual funds. The Company invests comparable amounts in marketable securities to mitigate the risk associated with the investment return on the employee deferrals.
DEFINED CONTRIBUTION PLAN
The Company also sponsors defined contribution savings plans within the U.S. and Canada. The U.S. plan covers employees who are at least
21
years of age and have completed
three
months of service, during which at least
250
hours were served. The plan provides for a discretionary employer match. The Company's expense for the U.S. defined contribution savings plan totaled approximately
$10.5 million
,
$12.2 million
, and
$10.5 million
for the fiscal years ended
December 31, 2016
,
January 2, 2016
, and
January 3, 2015
, respectively. Expenses related to the Canadian defined contribution savings plan were not material.
NOTE 11 – INCOME TAXES
PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
|
January 3, 2015
|
Current tax provision:
|
|
|
|
|
|
Federal
|
$
|
113,326
|
|
|
$
|
103,316
|
|
|
$
|
88,635
|
|
State
|
11,407
|
|
|
10,277
|
|
|
9,049
|
|
Foreign
|
11,937
|
|
|
8,116
|
|
|
6,641
|
|
Total current provision
|
$
|
136,670
|
|
|
$
|
121,709
|
|
|
$
|
104,325
|
|
|
|
|
|
|
|
Deferred tax provision (benefit):
|
|
|
|
|
|
Federal
|
$
|
1,435
|
|
|
$
|
6,577
|
|
|
$
|
5,519
|
|
State
|
345
|
|
|
1,193
|
|
|
41
|
|
Foreign
|
(486
|
)
|
|
887
|
|
|
(1,649
|
)
|
Total deferred provision
|
1,294
|
|
|
8,657
|
|
|
3,911
|
|
Total provision
|
$
|
137,964
|
|
|
$
|
130,366
|
|
|
$
|
108,236
|
|
The foreign portion of the tax position substantially relates to Canada, Hong Kong and China income taxes on the Company's international operations and foreign tax withholdings related to the Company's foreign royalty income. The components of income before income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
|
January 3, 2015
|
Domestic
|
$
|
345,304
|
|
|
$
|
335,955
|
|
|
$
|
286,177
|
|
Foreign
|
50,766
|
|
|
32,233
|
|
|
16,729
|
|
Total
|
$
|
396,070
|
|
|
$
|
368,188
|
|
|
$
|
302,906
|
|
EFFECTIVE RATE RECONCILIATION
The difference between the Company's effective income tax rate and the federal statutory tax rate is reconciled below:
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
|
December 31, 2016
|
|
January 2, 2016
|
|
January 3, 2015
|
|
|
|
|
|
|
Statutory federal income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
2.3
|
%
|
|
2.5
|
%
|
|
2.5
|
%
|
Impact of foreign operations
|
(2.1
|
)%
|
|
(1.3
|
)%
|
|
(1.2
|
)%
|
Settlement of uncertain tax positions
|
(0.4
|
)%
|
|
(0.8
|
)%
|
|
(0.6
|
)%
|
Total
|
34.8
|
%
|
|
35.4
|
%
|
|
35.7
|
%
|
The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions.
The Internal Revenue Service completed an income tax audit for fiscal years 2011- 2013 in the first quarter of 2015. As a result of the settlement of this audit and on ongoing state income tax audit, the Company recognized prior-year income tax benefits of approximately
$1.8 million
in the first quarter of 2015. In most cases, the Company is no longer subject to state and local tax authority examinations for years prior to fiscal 2012.
DEFERRED TAXES
Components of deferred tax assets and liabilities were as follows:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
Deferred tax assets:
|
Assets (Liabilities)
|
Accounts receivable allowance
|
$
|
3,873
|
|
|
$
|
4,394
|
|
Inventory
|
9,226
|
|
|
9,019
|
|
Accrued liabilities
|
16,037
|
|
|
15,156
|
|
Equity-based compensation
|
9,967
|
|
|
10,022
|
|
Deferred employee benefits
|
10,340
|
|
|
8,929
|
|
Deferred rent
|
46,685
|
|
|
43,616
|
|
Other
|
5,192
|
|
|
5,125
|
|
Total deferred tax assets
|
$
|
101,320
|
|
|
$
|
96,261
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
$
|
(90,317
|
)
|
|
$
|
(84,610
|
)
|
Tradename and licensing agreements
|
(101,632
|
)
|
|
(101,160
|
)
|
Other
|
(4,541
|
)
|
|
(5,249
|
)
|
Total deferred tax liabilities
|
$
|
(196,490
|
)
|
|
$
|
(191,019
|
)
|
The net deferred tax liability was classified on the Company's consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
|
Assets (Liabilities)
|
Current net deferred tax asset
|
$
|
35,486
|
|
|
$
|
34,080
|
|
Non-current net deferred tax liability
|
(130,656
|
)
|
|
(128,838
|
)
|
Total deferred tax liability
|
$
|
(95,170
|
)
|
|
$
|
(94,758
|
)
|
The Company has not provided deferred taxes on undistributed earnings from its foreign subsidiaries, as the Company anticipates that these earnings will be reinvested indefinitely. Undistributed earnings from the Company's foreign subsidiaries at
December 31, 2016
amounted to approximately
$137.5 million
. These earnings have been reinvested in foreign operations and the Company does not currently plan to initiate any action that would result in these earnings being repatriated to the U.S. Because of the availability of foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.
UNCERTAIN TAX POSITIONS
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
(dollars in thousands)
|
|
Balance at December 28, 2013
|
$
|
11,182
|
|
Additions based on tax positions related to fiscal 2014
|
2,572
|
|
Additions for prior year tax positions
|
(471
|
)
|
Reductions for lapse of statute of limitations
|
(1,536
|
)
|
Reductions for prior year tax settlements
|
(436
|
)
|
Balance at January 3, 2015
|
$
|
11,311
|
|
Additions based on tax positions related to fiscal 2015
|
2,840
|
|
Reductions for prior year tax positions
|
(260
|
)
|
Reductions for lapse of statute of limitations
|
(1,427
|
)
|
Reductions for prior year tax settlements
|
(3,049
|
)
|
Balance at January 2, 2016
|
$
|
9,415
|
|
Additions based on tax positions related to fiscal 2016
|
2,849
|
|
Reductions for prior year tax positions
|
(39
|
)
|
Reductions for lapse of statute of limitations
|
(995
|
)
|
Reductions for prior year tax settlements
|
(693
|
)
|
Balance at December 31, 2016
|
$
|
10,537
|
|
As of
December 31, 2016
, the Company had gross unrecognized tax benefits of approximately
$10.5 million
, of which
$7.5 million
, if ultimately recognized, will affect the Company's effective tax rate in the period 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. Because of deferred tax accounting, changes in the timing of these deductions would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authorities.
Included in the reserves for unrecognized tax benefits are approximately
$1.5 million
of reserves for which the statute of limitations is expected to expire within the next fiscal year. If these tax benefits are ultimately recognized, such recognition, net of federal income taxes, may affect the annual effective tax rate for fiscal 2017 and the effective 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 penalties related to unrecognized tax benefits as a component of income tax expense. During fiscal 2016, 2015, and 2014, interest expense recorded on uncertain tax positions was not significant. The Company had approximately
$0.8 million
of interest accrued on uncertain tax positions as of both
December 31, 2016
and
January 2, 2016
.
NOTE 12 – EARNINGS PER SHARE
The following is a reconciliation of basic common shares outstanding to diluted common and common equivalent shares outstanding:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
Weighted-average number of common and common equivalent shares outstanding:
|
|
|
|
|
|
Basic number of common shares outstanding
|
49,917,858
|
|
|
51,835,053
|
|
|
52,614,425
|
|
Dilutive effect of equity awards
|
457,849
|
|
|
499,583
|
|
|
479,114
|
|
Diluted number of common and common equivalent shares outstanding
|
50,375,707
|
|
|
52,334,636
|
|
|
53,093,539
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share:
|
|
|
|
|
|
Net income
|
$
|
258,106
|
|
|
$
|
237,822
|
|
|
$
|
194,670
|
|
Income allocated to participating securities
|
(2,049
|
)
|
|
(2,184
|
)
|
|
(2,586
|
)
|
Net income available to common shareholders
|
$
|
256,057
|
|
|
$
|
235,638
|
|
|
$
|
192,084
|
|
|
|
|
|
|
|
Basic net income per common share
|
$
|
5.13
|
|
|
$
|
4.55
|
|
|
$
|
3.65
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
Net income
|
$
|
258,106
|
|
|
$
|
237,822
|
|
|
$
|
194,670
|
|
Income allocated to participating securities
|
(2,035
|
)
|
|
(2,167
|
)
|
|
(2,568
|
)
|
Net income available to common shareholders
|
$
|
256,071
|
|
|
$
|
235,655
|
|
|
$
|
192,102
|
|
|
|
|
|
|
|
Diluted net income per common share
|
$
|
5.08
|
|
|
$
|
4.50
|
|
|
$
|
3.62
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from dilutive earnings per share calculations (1)
|
247,460
|
|
|
192,740
|
|
|
230,150
|
|
(1) The volume of antidilutive shares is, in part, due to the related unamortized compensation costs.
The Company grants shares of its common stock in the form of restricted stock awards to certain key employees under the Company's Amended and Restated Equity Incentive Plan (see Note 8). Prior to vesting of the restricted stock awards, the grant recipients are entitled to receive non-forfeitable cash dividends if the Company's board of directors declares and pays dividends on the Company's common stock. Accordingly, unvested shares of the Company's restricted stock awards are deemed to be participating securities for purposes of computing diluted earnings per share (EPS), and therefore the Company's diluted EPS represent the lower of the amounts calculated under the treasury stock method or the two-class method of calculating diluted EPS.
NOTE 13 – SEGMENT INFORMATION
The Company reports segment information based upon a "management approach." The management approach refers to the internal reporting that is used by management for making operating decisions and assessing the performance of the Company's reportable segments. The Company reports its corporate expenses separately as they are not included in the internal measures of segment operating performance used by the Company to measure the underlying performance of its reportable segments.
Segment results include the direct costs of each segment and all other costs are allocated based upon detailed estimates and analysis of actual time and expenses incurred to support the operations of each segment or units produced or sourced to support each segment's revenue. Certain costs, including incentive compensation for certain employees, and various other general corporate costs that are not specifically allocable to segments, are included in corporate expenses below. Intersegment sales and transfers are recorded at cost and are treated as a transfer of inventory. The accounting policies of the segments are the same as those described in
Note 2, Summary of Significant Accounting Policies
. The Company's reportable segments for fiscal 2016, 2015 and 2014 were Carter's Wholesale, Carter’s Retail, OshKosh Retail, OshKosh Wholesale, and International.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below presents certain segment information for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31,
2016
|
|
% of
Total
|
|
January 2,
2016
|
|
% of
Total
|
|
January 3,
2015
|
|
% of Total
|
Net sales
:
|
|
|
|
|
|
|
|
|
|
|
|
Carter’s Retail (a)
|
$
|
1,254,140
|
|
|
39.2
|
%
|
|
$
|
1,151,268
|
|
|
38.2
|
%
|
|
$
|
1,087,165
|
|
|
37.6
|
%
|
Carter’s Wholesale
|
1,128,371
|
|
|
35.3
|
%
|
|
1,107,706
|
|
|
36.8
|
%
|
|
1,081,888
|
|
|
37.4
|
%
|
Total Carter’s
|
2,382,511
|
|
|
74.5
|
%
|
|
2,258,974
|
|
|
75.0
|
%
|
|
2,169,053
|
|
|
75.0
|
%
|
OshKosh Retail (a)
|
402,274
|
|
|
12.6
|
%
|
|
363,087
|
|
|
12.0
|
%
|
|
335,140
|
|
|
11.6
|
%
|
OshKosh Wholesale
|
49,663
|
|
|
1.6
|
%
|
|
65,607
|
|
|
2.2
|
%
|
|
73,201
|
|
|
2.5
|
%
|
Total OshKosh
|
451,937
|
|
|
14.2
|
%
|
|
428,694
|
|
|
14.2
|
%
|
|
408,341
|
|
|
14.1
|
%
|
International (b)
|
364,736
|
|
|
11.3
|
%
|
|
326,211
|
|
|
10.8
|
%
|
|
316,474
|
|
|
10.9
|
%
|
Total net sales
|
$
|
3,199,184
|
|
|
100.0
|
%
|
|
$
|
3,013,879
|
|
|
100.0
|
%
|
|
$
|
2,893,868
|
|
|
100.0
|
%
|
Operating income
:
|
|
|
% of
segment
net sales
|
|
|
|
% of
segment
net sales
|
|
|
|
% of
segment
net sales
|
Carter’s Retail (a)
|
$
|
202,164
|
|
|
16.1
|
%
|
|
$
|
199,040
|
|
|
17.3
|
%
|
|
$
|
211,297
|
|
|
19.4
|
%
|
Carter’s Wholesale
|
250,132
|
|
|
22.2
|
%
|
|
232,497
|
|
|
21.0
|
%
|
|
185,463
|
|
|
17.1
|
%
|
Total Carter’s
|
452,296
|
|
|
19.0
|
%
|
|
431,537
|
|
|
19.1
|
%
|
|
396,760
|
|
|
18.3
|
%
|
OshKosh Retail (a)
|
10,417
|
|
|
2.6
|
%
|
|
11,931
|
|
|
3.3
|
%
|
|
8,210
|
|
|
2.4
|
%
|
OshKosh Wholesale
|
10,821
|
|
|
21.8
|
%
|
|
13,270
|
|
|
20.2
|
%
|
|
8,842
|
|
|
12.1
|
%
|
Total OshKosh
|
21,238
|
|
|
4.7
|
%
|
|
25,201
|
|
|
5.9
|
%
|
|
17,052
|
|
|
4.2
|
%
|
International (b) (c)
|
59,194
|
|
|
16.2
|
%
|
|
47,004
|
|
|
14.4
|
%
|
|
39,470
|
|
|
12.5
|
%
|
Corporate expenses (d) (e)
|
(106,170
|
)
|
|
|
|
(110,885
|
)
|
|
|
|
(119,937
|
)
|
|
|
Total operating income
|
$
|
426,558
|
|
|
13.3
|
%
|
|
$
|
392,857
|
|
|
13.0
|
%
|
|
$
|
333,345
|
|
|
11.5
|
%
|
|
|
(a)
|
Includes eCommerce results.
|
|
|
(b)
|
Net sales include international retail, eCommerce, and wholesale sales. Operating income includes international licensing income.
|
|
|
(c)
|
Includes the following charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in millions)
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
Revaluation of contingent consideration
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
1.3
|
|
Exit from Japan retail operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
|
(d)
|
Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, building occupancy, information technology, certain legal fees, consulting, and audit fees.
|
(e) Includes the following charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in millions)
|
|
December 31,
2016
|
|
January 2,
2016
|
|
January 3,
2015
|
Office consolidation costs
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6.6
|
|
Amortization of H.W. Carter and Sons tradenames
|
|
$
|
1.7
|
|
|
$
|
6.2
|
|
|
$
|
16.4
|
|
Closure of distribution facility in Hogansville, GA (1)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
Direct sourcing initiative
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisition-related costs
|
|
$
|
2.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) Continuing operating costs associated with the closure of the Company's distribution facility in Hogansville, Georgia.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADDITIONAL DATA BY SEGMENT
Inventory
The table below represents inventory by segment:
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31,
2016
|
|
January 2,
2016
|
Carter's Wholesale
|
$
|
278,664
|
|
|
$
|
271,117
|
|
Carter's Retail
|
81,505
|
|
|
68,694
|
|
OshKosh Retail
|
17,496
|
|
|
31,136
|
|
OshKosh Wholesale
|
49,773
|
|
|
50,027
|
|
International
|
60,153
|
|
|
48,960
|
|
Total
|
$
|
487,591
|
|
|
$
|
469,934
|
|
Wholesale inventories include inventory produced and warehoused for the retail segment.
The table below represents consolidated net sales by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016 (52 Weeks)
|
|
January 2, 2016 (52 Weeks)
|
|
January 3, 2015 (53 Weeks)
|
Baby
|
$
|
1,241,701
|
|
|
$
|
1,173,002
|
|
|
$
|
1,107,973
|
|
Playclothes
|
1,215,238
|
|
|
1,182,281
|
|
|
1,146,797
|
|
Sleepwear
|
407,160
|
|
|
378,419
|
|
|
381,574
|
|
Other (a)
|
335,085
|
|
|
280,177
|
|
|
257,524
|
|
Total net sales
|
$
|
3,199,184
|
|
|
$
|
3,013,879
|
|
|
$
|
2,893,868
|
|
(a) Other product offerings include bedding, outwear, swimwear, shoes, socks, diaper bags, gift sets, toys, and hair accessories.
GEOGRAPHICAL DATA
Revenue
The Company's international sales principally represent sales to customers in Canada. Such sales were
66.5%
and
65.6%
of total international sales in fiscal 2016 and 2015, respectively.
Long-Lived Assets
The following represents property, plant, and equipment, net, by geographic area:
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
United States
|
$
|
349,877
|
|
|
$
|
342,354
|
|
International
|
35,997
|
|
|
29,350
|
|
Total
|
$
|
385,874
|
|
|
$
|
371,704
|
|
Long-lived assets in the international segment relate principally to Canada. Long-lived assets in Canada were
91.5%
and
89.5%
of total international long-lived assets at the end of fiscal 2016 and 2015, respectively.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 – FAIR VALUE MEASUREMENTS
The following table summarizes assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
January 2, 2016
|
(dollars in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
$
|
12.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
8.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign exchange forward contracts
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
2.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Included in Prepaid expenses and other current assets in the Company's consolidated balance sheet.
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 purchased are included in other assets on the accompanying consolidated balance sheets. Gains on the investments in marketable securities were
$0.9 million
for fiscal 2016, and were not material for fiscal 2015.
The fair value of the Company's pension plan assets at
December 31, 2016
and
January 2, 2016
, by asset category, are disclosed in Note 10,
Employee Benefits Plans
, to these consolidated financial statements.
FOREIGN EXCHANGE FORWARD CONTRACTS
Fair values of any unsettled foreign exchange forward contracts are calculated by using readily observable market inputs (market-quoted currency exchange rates in effect between U.S. and Canadian dollars) and are classified as Level 2 within the fair value hierarchy. Any unsettled foreign exchange forward contracts are included in other current assets or other current liabilities on the Company's consolidated balance sheet at the end of each fiscal reporting period.
At
December 31, 2016
, there were no open foreign exchange forward contracts. At the end of fiscal 2015, the notional value of the open foreign currency forward contracts was approximately
$59.0 million
.
For foreign exchange forward contracts, the Company recorded realized losses of approximately
$3.2 million
for fiscal 2016. During fiscal 2015, the Company recorded unrealized gains of approximately
$2.1 million
related to the mark-to-market adjustments, and realized gains of approximately
$3.1 million
for contracts settled. These amounts are included in other expense (income), net on the Company's consolidated statement of operations.
During fiscal 2014, the Company did not utilize foreign exchange contracts.
BORROWINGS
As of
December 31, 2016
, the fair value of the Company's
$185.0 million
in borrowings under its secured revolving credit facility approximated carrying value.
The fair value of the Company's senior notes at
December 31, 2016
was approximately
$416 million
. The fair value of these senior notes with a notional value and carrying value (gross of debt issuance costs) of
$400 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.
NOTE 15 – OTHER CURRENT AND LONG-TERM LIABILITIES
Other current liabilities that exceeded five percent of total current liabilities (at the end of either fiscal year) consisted of the
following:
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
Accrued bonuses and incentive compensation
|
$
|
16,834
|
|
|
$
|
17,934
|
|
Accrued employee benefits
|
17,165
|
|
|
19,751
|
|
Accrued and deferred rent
|
15,632
|
|
|
12,590
|
|
Other long-term liabilities that exceeded five percent of total liabilities (at the end of either fiscal year) consisted of the
following:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
December 31, 2016
|
|
January 2, 2016
|
Deferred lease incentives
|
$
|
74,015
|
|
|
$
|
70,060
|
|
NOTE 16 – LEASE COMMITMENTS
Rent expense under operating leases (including properties and computer and office equipment) was approximately
$150.6 million
,
$136.6 million
, and
$123.6 million
for the fiscal years ended
December 31, 2016
,
January 2, 2016
, and
January 3, 2015
, respectively.
Minimum annual rental commitments under current noncancellable operating leases, as of
December 31, 2016
, substantially all of which relate to leased real estate, were as follows:
|
|
|
|
|
Fiscal Year
|
Operating Leases
|
2017
|
$
|
168,196
|
|
2018
|
161,073
|
|
2019
|
148,086
|
|
2020
|
135,174
|
|
2021
|
121,468
|
|
Thereafter
|
379,712
|
|
Total
|
$
|
1,113,709
|
|
Amounts related to property include leases on retail stores as well as various corporate offices, distribution facilities, and other premises. The majority of the Company's lease terms range between
5
and
10
years.
NOTE 17 – 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 effect on its financial position, results of operations, or cash flows.
The Company's contractual obligations and commitments also include obligations associated with leases, the secured revolving credit agreement, senior notes, employee benefit plans, and facility consolidations/closures as disclosed elsewhere in the notes to the consolidated financial statements.
NOTE 18 – VALUATION AND QUALIFYING ACCOUNTS
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Information regarding accounts receivable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Wholesale accounts receivable reserves
|
|
Wholesale sales returns reserves
|
|
Total
|
Balance at December 28, 2013
|
$
|
9,308
|
|
|
$
|
400
|
|
|
$
|
9,708
|
|
Additional provisions
|
9,919
|
|
|
715
|
|
|
10,634
|
|
Charges to reserve
|
(7,419
|
)
|
|
(715
|
)
|
|
(8,134
|
)
|
Balance at January 3, 2015
|
$
|
11,808
|
|
|
$
|
400
|
|
|
$
|
12,208
|
|
Additional provisions
|
4,170
|
|
|
264
|
|
|
4,434
|
|
Charges to reserve
|
(7,435
|
)
|
|
(264
|
)
|
|
(7,699
|
)
|
Balance at January 2, 2016
|
$
|
8,543
|
|
|
$
|
400
|
|
|
$
|
8,943
|
|
Additional provisions
|
6,088
|
|
|
—
|
|
|
6,088
|
|
Charges to reserve
|
(5,879
|
)
|
|
(400
|
)
|
|
(6,279
|
)
|
Balance at December 31, 2016
|
$
|
8,752
|
|
|
$
|
—
|
|
|
$
|
8,752
|
|
NOTE 19 – UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited summarized financial data by quarter for the fiscal years ended
December 31, 2016
and
January 2, 2016
is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share data)
|
Quarter 1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
Fiscal 2016
|
|
|
|
|
|
|
|
Net sales
|
$
|
724,085
|
|
|
$
|
639,471
|
|
|
$
|
901,425
|
|
|
$
|
934,203
|
|
Gross profit
|
310,929
|
|
|
282,182
|
|
|
375,546
|
|
|
410,492
|
|
Selling, general, and administrative expenses
|
228,996
|
|
|
228,464
|
|
|
255,322
|
|
|
282,624
|
|
Royalty income
|
(11,075
|
)
|
|
(9,525
|
)
|
|
(10,670
|
)
|
|
(11,545
|
)
|
Operating income
|
93,008
|
|
|
63,243
|
|
|
130,894
|
|
|
139,413
|
|
Net income
|
53,980
|
|
|
36,198
|
|
|
80,811
|
|
|
87,117
|
|
Basic net income per common share (1)
|
1.05
|
|
|
0.72
|
|
|
1.62
|
|
|
1.77
|
|
Diluted net income per common share (1)
|
1.04
|
|
|
0.71
|
|
|
1.60
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Fiscal 2015:
|
|
|
|
|
|
|
|
Net sales
|
$
|
684,764
|
|
|
$
|
612,765
|
|
|
$
|
849,806
|
|
|
$
|
866,544
|
|
Gross profit
|
284,052
|
|
|
262,895
|
|
|
347,539
|
|
|
363,538
|
|
Selling, general, and administrative expenses
|
211,183
|
|
|
209,296
|
|
|
230,017
|
|
|
258,737
|
|
Royalty income
|
(11,636
|
)
|
|
(8,353
|
)
|
|
(12,699
|
)
|
|
(11,378
|
)
|
Operating income
|
84,505
|
|
|
61,952
|
|
|
130,221
|
|
|
116,179
|
|
Net income
|
49,792
|
|
|
36,105
|
|
|
79,326
|
|
|
72,599
|
|
Basic net income per common share (1)
|
0.94
|
|
|
0.69
|
|
|
1.52
|
|
|
1.40
|
|
Diluted net income per common share (1)
|
0.94
|
|
|
0.68
|
|
|
1.51
|
|
|
1.39
|
|
(1)
May not be additive to the net income per common share amounts for the fiscal year due to the calculation provision of ASC 260,
Earnings Per Share
.
NOTE 20 – GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Company’s senior notes constitute debt obligations of its wholly-owned subsidiary, The William Carter Company ("TWCC" or the "Subsidiary Issuer"), are unsecured and are fully and unconditionally guaranteed by Carter’s, Inc. (the "Parent"), by each of the Parent's current domestic subsidiaries (other than TWCC), and, subject to certain exceptions, future restricted subsidiaries that guarantee the Company’s amended revolving credit facility or certain other debt of the Company or the subsidiary guarantors. Under specific customary conditions, the guarantees are not full and unconditional because subsidiary guarantors can be released and relieved of their obligations under customary circumstances contained in the indenture governing the senior notes. These circumstances include among others the following, so long as other applicable provisions of the indentures are adhered to: any sale or other disposition of all or substantially all of the assets of any subsidiary guarantor, any sale or other disposition of capital stock of any subsidiary guarantor, or designation of any restricted subsidiary that is a subsidiary guarantor as an unrestricted subsidiary.
The condensed consolidating financial information for the Parent, the Subsidiary Issuer, and the guarantor and non-guarantor subsidiaries has been prepared from the books and records maintained by the Company. The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10. The financial information may not necessarily be indicative of the financial position, results of operations, comprehensive income (loss), and cash flows, had the Parent, Subsidiary Issuer, guarantor or non-guarantor subsidiaries operated as independent entities.
Intercompany revenues and expenses included in the subsidiary records are eliminated in consolidation. As a result of this activity, an amount due to/due from affiliates will exist at any time. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. The Company has accounted for investments in subsidiaries under the equity method. The guarantor subsidiaries are 100% owned directly or indirectly by the Parent and all guarantees are joint, several and unconditional.
In December 2015, as part of a foreign subsidiary restructuring, certain non-guarantor subsidiaries became subsidiaries of certain other non-guarantor subsidiaries. The restructuring did not retroactively impact the prior status of the guarantor and the non-guarantor subsidiaries, and accordingly the condensed consolidating financial information for periods prior to the restructuring have not been adjusted to reflect the restructuring.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Balance Sheet
As of
December 31, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
229,056
|
|
|
$
|
11,817
|
|
|
$
|
58,485
|
|
|
$
|
—
|
|
|
$
|
299,358
|
|
Accounts receivable, net
|
—
|
|
|
176,825
|
|
|
18,315
|
|
|
7,331
|
|
|
—
|
|
|
202,471
|
|
Intercompany receivable
|
—
|
|
|
55,902
|
|
|
74,681
|
|
|
14,601
|
|
|
(145,184
|
)
|
|
—
|
|
Finished goods inventories
|
—
|
|
|
278,696
|
|
|
174,542
|
|
|
60,153
|
|
|
(25,800
|
)
|
|
487,591
|
|
Prepaid expenses and other current assets
|
—
|
|
|
11,402
|
|
|
16,028
|
|
|
4,750
|
|
|
—
|
|
|
32,180
|
|
Deferred income taxes
|
—
|
|
|
18,476
|
|
|
15,440
|
|
|
1,570
|
|
|
—
|
|
|
35,486
|
|
Total current assets
|
—
|
|
|
770,357
|
|
|
310,823
|
|
|
146,890
|
|
|
(170,984
|
)
|
|
1,057,086
|
|
Property, plant, and equipment, net
|
—
|
|
|
155,187
|
|
|
194,691
|
|
|
35,996
|
|
|
—
|
|
|
385,874
|
|
Goodwill
|
—
|
|
|
136,570
|
|
|
—
|
|
|
39,439
|
|
|
—
|
|
|
176,009
|
|
Tradenames and other intangibles, net
|
—
|
|
|
223,428
|
|
|
85,500
|
|
|
—
|
|
|
—
|
|
|
308,928
|
|
Other assets
|
—
|
|
|
17,771
|
|
|
605
|
|
|
324
|
|
|
—
|
|
|
18,700
|
|
Intercompany long-term receivable
|
—
|
|
|
—
|
|
|
428,436
|
|
|
—
|
|
|
(428,436
|
)
|
|
—
|
|
Intercompany long-term note receivable
|
—
|
|
|
100,000
|
|
|
—
|
|
|
—
|
|
|
(100,000
|
)
|
|
—
|
|
Investment in subsidiaries
|
788,124
|
|
|
753,753
|
|
|
145,076
|
|
|
—
|
|
|
(1,686,953
|
)
|
|
—
|
|
Total assets
|
$
|
788,124
|
|
|
$
|
2,157,066
|
|
|
$
|
1,165,131
|
|
|
$
|
222,649
|
|
|
$
|
(2,386,373
|
)
|
|
$
|
1,946,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
97,103
|
|
|
$
|
41,947
|
|
|
$
|
19,382
|
|
|
$
|
—
|
|
|
$
|
158,432
|
|
Intercompany payables
|
—
|
|
|
85,894
|
|
|
55,257
|
|
|
4,033
|
|
|
(145,184
|
)
|
|
—
|
|
Other current liabilities
|
—
|
|
|
16,473
|
|
|
90,718
|
|
|
11,986
|
|
|
—
|
|
|
119,177
|
|
Total current liabilities
|
—
|
|
|
199,470
|
|
|
187,922
|
|
|
35,401
|
|
|
(145,184
|
)
|
|
277,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
561,399
|
|
|
—
|
|
|
18,977
|
|
|
—
|
|
|
580,376
|
|
Deferred income taxes
|
—
|
|
|
87,116
|
|
|
43,540
|
|
|
—
|
|
|
—
|
|
|
130,656
|
|
Intercompany long-term liability
|
—
|
|
|
428,436
|
|
|
—
|
|
|
—
|
|
|
(428,436
|
)
|
|
—
|
|
Intercompany long-term note payable
|
—
|
|
|
—
|
|
|
100,000
|
|
|
—
|
|
|
(100,000
|
)
|
|
—
|
|
Other long-term liabilities
|
—
|
|
|
66,721
|
|
|
89,252
|
|
|
13,859
|
|
|
—
|
|
|
169,832
|
|
Stockholders' equity
|
788,124
|
|
|
813,924
|
|
|
744,417
|
|
|
154,412
|
|
|
(1,712,753
|
)
|
|
788,124
|
|
Total liabilities and stockholders' equity
|
$
|
788,124
|
|
|
$
|
2,157,066
|
|
|
$
|
1,165,131
|
|
|
$
|
222,649
|
|
|
$
|
(2,386,373
|
)
|
|
$
|
1,946,597
|
|
CARTER’S, INC.
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
As of
January 2, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
325,771
|
|
|
$
|
14,652
|
|
|
$
|
40,786
|
|
|
$
|
—
|
|
|
$
|
381,209
|
|
Accounts receivable, net
|
—
|
|
|
178,842
|
|
|
23,980
|
|
|
4,748
|
|
|
—
|
|
|
207,570
|
|
Intercompany receivable
|
—
|
|
|
52,676
|
|
|
133,092
|
|
|
3,317
|
|
|
(189,085
|
)
|
|
—
|
|
Finished goods inventories
|
—
|
|
|
271,148
|
|
|
184,618
|
|
|
48,960
|
|
|
(34,792
|
)
|
|
469,934
|
|
Prepaid expenses and other current assets
|
—
|
|
|
17,460
|
|
|
14,261
|
|
|
6,094
|
|
|
—
|
|
|
37,815
|
|
Deferred income taxes
|
—
|
|
|
19,502
|
|
|
13,544
|
|
|
1,034
|
|
|
—
|
|
|
34,080
|
|
Total current assets
|
—
|
|
|
865,399
|
|
|
384,147
|
|
|
104,939
|
|
|
(223,877
|
)
|
|
1,130,608
|
|
Property, plant, and equipment, net
|
—
|
|
|
162,031
|
|
|
180,322
|
|
|
29,351
|
|
|
—
|
|
|
371,704
|
|
Goodwill
|
—
|
|
|
136,570
|
|
|
—
|
|
|
38,304
|
|
|
—
|
|
|
174,874
|
|
Tradenames and other intangibles, net
|
—
|
|
|
225,348
|
|
|
85,500
|
|
|
—
|
|
|
—
|
|
|
310,848
|
|
Other assets
|
—
|
|
|
14,634
|
|
|
665
|
|
|
321
|
|
|
—
|
|
|
15,620
|
|
Intercompany long-term receivable
|
—
|
|
|
—
|
|
|
294,070
|
|
|
—
|
|
|
(294,070
|
)
|
|
—
|
|
Intercompany long-term note receivable
|
—
|
|
|
100,000
|
|
|
—
|
|
|
—
|
|
|
(100,000
|
)
|
|
—
|
|
Investment in subsidiaries
|
875,051
|
|
|
652,598
|
|
|
100,146
|
|
|
—
|
|
|
(1,627,795
|
)
|
|
—
|
|
Total assets
|
$
|
875,051
|
|
|
$
|
2,156,580
|
|
|
$
|
1,044,850
|
|
|
$
|
172,915
|
|
|
$
|
(2,245,742
|
)
|
|
$
|
2,003,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
93,585
|
|
|
$
|
44,951
|
|
|
$
|
19,112
|
|
|
$
|
—
|
|
|
$
|
157,648
|
|
Intercompany payables
|
—
|
|
|
134,694
|
|
|
51,362
|
|
|
3,029
|
|
|
(189,085
|
)
|
|
—
|
|
Other current liabilities
|
—
|
|
|
12,996
|
|
|
80,908
|
|
|
11,166
|
|
|
—
|
|
|
105,070
|
|
Total current liabilities
|
—
|
|
|
241,275
|
|
|
177,221
|
|
|
33,307
|
|
|
(189,085
|
)
|
|
262,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
—
|
|
|
560,541
|
|
|
—
|
|
|
18,431
|
|
|
—
|
|
|
578,972
|
|
Deferred income taxes
|
—
|
|
|
84,038
|
|
|
44,800
|
|
|
—
|
|
|
—
|
|
|
128,838
|
|
Intercompany long-term liability
|
—
|
|
|
294,070
|
|
|
—
|
|
|
—
|
|
|
(294,070
|
)
|
|
—
|
|
Intercompany long-term note payable
|
—
|
|
|
—
|
|
|
100,000
|
|
|
—
|
|
|
(100,000
|
)
|
|
—
|
|
Other long-term liabilities
|
—
|
|
|
66,813
|
|
|
79,568
|
|
|
11,694
|
|
|
—
|
|
|
158,075
|
|
Stockholders' equity
|
875,051
|
|
|
909,843
|
|
|
643,261
|
|
|
109,483
|
|
|
(1,662,587
|
)
|
|
875,051
|
|
Total liabilities and stockholders' equity
|
$
|
875,051
|
|
|
$
|
2,156,580
|
|
|
$
|
1,044,850
|
|
|
$
|
172,915
|
|
|
$
|
(2,245,742
|
)
|
|
$
|
2,003,654
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Operations
For the fiscal year ended
December 31, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net sales
|
|
$
|
—
|
|
|
$
|
1,881,919
|
|
|
$
|
1,762,882
|
|
|
$
|
300,533
|
|
|
$
|
(746,150
|
)
|
|
$
|
3,199,184
|
|
Cost of goods sold
|
|
—
|
|
|
1,358,209
|
|
|
1,033,403
|
|
|
155,571
|
|
|
(727,148
|
)
|
|
1,820,035
|
|
Gross profit
|
|
—
|
|
|
523,710
|
|
|
729,479
|
|
|
144,962
|
|
|
(19,002
|
)
|
|
1,379,149
|
|
Selling, general, and administrative expenses
|
|
—
|
|
|
177,605
|
|
|
753,874
|
|
|
101,494
|
|
|
(37,567
|
)
|
|
995,406
|
|
Royalty income
|
|
—
|
|
|
(32,728
|
)
|
|
(19,660
|
)
|
|
—
|
|
|
9,573
|
|
|
(42,815
|
)
|
Operating income (loss)
|
|
—
|
|
|
378,833
|
|
|
(4,735
|
)
|
|
43,468
|
|
|
8,992
|
|
|
426,558
|
|
Interest expense
|
|
—
|
|
|
26,475
|
|
|
5,435
|
|
|
442
|
|
|
(5,308
|
)
|
|
27,044
|
|
Interest income
|
|
—
|
|
|
(5,756
|
)
|
|
—
|
|
|
(115
|
)
|
|
5,308
|
|
|
(563
|
)
|
(Income) loss in subsidiaries
|
|
(258,106
|
)
|
|
4,413
|
|
|
(29,306
|
)
|
|
—
|
|
|
282,999
|
|
|
—
|
|
Other (income) expense, net
|
|
—
|
|
|
(383
|
)
|
|
482
|
|
|
3,908
|
|
|
—
|
|
|
4,007
|
|
Income (loss) before income taxes
|
|
258,106
|
|
|
354,084
|
|
|
18,654
|
|
|
39,233
|
|
|
(274,007
|
)
|
|
396,070
|
|
Provision for income taxes
|
|
—
|
|
|
104,970
|
|
|
23,067
|
|
|
9,927
|
|
|
—
|
|
|
137,964
|
|
Net income (loss)
|
|
$
|
258,106
|
|
|
$
|
249,114
|
|
|
$
|
(4,413
|
)
|
|
$
|
29,306
|
|
|
$
|
(274,007
|
)
|
|
$
|
258,106
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Operations
For the fiscal year ended
January 2, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net sales
|
|
$
|
—
|
|
|
$
|
1,813,950
|
|
|
$
|
1,639,826
|
|
|
$
|
246,158
|
|
|
$
|
(686,055
|
)
|
|
$
|
3,013,879
|
|
Cost of goods sold
|
|
—
|
|
|
1,286,411
|
|
|
989,284
|
|
|
136,317
|
|
|
(656,157
|
)
|
|
1,755,855
|
|
Gross profit
|
|
—
|
|
|
527,539
|
|
|
650,542
|
|
|
109,841
|
|
|
(29,898
|
)
|
|
1,258,024
|
|
Selling, general, and administrative expenses
|
|
—
|
|
|
181,150
|
|
|
679,532
|
|
|
88,257
|
|
|
(39,706
|
)
|
|
909,233
|
|
Royalty income
|
|
—
|
|
|
(32,978
|
)
|
|
(19,414
|
)
|
|
—
|
|
|
8,326
|
|
|
(44,066
|
)
|
Operating income (loss)
|
|
—
|
|
|
379,367
|
|
|
(9,576
|
)
|
|
21,584
|
|
|
1,482
|
|
|
392,857
|
|
Interest expense
|
|
—
|
|
|
26,550
|
|
|
5,331
|
|
|
557
|
|
|
(5,407
|
)
|
|
27,031
|
|
Interest income
|
|
—
|
|
|
(5,826
|
)
|
|
—
|
|
|
(81
|
)
|
|
5,407
|
|
|
(500
|
)
|
(Income) loss in subsidiaries
|
|
(237,822
|
)
|
|
19,775
|
|
|
(9,742
|
)
|
|
—
|
|
|
227,789
|
|
|
—
|
|
Other (income) expense, net
|
|
—
|
|
|
(6
|
)
|
|
(60
|
)
|
|
(1,796
|
)
|
|
—
|
|
|
(1,862
|
)
|
Income (loss) before income taxes
|
|
237,822
|
|
|
338,874
|
|
|
(5,105
|
)
|
|
22,904
|
|
|
(226,307
|
)
|
|
368,188
|
|
Provision for income taxes
|
|
—
|
|
|
102,534
|
|
|
20,590
|
|
|
7,242
|
|
|
—
|
|
|
130,366
|
|
Net income (loss)
|
|
$
|
237,822
|
|
|
$
|
236,340
|
|
|
$
|
(25,695
|
)
|
|
$
|
15,662
|
|
|
$
|
(226,307
|
)
|
|
$
|
237,822
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Operations
For the fiscal year ended
January 3, 2015
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net sales
|
|
$
|
—
|
|
|
$
|
1,770,238
|
|
|
$
|
1,564,717
|
|
|
$
|
241,191
|
|
|
$
|
(682,278
|
)
|
|
$
|
2,893,868
|
|
Cost of goods sold
|
|
—
|
|
|
1,271,260
|
|
|
936,260
|
|
|
138,838
|
|
|
(636,930
|
)
|
|
1,709,428
|
|
Gross profit
|
|
—
|
|
|
498,978
|
|
|
628,457
|
|
|
102,353
|
|
|
(45,348
|
)
|
|
1,184,440
|
|
Selling, general, and administrative expenses
|
|
—
|
|
|
203,371
|
|
|
646,728
|
|
|
91,521
|
|
|
(51,369
|
)
|
|
890,251
|
|
Royalty income
|
|
—
|
|
|
(30,741
|
)
|
|
(18,896
|
)
|
|
—
|
|
|
10,481
|
|
|
(39,156
|
)
|
Operating income (loss)
|
|
—
|
|
|
326,348
|
|
|
625
|
|
|
10,832
|
|
|
(4,460
|
)
|
|
333,345
|
|
Interest expense
|
|
—
|
|
|
27,651
|
|
|
5,310
|
|
|
343
|
|
|
(5,651
|
)
|
|
27,653
|
|
Interest income
|
|
—
|
|
|
(5,998
|
)
|
|
—
|
|
|
(56
|
)
|
|
5,651
|
|
|
(403
|
)
|
(Income) loss in subsidiaries
|
|
(194,670
|
)
|
|
20,226
|
|
|
(15,050
|
)
|
|
—
|
|
|
189,494
|
|
|
—
|
|
Other (income) expense, net
|
|
—
|
|
|
(235
|
)
|
|
2,263
|
|
|
1,161
|
|
|
—
|
|
|
3,189
|
|
Income (loss) before income taxes
|
|
194,670
|
|
|
284,704
|
|
|
8,102
|
|
|
9,384
|
|
|
(193,954
|
)
|
|
302,906
|
|
Provision for income taxes
|
|
—
|
|
|
85,574
|
|
|
19,441
|
|
|
3,221
|
|
|
—
|
|
|
108,236
|
|
Net income (loss)
|
|
$
|
194,670
|
|
|
$
|
199,130
|
|
|
$
|
(11,339
|
)
|
|
$
|
6,163
|
|
|
$
|
(193,954
|
)
|
|
$
|
194,670
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the fiscal year ended
December 31, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net income (loss)
|
|
$
|
258,106
|
|
|
$
|
249,114
|
|
|
$
|
(4,413
|
)
|
|
$
|
29,306
|
|
|
$
|
(274,007
|
)
|
|
$
|
258,106
|
|
Post-retirement benefit plans
|
|
(335
|
)
|
|
(335
|
)
|
|
(666
|
)
|
|
—
|
|
|
1,001
|
|
|
(335
|
)
|
Foreign currency translation adjustments
|
|
1,962
|
|
|
1,962
|
|
|
1,962
|
|
|
1,962
|
|
|
(5,886
|
)
|
|
1,962
|
|
Comprehensive income (loss)
|
|
$
|
259,733
|
|
|
$
|
250,741
|
|
|
$
|
(3,117
|
)
|
|
$
|
31,268
|
|
|
$
|
(278,892
|
)
|
|
$
|
259,733
|
|
For the fiscal year ended
January 2, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net income (loss)
|
|
$
|
237,822
|
|
|
$
|
236,340
|
|
|
$
|
(25,695
|
)
|
|
$
|
15,662
|
|
|
$
|
(226,307
|
)
|
|
$
|
237,822
|
|
Post-retirement benefit plans
|
|
859
|
|
|
859
|
|
|
803
|
|
|
—
|
|
|
(1,662
|
)
|
|
859
|
|
Foreign currency translation adjustments
|
|
(14,189
|
)
|
|
(14,189
|
)
|
|
(29,574
|
)
|
|
(14,189
|
)
|
|
57,952
|
|
|
(14,189
|
)
|
Comprehensive income (loss)
|
|
$
|
224,492
|
|
|
$
|
223,010
|
|
|
$
|
(54,466
|
)
|
|
$
|
1,473
|
|
|
$
|
(170,017
|
)
|
|
$
|
224,492
|
|
For the fiscal year ended
January 3, 2015
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Net income (loss)
|
|
$
|
194,670
|
|
|
$
|
199,130
|
|
|
$
|
(11,339
|
)
|
|
$
|
6,163
|
|
|
$
|
(193,954
|
)
|
|
$
|
194,670
|
|
Post-retirement benefit plans
|
|
(5,110
|
)
|
|
(5,110
|
)
|
|
(4,963
|
)
|
|
—
|
|
|
10,073
|
|
|
(5,110
|
)
|
Foreign currency translation adjustments
|
|
(7,845
|
)
|
|
(7,845
|
)
|
|
(251
|
)
|
|
(7,845
|
)
|
|
15,941
|
|
|
(7,845
|
)
|
Comprehensive income (loss)
|
|
$
|
181,715
|
|
|
$
|
186,175
|
|
|
$
|
(16,553
|
)
|
|
$
|
(1,682
|
)
|
|
$
|
(167,940
|
)
|
|
$
|
181,715
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Cash Flows
For the fiscal year ended
December 31, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Cash flows provided by operating activities:
|
|
$
|
—
|
|
|
$
|
206,843
|
|
|
$
|
127,018
|
|
|
$
|
35,368
|
|
|
$
|
—
|
|
|
$
|
369,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(22,934
|
)
|
|
(55,072
|
)
|
|
(10,550
|
)
|
|
—
|
|
|
(88,556
|
)
|
Intercompany investing activity
|
|
368,307
|
|
|
480
|
|
|
(2,118
|
)
|
|
131
|
|
|
(366,800
|
)
|
|
—
|
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
23
|
|
|
—
|
|
|
193
|
|
|
—
|
|
|
216
|
|
Net cash provided by(used in) investing activities
|
|
$
|
368,307
|
|
|
$
|
(22,431
|
)
|
|
$
|
(57,190
|
)
|
|
$
|
(10,226
|
)
|
|
$
|
(366,800
|
)
|
|
$
|
(88,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany financing activity
|
|
—
|
|
|
(283,909
|
)
|
|
(74,681
|
)
|
|
(8,210
|
)
|
|
366,800
|
|
|
—
|
|
Dividends paid
|
|
(66,355
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66,355
|
)
|
Repurchase of common stock
|
|
(300,445
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300,445
|
)
|
Income tax benefit from stock-based compensation
|
|
—
|
|
|
2,782
|
|
|
2,018
|
|
|
—
|
|
|
—
|
|
|
4,800
|
|
Withholdings from vesting of restricted stock
|
|
(8,673
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,673
|
)
|
Proceeds from exercise of stock options
|
|
7,166
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,166
|
|
Net cash (used in) provided by financing activities
|
|
(368,307
|
)
|
|
(281,127
|
)
|
|
(72,663
|
)
|
|
(8,210
|
)
|
|
366,800
|
|
|
(363,507
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
767
|
|
|
—
|
|
|
767
|
|
Net (decrease) increase in cash and cash equivalents
|
|
—
|
|
|
(96,715
|
)
|
|
(2,835
|
)
|
|
17,699
|
|
|
—
|
|
|
(81,851
|
)
|
Cash and cash equivalents, beginning of fiscal year
|
|
—
|
|
|
325,771
|
|
|
14,652
|
|
|
40,786
|
|
|
—
|
|
|
381,209
|
|
Cash and cash equivalents, end of fiscal year
|
|
$
|
—
|
|
|
$
|
229,056
|
|
|
$
|
11,817
|
|
|
$
|
58,485
|
|
|
$
|
—
|
|
|
$
|
299,358
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Cash Flows
For the fiscal year ended
January 2, 2016
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Cash flows provided by operating activities:
|
|
$
|
—
|
|
|
$
|
148,656
|
|
|
$
|
115,589
|
|
|
$
|
43,742
|
|
|
$
|
—
|
|
|
$
|
307,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(27,813
|
)
|
|
(64,707
|
)
|
|
(10,977
|
)
|
|
—
|
|
|
(103,497
|
)
|
Intercompany investing activity
|
|
161,993
|
|
|
5,642
|
|
|
(2,735
|
)
|
|
(8,582
|
)
|
|
(156,318
|
)
|
|
—
|
|
Proceeds from repayment of intercompany loan
|
|
—
|
|
|
35,000
|
|
|
—
|
|
|
—
|
|
|
(35,000
|
)
|
|
—
|
|
Issuance of intercompany loan
|
|
—
|
|
|
(15,000
|
)
|
|
—
|
|
|
—
|
|
|
15,000
|
|
|
—
|
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
65
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
72
|
|
Net cash provided by (used in) investing activities
|
|
$
|
161,993
|
|
|
$
|
(2,106
|
)
|
|
$
|
(67,442
|
)
|
|
$
|
(19,552
|
)
|
|
$
|
(176,318
|
)
|
|
$
|
(103,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany financing activity
|
|
—
|
|
|
(108,761
|
)
|
|
(46,672
|
)
|
|
(885
|
)
|
|
156,318
|
|
|
—
|
|
Repayment of intercompany loan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35,000
|
)
|
|
35,000
|
|
|
—
|
|
Proceeds from intercompany loan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,000
|
|
|
(15,000
|
)
|
|
—
|
|
Borrowings under secured revolving credit facility
|
|
—
|
|
|
166,000
|
|
|
—
|
|
|
39,586
|
|
|
—
|
|
|
205,586
|
|
Payments on secured revolving credit facility
|
|
—
|
|
|
(186,000
|
)
|
|
—
|
|
|
(19,237
|
)
|
|
—
|
|
|
(205,237
|
)
|
Payment of debt issuance costs
|
|
—
|
|
|
(1,628
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,628
|
)
|
Payment of contingent consideration
|
|
—
|
|
|
(7,572
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,572
|
)
|
Dividends paid
|
|
(46,028
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46,028
|
)
|
Repurchase of common stock
|
|
(110,290
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(110,290
|
)
|
Income tax benefit from stock-based compensation
|
|
—
|
|
|
6,104
|
|
|
2,735
|
|
|
—
|
|
|
—
|
|
|
8,839
|
|
Withholdings from vesting of restricted stock
|
|
(12,651
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,651
|
)
|
Proceeds from exercise of stock options
|
|
6,976
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,976
|
|
Net cash (used in) provided by financing activities
|
|
(161,993
|
)
|
|
(131,857
|
)
|
|
(43,937
|
)
|
|
(536
|
)
|
|
176,318
|
|
|
(162,005
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,986
|
)
|
|
—
|
|
|
(1,986
|
)
|
Net increase in cash and cash equivalents
|
|
—
|
|
|
14,693
|
|
|
4,210
|
|
|
21,668
|
|
|
—
|
|
|
40,571
|
|
Cash and cash equivalents, beginning of fiscal year
|
|
—
|
|
|
311,078
|
|
|
10,442
|
|
|
19,118
|
|
|
—
|
|
|
340,638
|
|
Cash and cash equivalents, end of fiscal year
|
|
$
|
—
|
|
|
$
|
325,771
|
|
|
$
|
14,652
|
|
|
$
|
40,786
|
|
|
$
|
—
|
|
|
$
|
381,209
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Cash Flows
For the fiscal year ended
January 3, 2015
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Subsidiary Issuer
|
|
Guarantor Subsidiaries
|
|
Non-Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
Consolidated
|
Cash flows provided by operating activities:
|
|
$
|
—
|
|
|
$
|
189,945
|
|
|
$
|
83,439
|
|
|
$
|
9,013
|
|
|
$
|
—
|
|
|
$
|
282,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
—
|
|
|
(45,868
|
)
|
|
(46,694
|
)
|
|
(10,891
|
)
|
|
—
|
|
|
(103,453
|
)
|
Intercompany investing activity
|
|
118,060
|
|
|
15,864
|
|
|
(2,445
|
)
|
|
(8,901
|
)
|
|
(122,578
|
)
|
|
—
|
|
Proceeds from repayment of intercompany loan
|
|
—
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
|
(15,000
|
)
|
|
—
|
|
Issuance of intercompany loan
|
|
—
|
|
|
(35,000
|
)
|
|
—
|
|
|
—
|
|
|
35,000
|
|
|
—
|
|
Acquisition of tradenames
|
|
—
|
|
|
(3,550
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,550
|
)
|
Proceeds from sale of property, plant and equipment
|
|
—
|
|
|
2,267
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
2,271
|
|
Net cash provided by (used in) investing activities
|
|
$
|
118,060
|
|
|
$
|
(51,287
|
)
|
|
$
|
(49,139
|
)
|
|
$
|
(19,788
|
)
|
|
$
|
(102,578
|
)
|
|
(104,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany financing activity
|
|
—
|
|
|
(99,018
|
)
|
|
(26,302
|
)
|
|
2,742
|
|
|
122,578
|
|
|
—
|
|
Proceeds from intercompany loan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,000
|
)
|
|
15,000
|
|
|
—
|
|
Repayment of intercompany loan
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,000
|
|
|
(35,000
|
)
|
|
—
|
|
Payment of debt issuance costs
|
|
—
|
|
|
(177
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(177
|
)
|
Payment of contingent consideration
|
|
—
|
|
|
(8,901
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,901
|
)
|
Dividends paid
|
|
(40,477
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,477
|
)
|
Repurchase of common stock
|
|
(82,099
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(82,099
|
)
|
Income tax benefit from stock-based compensation
|
|
—
|
|
|
2,256
|
|
|
2,444
|
|
|
—
|
|
|
—
|
|
|
4,700
|
|
Withholdings from vesting of restricted stock
|
|
(4,548
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,548
|
)
|
Proceeds from exercise of stock options
|
|
9,064
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,064
|
|
Net cash (used in) provided by financing activities
|
|
(118,060
|
)
|
|
(105,840
|
)
|
|
(23,858
|
)
|
|
22,742
|
|
|
102,578
|
|
|
(122,438
|
)
|
Effect of exchange rate changes on cash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,135
|
)
|
|
—
|
|
|
(1,135
|
)
|
Net increase in cash and cash equivalents
|
|
—
|
|
|
32,818
|
|
|
10,442
|
|
|
10,832
|
|
|
—
|
|
|
54,092
|
|
Cash and cash equivalents, beginning of fiscal year
|
|
—
|
|
|
278,260
|
|
|
—
|
|
|
8,286
|
|
|
—
|
|
|
286,546
|
|
Cash and cash equivalents, end of fiscal year
|
|
$
|
—
|
|
|
$
|
311,078
|
|
|
$
|
10,442
|
|
|
$
|
19,118
|
|
|
$
|
—
|
|
|
$
|
340,638
|
|
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21 – SUBSEQUENT EVENTS
Segments
At the beginning of fiscal 2017, the Company combined
four
of its prior U.S. operating segments into
two
new operating segments to align with how the Company's executive management currently views and manages the business. Carter's Retail and OshKosh Retail were combined into a single U.S. Retail operating segment, and Carter's Wholesale and OshKosh Wholesale were combined into a single U.S. Wholesale operating segment. The Company's International segment was not affected by these changes. The Company's reportable segments at the beginning of fiscal 2017 are U.S. Retail, U.S. Wholesale, and International.
Business Acquisition
On February 22, 2017, the Company purchased all of the outstanding equity of Skip Hop Holding's, Inc. ("Skip Hop") for a total purchase price of
$140 million
in cash consideration, subject to a working capital adjustment, plus a potential future payment of up to
$10 million
contingent upon the achievement of certain fiscal targets in 2017, as outlined in the purchase agreement.