Carter’s, Inc. 2018 Annual Report
DEAR FELLOW SHAREHOLDERS,
In 2018, we strengthened our position as the market leader in young children’s apparel. We achieved a record level of sales,
earnings, and free cash flow despite the bankruptcy and liquidation of two significant wholesale customers.
We also strengthened our new growth vehicles, including Skip Hop, Mexico, and Amazon. We continued to invest in
omni-channel capabilities to better serve families with young children, and developed a new and more profitable path
forward in China.
2018 FINANCIAL HIGHLIGHTS
• Increased net sales by 2% to $3.5 billion, our 30th consecutive year of sales growth
• Achieved record adjusted diluted earnings per share of $6.29, up 9% vs. 2017
• Generated operating cash flow of $356 million and free cash flow of $292 million
• Returned $277 million to shareholders through share repurchases and dividends
OUR VISION AND FOCUS
We are the largest branded marketer of young children’s apparel in North America. Over the past 10 years, our annual sales
and net income have grown, on average, by 9% and 14%, respectively. We believe no other company in the world has our
consumer reach and success in branded childrenswear.
Our vision is to be the world’s favorite brands in young children’s apparel. To achieve this vision, we are focused on providing
the best value and experience in apparel and related products for young children, extending the reach of our brands, and
improving profitability. To further focus our efforts in the years ahead, we have developed the following key strategic pillars
to help us realize our most meaningful growth opportunities:
Win in Baby
Carter’s is the best-selling brand in baby apparel, with nearly five times the share of our nearest competitor. Last year,
our retail stores were rated as moms’ favorite place to shop for apparel for their newborn to 24-month-old children.
In the United States, nearly 90% of millennials shopping for newborn apparel purchased the Carter’s brand last year.
Though annual births have trended lower in recent years, we have expanded our customer base through our marketing
efforts and are seeing a higher frequency of visits and customer retention.
Age Up
Carter’s has the largest share of children’s apparel in the baby and toddler age segments (newborn to four year olds),
more than three times the share of our nearest competitors. In fall 2018, we launched an extension of our Carter’s
product offering to better serve the needs of families with young children.
This new strategy was driven by feedback from consumers, which indicated they wished to stay with our Carter’s brand
longer. Based on that input, we added new size ranges to better serve a slightly older age segment (five to 10 years old)
and gain share in a much larger market. The apparel market for this older age segment is estimated to be $14 billion,
comparable to the baby and toddler apparel market.
Lead in eCommerce
Carter’s is the best-selling brand online in young children’s apparel, with twice the share of our nearest competitor.
In recent years, we made significant investments in technology to support the growth in our eCommerce business.
In 2019, we are building new capabilities to further strengthen our consumers’ experience shopping with us. Later this
year, we expect to enable same-day pickup of online orders in our stores. We believe our new same-day pickup service
will further enhance the convenience of shopping with us and drive more traffic to our stores.
We have also invested in capabilities which we expect will enable us to ship online orders from our stores. This new
service is designed to expedite the fulfillment of eCommerce orders and will be tested with consumers this year.
Expand Globally
Our brands are sold in about 85 countries through our eCommerce capabilities and relationships with retailers throughout
the world. We will continue to pursue opportunities that enable profitable expansion in new markets.
We recently restructured our international organization to enable better collaboration between our U.S. operations and
our teams in Canada and Mexico. Over the past five years, we have made significant investments in consumer-facing and
revenue-driving capabilities in the United States. With this new organization, we plan to leverage those investments and
extend those capabilities to support the growth which we envision is possible in North America.
GROWTH OBJECTIVES
We believe our global, multi-channel business model enables sales growth of about 3% a year, on average, over the next five
years. If we achieve this objective, our net sales would increase to approximately $4 billion by 2023.
As we view it today, our domestic organic growth rate is about 2% to 3% a year. Over the next five years, we plan to close
almost as many stores as we plan to open. With nearly 850 stores in the United States, we are one of the largest specialty
retailers of young children’s apparel. We don’t currently see a need for significantly more stores, just better stores in better
locations. Given the convenience of shopping with us online, we expect that our eCommerce business will be the largest
contributor to growth in our retail segment.
Our wholesale customers do a great job presenting our brands in their stores, and they have been good partners and a source
of growth for many years. Over time, however, growth in our U.S. wholesale segment may be limited by the growth collectively
planned by the largest retailers for their own businesses.
Faster sales growth in international markets is possible, but to do so profitably has been challenging. Accordingly, we will
pursue a disciplined and profitable pace for growth over the next five years.
We aspire to achieve a sales growth rate twice what would otherwise be possible organically. Over the past 15 years, we have
acquired brands and businesses that contributed over $1 billion in sales in 2018. Acquisitions have enabled us to strengthen
our multi-channel model and reach more consumers with our brands.
We search for brands and businesses focused on the needs of families with young children, led by strong management teams
with a track record of profitable growth. We will be patient with our search for new brands and businesses to ensure future
acquisitions provide new sources of meaningful growth and attractive returns for our shareholders.
We are planning average annual growth in earnings per share of approximately 7% over the next five years driven by:
- growing our retail, wholesale, and international businesses;
- increasing the contribution from Skip Hop, Amazon, Mexico and China;
- improving inventory management, sourcing, and pricing disciplines;
- leveraging expenses; and
- returning capital to shareholders through share repurchases.
We believe the fundamentals of our business have never been stronger. We are the largest branded marketer of young
children’s apparel in the United States and the largest supplier of young children’s apparel to the largest retailers in the
country. We have built a diversified business model which has enabled 30 consecutive years of sales growth, and a cash
flow model that has enabled us to return nearly $2 billion in excess capital to shareholders since 2007.
Over the past 10 years, we have managed to grow through the recession, the cotton crisis, shifts to private label brands, and
our wholesale customers’ de-stocking initiatives. We are now faced with the risk of new tariffs, a further decline in annual
births, and wholesale customer store closures.
The constant through all of these challenges over the years has been the strength of our brands, which have served the needs
of multiple generations of consumers, and the quality of Carter’s employees, who are focused on providing the best value and
experience in young children’s apparel. That focus has served us well over the years.
In summary, the outlook for our business is good. We have built a unique multi-brand, multi-channel model, which we believe
is well-positioned to grow and gain market share. We are committed to strengthening our business and providing good
performance for our shareholders in the years ahead.
Vanessa Castagna
Earlier this year, Vanessa Castagna retired from our Board of Directors. For the past nine years, Vanessa contributed
significantly to the transformation of our business into one of the largest specialty retailers of branded childrenswear in North
America. We are grateful for Vanessa’s leadership on our Board, and the guidance and friendship she has shared with us.
On behalf of our Board of Directors, Leadership Team and all of our dedicated employees, thank you for your investment
in Carter’s.
Sincerely,
Michael D. Casey
Chairman and Chief Executive Officer
April 2019
OUR BUSINESS
Carter’s, Inc. is the largest branded marketer in North America of apparel exclusively for
babies and young children. We own the largest share of the $21 billion baby and young
children’s apparel market (ages zero to seven) in the United States as well as the $1.5
billion market in Canada. We own two of the best known and trusted brand names in
young children’s apparel, Carter’s and OshKosh B’gosh. Both of these iconic brands have
more than 100 years of rich history; Carter’s was established in 1865 and OshKosh B’Gosh
in 1895. Our Child of Mine brand is sold at Walmart, our Just One You brand is sold at
Target, and our Simple Joys brand is available on Amazon. We also own Skip Hop, a
fast-growing and innovative leader in the children’s durables product category.
Our multi-channel global business model - which includes retail store, eCommerce, and
wholesale sales channels - generated $3.5 billion in net sales in 2018 and enables us
to reach a broad range of consumers around the world. As of December 29, 2018, our
channels included more than 1,000 Company-operated stores in North America, over
17,000 wholesale locations in the United States (including department stores, national
chain stores, specialty stores and discount retailers), our eCommerce sites in the United
States, Canada, and China, as well as our other international wholesale accounts and
licensees. We serve the needs of families with young children by providing a strong
value in our product offerings, including baby apparel, sleepwear, playclothes, and
related accessories.
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
Summary of Operations
Fiscal
2018
Fiscal
2017 (c)
Fiscal
2016 (c)
As reported (a)
Net sales
Gross margin
Operating income
Operating margin
Net income
$3,462,269
$3,400,504
$3,198,543
43.3%
$391,433
11.3%
43.6%
43.1%
$419,607
$425,928
12.3%
$282,068
$302,848
13.3%
$257,709
$5.08
$369,229
Diluted earnings per share
$6.00
Net cash provided by operating activities
$356,198
$6.24
$329,621
As adjusted (b)
Operating income
Operating margin
Net income
$407,283
$444,841
$430,742
11.8%
13.1%
13.5%
$295,445
$279,806
$260,750
Diluted earnings per share
$6.29
$5.77
$5.14
(a) Results “as reported” are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
(b) Results presented in shareholder letter and above “as adjusted” are non-GAAP financial measurements. A reconciliation of results “as reported”
to results “as adjusted” immediately follows our Proxy in this Annual Report.
(c) Fiscal 2017 and 2016 reflect the retrospective adoption of Accounting Standards Codification No. 606, Revenue from Contracts with Customers.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among Carter’s, Inc., the S&P 500 Index, the S&P Midcap 400 Index, and the S&P Apparel Retail Index
$200
$150
$100
$50
$0
12/13
Carter’s, Inc.
S&P 500
S&P Midcap 400
S&P Apparel Retail
12/14
12/15
12/16
12/17
12/18
*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2019 Standard & Poor’s, a division of S&P Global. All rights reserved.
Our shareholder letter contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 relating to the Company’s future performance, which are based on current expectations only and are subject to
certain risks, uncertainties, and assumptions that are described in our annual report on Form 10-K and other reports filed with the Securities
and Exchange Commission from time to time under the headings “Risk Factors”. Additionally, this letter contains market share data that is
based on information provided by the NPD Group, Inc. Please see our annual report on Form 10-K for fiscal 2018 for more information.
Form 10-K
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2018 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 29, 2018
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
Commission file number:
001-31829
CARTER’S, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(state or other jurisdiction of
incorporation or organization)
13-3912933
(I.R.S. Employer
Identification No.)
Phipps Tower
3438 Peachtree Road NE, Suite 1800
Atlanta, Georgia 30326
(Address of principal executive offices, including zip code)
(678) 791-1000
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Name of each Exchange on which Registered
Carter’s, Inc.’s common stock par value $0.01 per share
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the Registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer È
Non-Accelerated Filer ‘
Accelerated Filer ‘
Smaller Reporting Company ‘
(Do not check if a smaller reporting company) Emerging Growth Company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2018 (the last business
day of our most recently completed second quarter) was $4,867,389,196.
There were 45,526,000 shares of Carter’s, Inc. common stock with a par value of $0.01 per share outstanding as of the close of business
on February 19, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating
to the Annual Meeting of shareholders of Carter’s, Inc., scheduled to be held on May 16, 2019, will be incorporated by reference in Part III of
this Form 10-K. Carter’s, Inc. intends to file such proxy statement with the Securities and Exchange Commission not later than 120 days after
its fiscal year ended December 29, 2018.
CARTER’S, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 29, 2018
Part I
Part II
Part III
Part IV
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Item 3
Item 4
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6
Item 7
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . .
Item 8
Item 9
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10
Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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This Annual Report on Form 10-K contains certain forward-looking statements regarding future circumstances.
Forward-looking statements provide current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or current fact. Forward-looking statements
can also be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”
“predicts,” and similar terms. These forward-looking statements are based upon current expectations and
assumptions of the Company and are subject to various risks and uncertainties that could cause actual results to
differ materially from those contemplated in such forward-looking statements including, but not limited to, those
discussed in the subsection entitled “Risk Factors” under Part I, Item 1A of this Annual Report on Form 10-K.
Actual results, events, and performance may differ significantly from the results discussed in the forward-looking
statements. Readers of this Annual Report on Form 10-K are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Except for any ongoing obligations to
disclose material information as required by federal securities laws, the Company does not have any intention or
obligation to update forward-looking statements after the filing of this Annual Report on Form 10-K. The
inclusion of any statement in this Annual Report on Form 10-K does not constitute an admission by the Company
or any other person that the events or circumstances described in such statement are material.
PART I
Our market share data is based on information provided by the NPD Group, Inc (“NPD”). Unless otherwise
indicated, references to market share in this Annual Report on Form 10-K are expressed as a percentage of total
retail sales of the stated market. The baby and young children’s apparel market includes apparel products for ages
zero to seven. NPD data is based upon Consumer Panel Track SM (consumer-reported sales) calibrated with
selected retailers’ point of sale data. Certain NPD data cited in prior Annual Reports on Form 10-K were based
on an alternate methodology no longer employed by NPD and are not comparable to the current year
presentation.
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The NPD market share data presented is based on NPD’s definition of the baby and playclothes categories, which
are different from the Company’s definitions of these categories. The data presented is based upon The NPD
Group/Consumer Tracking Service for Children’s Apparel in the United States (“U.S.”) and represents the twelve
month period through the end of December 2018.
Unless the context indicates otherwise, in this filing on Form 10-K, “Carter’s,” the “Company,” “we,” “us,” “its,”
and “our” refers to Carter’s, Inc. and its wholly owned subsidiaries.
Our trademarks and copyrights that are referred to in this Annual Report, including Carter’s, OshKosh, OshKosh
B’gosh, Baby B’gosh, Skip Hop, Child of Mine, Just One You, Simple Joys, Precious Firsts, Precious Baby, Little
Collections, Little Planet, Carter’s little baby basics, Carter’s KID, Rewarding Moments, and Count on Carter’s,
many of which are registered in the United States and in over 100 other countries and territories, are each the
property of one or more subsidiaries of Carter’s, Inc.
Our 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 years. Fiscal 2018, which ended on December 29, 2018, fiscal 2017,
which ended on December 30, 2017, and fiscal 2016, which ended on December 31, 2016, all contained 52
weeks.
ITEM 1.
BUSINESS
OVERVIEW
We are the largest branded marketer in North America of apparel exclusively for babies and young children. We
own two of the most highly recognized and most trusted brand names in the children’s apparel industry, Carter’s
and OshKosh B’gosh (or “OshKosh”), and a leading baby and young child lifestyle brand, Skip Hop.
1
Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel for
children in sizes newborn to 14 and accessories.
Established in 1895, OshKosh is a well-known brand, trusted by consumers for apparel for children in sizes
newborn to 14, with a focus on playclothes for toddlers and young children, and accessories.
Established in 2003, the Skip Hop brand re-thinks, re-energizes, and re-imagines durable childhood necessities to
create higher value, superior quality, and top-performance goods for parents, babies, and toddlers. We acquired
the Skip Hop brand in February 2017.
Our vision is to be the leader in baby and young children’s apparel and accessories, and to consistently provide
high-quality products at a compelling value to consumers. We believe our brands provide a complementary
product offering and aesthetic, and are each uniquely positioned in the marketplace. In the approximately
$21 billion baby and young children’s apparel market ages zero to seven in the U.S., our Carter’s brand has the
#1 position with approximately 14% market share and our OshKosh brand has approximately 2% market share.
Our multi-channel global business model—which includes retail store, e-commerce, and wholesale sales
channels—enables us to reach a broad range of consumers around the world. As of December 29, 2018, our
channels included 844 stores in the United States (excluding five temporary Skip Hop stores that were closed in
January 2019), 188 stores in Canada, 42 stores in Mexico, over 17,000 wholesale locations in the United States
(including department stores, national chain stores, specialty stores and discount retailers), our eCommerce sites
in the United States, Canada, and China, as well as our other international wholesale accounts and licensees.
We have extensive experience in the young children’s apparel and accessories market and focus on delivering
products that satisfy our consumers’ needs. Our long-term growth strategy is focused on:
•
•
•
•
providing the best value and experience in young children’s apparel and accessories;
extending the reach of our brands by improving the convenience of shopping for our products, and our
omni-channel experience, as well as expanding our international operations;
improving profitability by strengthening distribution and direct-sourcing capabilities, as well as
pricing and inventory management disciplines; and
investing in new sources of growth.
The three segments we use to manage and evaluate our performance are: U.S. Retail, U.S. Wholesale, and
International. These segments are our operating and reporting segments. Our U.S. Retail segment consists of
revenue primarily from sales of products in the United States through our retail and online stores. Similarly, our
U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our
wholesale partners. Finally, our International segment consists of revenue primarily from sales of products
outside the United States, largely through our retail stores in Canada and Mexico, our eCommerce sites in
Canada and China, and sales to our international wholesale accounts and licensees.
Additional financial and geographical information about our segments is contained in Item 8 “Financial
Statements and Supplementary Data” under Note 14, Segment Information, to the consolidated financial
statements.
2
Our Brands
Carter’s
Under our Carter’s brand, we design, source, and market products for sizes newborn to 14. Our focus is on
essential, high-volume apparel products for babies and young children. We believe that a majority of our
products are consumer essentials and are therefore less affected by changes in fashion trends and economic
cycles. Our product categories include the following:
Baby
Carter’s brand baby products include bodysuits, pants, dresses, multi-piece knit sets, blankets, layette essentials,
bibs, booties, sleep and play, rompers, and jumpers.
We sell a complete range of baby apparel products for newborns, including a preemie collection which we
expanded in late 2018. These products are primarily made of cotton, including organic cotton as part of our Little
Planet collection. We attribute our leading market position to our strong value proposition, brand strength,
unique colors, distinctive prints, commitment to quality, and ability to manage our dedicated floor space with our
wholesale customers. Our marketing programs are targeted toward experienced mothers, first-time mothers, and
gift-givers. Our Carter’s little baby basics product line, the largest component of our baby business, provides
parents with essential products and accessories, including value-focused multi-piece sets. Our Little Collections
product line consists of coordinated baby items designed for first-time mothers and gift-givers.
Carter’s is the leading brand in the baby category in the United States. In fiscal 2018, our multi-channel business
model enabled our Carter’s brand to maintain its leading market share in the United States of approximately 24%
in the zero to two year market, which represented nearly five times the market share of the next largest brand.
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Playclothes
Carter’s brand playclothes include knit and woven apparel, primarily in cotton, for everyday use in sizes
newborn to 14.
We continue to focus on building our Carter’s brand in the playclothes market by developing a base of essential,
high-volume products that utilize unique, special, or must-have print designs and innovative artistic applications.
Our aggregate fiscal 2018 Carter’s brand playclothes market share in the United States was approximately 14%
in the $14 billion young children’s playclothes market, which represents nearly two times the market share of the
next largest brand.
Sleepwear
Carter’s brand sleepwear products include a full range of pajamas in cotton, fleece and poly-jersey, primarily in
sizes 12 to 14 months.
As with our baby product line, we differentiate our sleepwear products by offering a wide assortment of high-
quality, high-value products with distinctive designs and artwork. Our Carter’s brand is the leading brand of
sleepwear for babies and young children in the United States. In fiscal 2018, in these channels, our Carter’s
sleepwear brand market share was approximately 28%, which represents nearly six times the market share of the
next largest brand.
Other Products
Our other product offerings include bedding, cribs, diaper bags, footwear, gift sets, hair accessories, jewelry,
outerwear, paper goods, socks, swimwear, and toys.
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We license our Carter’s, Child of Mine, Just One You, Precious Firsts, Precious Baby, Carter’s little baby
basics, and Simple Joys brands to partners to expand our product offerings. As of December 29, 2018, we had 10
licensees in the United States who manufacture products under these brands. These licensing partners develop
and sell products through our multiple sales channels, while leveraging our brand strength, customer
relationships, and designs. Licensed products provide our customers with a range of lifestyle products that
complement and expand upon our baby and young children’s apparel offerings. Our license agreements require
strict adherence to our quality and compliance standards and provide for a multi-step product approval process.
We work in conjunction with our licensing partners in the development of their products to ensure that they fit
within our brand vision of high-quality products at attractive prices to provide value to the consumer.
We employ cross-functional product teams to focus on the development of our Carter’s brands and products. Our
Carter’s brand team is skilled and experienced in identifying and developing high-volume, high-value products.
The team includes members from merchandising, art, design, sourcing, product development, and planning, and
follows a disciplined approach to fabric usage, color selection, and productivity. We believe this disciplined
approach to product design, which includes consumer research, results in a compelling product offering to
consumers, reduces our exposure to short-term trends, and supports efficient operations.
With our Carter’s brands, we believe that we continuously strengthen our brand image with the consumer by
differentiating our products through fabric and material improvements, new artistic applications, and new
packaging and presentation strategies. We also attempt to differentiate our products and presentation through
in-store fixturing, branding, signage, photography, and advertising, both in our stores and with our major
wholesale customers.
OshKosh
Under our OshKosh brand, we design, source, and market apparel with an emphasis on high-quality playclothes
for children in sizes newborn to 14. Our OshKosh brand is generally positioned towards an older age segment
and at slightly higher average prices relative to the Carter’s brand. We believe our OshKosh brand has significant
brand name recognition, which consumers associate with high-quality, durable, and authentic playclothes for
young children. Our product categories include the following:
Playclothes
Our OshKosh brand is best known for its playclothes products. OshKosh brand playclothes include denim apparel
products with multiple wash treatments and coordinating garments, overalls, woven bottoms, knit tops, and
bodysuits for everyday use in sizes newborn to 14. Our fiscal 2018 OshKosh brand playclothes market share in
the United States was approximately 3% of the $14 billion young children’s playclothes market.
Other Products
The remainder of our OshKosh brand product offering includes baby, sleepwear, outerwear, footwear, hosiery,
and accessories.
Additionally, we partner with a number of licensees to extend the reach of our OshKosh brand. As of
December 29, 2018, we had five licensees in the United States selling OshKosh apparel and accessories. Our
licensed products provide our customers and consumers with a range of OshKosh products including outerwear,
socks, shoes, and accessories.
As with our Carter’s brands, we employ cross-functional product teams to focus on the development of our
OshKosh brand and products, including members from merchandising, art, design, sourcing, product
development, and planning, and these teams follow a disciplined approach to fabric usage, color selection, and
productivity. We believe this disciplined approach to product design, which includes consumer research, results
in a compelling product offering to consumers, reduces our exposure to short-term trends, and supports efficient
operations.
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As with our Carter’s brands, we believe that we strengthen our OshKosh brand image with the consumer by
differentiating our products through fabric and material improvements, new artistic applications, and new
packaging and presentation strategies. We also attempt to differentiate our products and presentation through
in-store fixturing, branding and signage packages, and advertising, both in our stores and with our major
wholesale customers.
Skip Hop
Under our Skip Hop brand, we design, source, and market products that are sold primarily to families with young
children. Our Skip Hop brand is best known for its diaper bags, which we believe combine innovative
functionality with attractive design. The Skip Hop brand offering also includes products for playtime, travel,
mealtime, kid’s bags, bathtime, and homegear.
With Skip Hop, we believe we have acquired a global lifestyle brand. Skip Hop’s core philosophy and positioning
begins and ends with its brand promise—“Must-Haves * Made Better.” This reflects the brand’s goal of creating
innovative, smartly designed, and highly functional essentials for parents, babies, and toddlers. The Skip Hop
team includes in-house design and creative teams, which are made up of people who strive to improve the
functionality, form, and design of must-have baby and young child products. We believe the brand is positioned
as a competitively priced source of iconic products that offer greater value through innovation and design. We
have recently introduced Skip Hop brand products in our retail stores, and have increased investments in in-store
fixturing, branding, and signage packages, along with digital advertising, to further strengthen the position of the
Skip Hop brand.
Our Sales Channels
We sell our Carter’s, OshKosh, and Skip Hop branded products through multiple channels, both in the United
States and globally.
U.S. Retail
Our U.S. retail sales channel includes sales of our products through our U.S. retail stores and eCommerce sites.
Our U.S. retail stores are generally located in high-traffic strip shopping centers in or near major cities or in
outlet centers that are near densely-populated areas. We believe our brand strength and our assortment of
products have made our retail stores a destination for consumers who shop for young children’s apparel and
accessories.
We operate retail stores in three different formats:
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•
•
Carter’s stand-alone stores, which carry an extensive assortment of Carter’s baby and young
children’s apparel, accessories, and gift items, and average approximately 4,200 square feet per
location.
OshKosh stand-alone stores, which carry a wide assortment of OshKosh young children’s apparel,
accessories, and gift items, and average approximately 4,600 square feet per location.
Dual-branded stores, which include:
•
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“Co-branded” locations, which consist of single retail stores that offer products from our
Carter’s and Oshkosh brands, and average approximately 5,000 square feet per location; and
“Side-by-side” locations, which consist of adjacent retail stores for our Carter’s and
OshKosh brands that are connected, and average approximately 7,300 square feet per
location.
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We also sell a selection of Skip Hop products at our retail store locations and open temporary Skip Hop stores
from time to time to sell select Skip Hop merchandise.
As of December 29, 2018, in the United States we operated 418 Carter’s stand-alone stores, 107 OshKosh stand-
alone stores, 163 “side-by-side” locations, 153 “co-branded” locations. In addition, as of February 25, 2019, we
had three temporary Skip Hop stores.
We regularly assess potential new retail store locations and closures based on demographic factors, retail
adjacencies, competitive factors, and population density, as part of a rigorous real estate portfolio optimization
process.
We also sell our products through our online U.S. eCommerce sites at www.carters.com,
www.oshkoshbgosh.com, www.oshkosh.com, and www.skiphop.com.
In both our retail stores and eCommerce sites, we focus on the customer experience through store and
eCommerce site design, visual aesthetics, clear product presentation, and experienced customer service. We
strive to create a seamless omni-channel experience as more fully described below under “Our Customer and
Marketing Strategy.”
U.S. Wholesale
Our U.S. wholesale channel includes sales of our products to our U.S. wholesale accounts.
Our Carter’s brand wholesale customers in the United States include major retailers, such as, in alphabetical
order, Costco, JCPenney, Kohl’s, and Macy’s. Additionally, we sell our Child of Mine brand at Walmart, our Just
One You brand at Target, and our Simple Joys brand on Amazon.
Our OshKosh brand wholesale customers in the United States include major retailers, such as, in alphabetical
order, Costco, JCPenney, and Kohl’s.
Our Skip Hop brand wholesale customers in the United States include major retailers, such as, in alphabetical
order, Amazon, Buy Buy Baby, and Target.
We collaborate with our wholesale customers to provide a consistent, high-level of service, and to drive growth
through eCommerce, replenishment, product mix, and brand presentation. We also have frequent meetings with
the senior management of key accounts to align on strategic growth plans.
International
Our International segment includes sales of our products through our retail stores in Canada and Mexico, and
eCommerce sites in Canada and China, and to international wholesale accounts. In addition, we license our
Carter’s and OshKosh brands to international licensees. These licensees sell our products through branded retail
and online stores, as well as to wholesale accounts, within their territories. Our International segment also
includes sales of our products to these licensees, and royalty income based on sales made by certain licensees.
As of December 29, 2018, in Canada we operated 188 co-branded Carter’s and OshKosh retail stores and an
eCommerce site at www.cartersoshkosh.ca, in Mexico we operated 42 retail stores and franchisees operated an
additional 16 retail stores, and in China we operated an eCommerce site.
In addition, as of December 29, 2018, we had approximately 40 international licensees who operated in over 80
countries.
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Our Customer and Marketing Strategy
For all of our brands, our marketing is predominantly focused on driving brand preference and engagement with
millennial customers, including through strengthening and evolving our digital programs. Our omni-channel
approach allows the customer to experience the brand as a seamless shopping experience in the channel of their
choice. For instance, our website capabilities have been designed to optimize the experience for consumers
shopping on a mobile device and, during fiscal 2017, we launched our mobile application in the United States.
We operate our Rewarding Moments loyalty and rewards program in the United States to drive customer traffic,
sales, and brand loyalty. This program is integrated across our U.S. retail stores and online businesses. During
fiscal 2018, our U.S. retail sales were predominantly made to customers who are members of Rewarding
Moments.
Our investments in marketing, our loyalty program, and new technologies are focused on acquiring new
customers, developing stronger connections with our existing customers, and extending their relationship with
our brands. Our goal is to have the most top-of-mind, preferred brands in the young children’s market and to
connect with a diverse, digitally-savvy customer.
Our Global Sourcing Network
We do not own any manufacturing facilities. We source all of our garments and other products from a global
network of third party suppliers, primarily located in Asia. The remainder of our products are sourced primarily
through Central America. During fiscal 2018, approximately 80%, based on cost, of our product was sourced
from Cambodia, China, Vietnam, and Bangladesh.
Our sourcing operations are based in Hong Kong in order to facilitate better service and accommodate the
volume of manufacturing in Asia. Our Hong Kong office acts as an agent for substantially all of our production
in Asia and monitors production at manufacturers’ facilities to ensure quality control, compliance with our
manufacturing specifications and social responsibility standards, as well as timely delivery of finished garments
to our distribution facilities. We also have representative offices in Cambodia and Bangladesh to help support
these efforts.
Prior to placing production, and on a recurring basis, we conduct assessments of political, social, economic,
trade, labor and intellectual property protection conditions in the countries in which we source our products. In
connection with the manufacture of our products, manufacturers purchase raw materials including fabric and
other materials (such as linings, zippers, buttons, and trim) at our direction. Prior to commencing the manufacture
of products, samples of raw materials are sent to us for approval. We regularly inspect and supervise the
manufacture of our products in order to ensure timely delivery, maintain quality control and monitor compliance
with our manufacturing specifications and social responsibility standards. We also inspect finished products at
the factory site.
We generally arrange for the production of products on a purchase order basis with completed products
manufactured to our design specifications. We assume the risk of loss predominantly on a Freight-On-Board
(F.O.B.) basis when goods are delivered to a shipper and are insured against losses arising during shipping.
As is customary, we have not entered into any long-term contractual arrangements with any contractor or
manufacturer. We believe that the production capacity of foreign manufacturers with which we have developed,
or are developing, a relationship is adequate to meet our production requirements for the foreseeable future. We
believe that alternative foreign manufacturers are readily available.
We expect all of our suppliers shipping to the United States to adhere to the requirements of the U.S. Customs
and Border Protection’s Customs-Trade Partnership Against Terrorism (“C-TPAT”) program, including
standards relating to facility security, procedural security, personnel security, cargo security, and the overall
protection of the supply chain. In the event a supplier does not comply with our C-TPAT requirements, or if we
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have determined that the supplier will be unable to correct a deficiency, we may move that supplier’s product
through alternative supply chain channels or we may terminate our business relationship with the supplier.
Corporate Responsibility
We have adopted a factory on-boarding program that allows us to assess each factory’s compliance with our
social responsibility standards before we place orders for product with that factory, including factories that were
used by companies that we acquire. Additionally, we regularly assess the manufacturing facilities we use through
periodic on-site facility inspections, including the use of independent auditors to supplement our internal staff.
We use audit data and performance results to suggest improvements when necessary, and we integrate this
information into our on-going sourcing decisions. Our vendor code of conduct, with which we require our
factories to comply, covers employment practices, such as wages and benefits, working hours, health and safety,
working age, and discriminatory practices, as well as environmental, ethical, and other legal matters.
Our Global Distribution Network
The majority of all finished goods manufactured for us is shipped to our distribution facilities or to designated
third party facilities for final inspection, allocation, and reshipment to customers. The goods are delivered to our
customers and us by independent shippers. We choose the form of shipment based upon needs, costs, and timing
considerations.
In the United States, we operate two distribution centers in Georgia: an approximately 1.1 million square-foot
multi-channel facility in Braselton and a 505,000 square-foot facility in Stockbridge. We also outsource
distribution activities to third party logistics providers in California. Our distribution center activities include
receiving finished goods from our vendors, inspecting those products, preparing them for retail and wholesale
presentation, and shipping them to our wholesale customers, retail stores, and eCommerce customers.
Internationally, we operate directly or outsource our distribution activities to third party logistics providers in
Canada, China, United Kingdom, and Mexico to support our international wholesale accounts, international
licensees, international eCommerce operations, and Canadian and Mexican retail store network.
Governmental Regulation and Environmental Matters
Our products are subject to regulation of and regulatory standards with respect to quality and safety set by
various governmental authorities around the world, including in the United States, Canada, China, Mexico, and
the European Union. Our operations also are subject to various international trade agreements and regulations.
We are also subject to various other federal, state, local and foreign laws and regulations that govern our
activities, operations, and products, including data privacy, truth-in-advertising, accessibility, customs, wage and
hour laws and regulations, and zoning and occupancy ordinances that regulate retailers generally and govern the
promotion and sale of merchandise and the operation of retail stores and e-commerce sites. Noncompliance with
these laws and regulations may result in substantial monetary penalties and criminal sanctions.
Competition
The baby and young children’s apparel and accessories market is highly competitive. Competition is generally
based on a variety of factors, including comfort and fit, value, pricing, experience, and selection. Both branded
and private label manufacturers as well as specialty apparel retailers aggressively compete in the baby and young
children’s apparel market. Our primary competitors include: The Children’s Place, Gap, and Old Navy (specialty
apparel); Cat & Jack and Garanimals (private label); and Disney, Gerber, and Nike (national brand). Because of
the highly-fragmented nature of the industry, we also compete with many small manufacturers and retailers. We
believe that the strength of our brand names, combined with our breadth of product offerings, distribution
footprint, and operational expertise, position us well against these competitors.
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Seasonality and Weather
We experience seasonal fluctuations in our sales and profitability due to the timing of certain holidays and key
retail shopping periods, which generally have resulted in lower sales and gross profit in the first half of our fiscal
year versus the second half of the year. Accordingly, our results of operations during the first half of the year
may not be indicative of the results we expect for the full fiscal year. In addition, our business is susceptible to
unseasonable weather conditions, which could influence customer trends, consumer traffic, and shopping habits.
For example, extended periods of unseasonably warm temperatures during the winter season or cool temperatures
during the summer season could affect the timing of, and reduce or shift, demand.
Our Trademarks and Copyrights
Our trademarks and copyrights that are referred to in this Annual Report, including Carter’s, OshKosh, OshKosh
B’gosh, Baby B’gosh, Skip Hop, Child of Mine, Just One You, Simple Joys, Precious Firsts, Precious Baby, Little
Collections, Little Planet, Carter’s little baby basics, Carter’s KID, Rewarding Moments, and Count on Carter’s,
many of which are registered in the United States and in over 100 other countries and territories, are each the
property of one or more subsidiaries of Carter’s, Inc.
Our Employees
As of December 29, 2018, we had approximately 21,000 employees globally. As of December 29, 2018,
approximately 245 employees were unionized employees, all of whom were in Mexico. We believe that our labor
relations are good.
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Available Information
Our primary internet address is www.carters.com. The information contained on our website is not included as
part of, or incorporated by reference into, this Annual Report on Form 10-K or any other reports we file with or
furnish to the Securities and Exchange Commission (“SEC”). On our website, we make available, free of charge,
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements, director and officer reports on Forms 3, 4, and 5, and any amendments to these reports, as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports
can be accessed through the investor relations section of our website. We also make available on our website the
Carter’s Code of Ethics, our corporate governance principles, and the charters for the Compensation, Audit, and
Nominating and Corporate Governance Committees of the Board of Directors. The SEC maintains an internet
site, www.sec.gov, containing reports, proxy and information statements, and other information regarding
issuers, including us, that file electronically with the SEC.
Corporate Information
Carter’s, Inc. is a Delaware corporation, with its principal executive offices located at Phipps Tower, 3438
Peachtree Road NE, Suite 1800, Atlanta, Georgia 30326. Our telephone number is (678) 791-1000. Carter’s, Inc.
and its predecessors have been doing business since 1865.
ITEM 1A. RISK FACTORS
You should carefully consider each of the following risk factors as well as the other information contained in this
Annual Report on Form 10-K and our other filings with the SEC in evaluating our business. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently consider immaterial may also impact our business operations. If any of the
following risks actually occur, our operating results may be affected.
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Financial difficulties for, or the loss of one or more of, our major wholesale customers could result in a
material loss of revenues.
A significant amount of our business is with our U.S. wholesale customers. For fiscal 2018, we derived
approximately 34% of our consolidated net sales from our U.S. Wholesale segment and approximately 30% of
our consolidated net sales from our top ten wholesale customers. As of the end of fiscal 2018, approximately
80% of our gross accounts receivable were from our ten largest wholesale customers, with three of these
customers having individual receivable balances in excess of 10% of our total accounts receivable. Furthermore,
we do not enter into long-term sales contracts with our major wholesale customers, relying instead on product
performance, long-standing relationships, and our position in the marketplace.
As a result, we face the risk that one or more of these or other customers may significantly decrease their
business or terminate their relationship with us as a result of financial difficulties (including bankruptcy or
insolvency), competitive forces, consolidation, reorganization, or other reasons, which in turn could result in
significant levels of excess inventory, a material decrease in our sales, or material impact on our operating
results. In addition, our reserves for doubtful accounts for estimated losses resulting from the inability of our
customers to make payments may prove not to be sufficient if any one or more of our customers are unable to
meet outstanding obligations to us, which could materially adversely affect our operating results. If the financial
condition or credit position of one or more of our customers were to deteriorate, or such customer fails, or is
unable to pay the amounts owed to us in a timely manner, this could have a significant adverse impact on our
business and results of operations.
Our business is sensitive to overall levels of consumer spending, particularly in the young children’s apparel
market.
Both retail and wholesale consumer demand for young children apparel, specifically brand name apparel
products, is affected by the overall level of end consumer spending. Discretionary consumer spending is affected
by a number of factors, such as the weather, the overall economy and employment levels, uncertainty in the
political climate, gasoline and utility costs, business conditions, availability of consumer credit, tax rates, the
availability of tax credits, interest rates, levels of consumer indebtedness, foreign currency exchange rates, and
overall levels of consumer confidence. Reductions, or lower-than-expected growth, in the level of discretionary
or overall end consumer spending may have a material adverse effect on our sales and results of operations.
The acceptance of our products in the marketplace is affected by consumer tastes and preferences, along with
fashion trends.
We believe that our continued success depends on our ability to provide a compelling value proposition for our
consumers in all of our distribution channels. There can be no assurance that the demand for our products will
not decline, or that we will be able to successfully and timely evaluate and adapt our products to changes in
consumer tastes and preferences or fashion trends. If demand for our products declines, promotional pricing may
be required to move seasonal merchandise, and our gross margins and results of operations could be adversely
affected.
We operate in a highly competitive market and the size and resources of some of our competitors may allow
them to compete more effectively than we can.
The baby and young children’s apparel market is very competitive, and includes both branded and private label
manufacturers. Because of the fragmented nature of the industry, we also compete with many other
manufacturers and retailers. Some of our competitors have greater financial resources and larger customer bases
than we have. As a result, these competitors may be able to adapt to changes in customer requirements more
quickly, take advantage of acquisition and other opportunities more readily, devote greater resources to the
marketing and sale of their products, and adopt more aggressive pricing strategies than we can.
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The value of our brands, and our sales, could be diminished if we are associated with negative publicity,
including through actions by our vendors, independent manufacturers, and licensees, over whom we have
limited control.
Although we maintain policies with our vendors, independent manufacturers, and licensees that promote ethical
business practices, and our employees, agents, and third-party compliance auditors periodically visit and monitor
the operations of these entities, we do not control our vendors, independent manufacturers, or licensees, or their
practices. A violation of our vendor policies, licensee agreements, health and safety standards, labor laws, anti-
bribery laws, or other policies or laws by these vendors, independent manufacturers, or licensees could damage
the image and reputation of our brands and could subject us to liability. As a result, negative publicity regarding
us or our brands or products, including licensed products, could adversely affect our reputation and sales.
Further, while we take steps to ensure the reputations of our brands are maintained through license and vendor
agreements, there can be no guarantee that our brand image will not be negatively affected through its association
with products or actions of our licensees or vendors.
Our failure to protect our intellectual property rights could diminish the value of our brand, weaken our
competitive position, and adversely affect our results.
We currently rely on a combination of trademark, unfair competition, and copyright laws, as well as licensing
and vendor arrangements, to establish and protect our intellectual property assets and rights. The steps taken by
us or by our licensees and vendors to protect our proprietary rights may not be adequate to prevent either the
counterfeit production of our products or the infringement of our trademarks or proprietary rights by others. In
addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or
law enforcement practices may not protect our proprietary rights and where third parties may have rights to
conflicting marks, and it may be more difficult for us to successfully challenge the use of our proprietary rights
by other parties in those countries. If we fail to protect and maintain our intellectual property rights, the value of
our brands could be diminished and our competitive position may suffer. Further, third parties may assert
intellectual property claims against us, particularly as we expand our business geographically or through
acquisitions, and any such claim could be expensive and time consuming to defend, regardless of its merit.
Successful infringement claims against us could result in significant monetary liability or prevent us from selling
some of our products, which could have an adverse effect on our results of operations.
We may experience delays, product recalls, or loss of revenues if our products do not meet our quality
standards or applicable regulatory requirements.
From time to time, we receive shipments of product from our third-party vendors that fail to conform to our
quality control standards. A failure in our quality control program may result in diminished product quality,
which in turn may result in increased order cancellations and returns, decreased consumer demand for our
products, or product recalls, any of which may have a material adverse effect on our results of operations and
financial condition. In addition, products that fail to meet our standards, or other unauthorized products, could
end up in the marketplace without our knowledge. This could materially harm our brand and our reputation in the
marketplace.
All of our products are subject to regulations and standards set by various governmental authorities around the
world, including in the United States, Canada, China, Mexico, and the European Union. These regulations and
standards include rules relating to product quality and safety, and may change from time to time. Our inability, or
that of our vendors, to comply on a timely basis with regulatory requirements could result in product recalls, or
significant fines or penalties, which in turn could adversely affect our reputation and sales, and could have an
adverse effect on our results of operations. Issues with respect to the compliance of merchandise we sell with
these regulations and standards, regardless of our culpability or customer concerns about such issues, could result
in damage to our reputation, lost sales, uninsured product liability claims or losses, product recalls, and increased
costs.
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Our business could suffer a material adverse effect from unseasonable or extreme weather conditions.
Our business is susceptible to unseasonable weather conditions, which could influence customer trends,
consumer traffic, and shopping habits. For example, extended periods of unseasonably warm temperatures during
the winter season or cool temperatures during the summer season could affect the timing of and reduce or shift
demand, and thereby could have an adverse effect on our operational results, financial position, and cash flows.
In addition, extreme weather conditions in the areas in which our stores are located could negatively affect our
business, operational results, financial position, and cash flows. For example, frequent or unusually heavy or
intense snowfall, ice storms, floods, hurricanes, or other extreme weather conditions over an extended period
could cause our stores to close for a period of time or permanently, and could make it difficult for our customers
to travel to our stores, which in turn could negatively impact our operational results.
We are and may become subject to various claims and pending or threatened lawsuits, including as a result of
investigations or other proceedings related to previously disclosed investigations.
As previously reported, in 2009 the SEC and the U.S. Attorney’s Office began conducting investigations, with
which the Company cooperated, related to customer margin support provided by the Company, including
undisclosed margin support commitments and related matters. In December 2010, the Company and the SEC
entered into a non-prosecution agreement pursuant to which the SEC agreed not to charge the Company with any
violations of federal securities laws, commence any enforcement action against the Company, or require the
Company to pay any financial penalties in connection with the SEC investigation of customer margin support
provided by the Company, conditioned upon the Company’s continued cooperation with the SEC’s investigation
and with any related proceedings. The Company has incurred, and may continue to incur, substantial expenses
for legal services due to the SEC and U.S. Attorney’s Office investigations and any related proceedings. These
matters may continue to divert management’s time and attention away from operations. The Company also
expects to bear additional costs pursuant to its advancement and indemnification obligations to directors and
officers under the terms of our organizational documents in connection with proceedings related to these matters.
Our insurance may not provide coverage to offset all of the costs incurred in connection with these proceedings.
In addition, we are subject to various other claims and pending or threatened lawsuits in the course of our
business, including claims that our designs infringe on the intellectual property rights of third parties. We are also
affected by trends in litigation, including class action litigation brought under various laws, including consumer
protection, employment, and privacy and information security laws. In addition, litigation risks related to claims
that technologies we use infringe intellectual property rights of third parties have been amplified by the increase
in third parties whose primary business is to assert such claims. Reserves are established based on our best
estimates of our potential liability. However, we cannot accurately predict the ultimate outcome of any such
proceedings due to the inherent uncertainties of litigation. Regardless of the outcome or whether the claims are
meritorious, legal and regulatory proceedings may require that management devote substantial time and expense
to defend the Company. In the event we are required or determine to pay amounts in connection with any such
lawsuits, such amounts could exceed any applicable insurance coverage or contractual rights available to us. As a
result, such lawsuits could be significant and have a material adverse impact on our business, financial condition,
and results of operations.
Our and our vendors’ systems containing personal information and payment card data of our retail store and
eCommerce customers, employees, and other third parties could be breached, which could subject us to
adverse publicity, costly government enforcement actions or private litigation, and expenses.
We rely on the security of our networks, databases, systems, and processes and, in certain circumstances, those of
third parties, to protect our proprietary information and information about our customers, employees, and
vendors. Criminals are constantly devising schemes to circumvent information technology security safeguards
and other retailers have recently suffered serious data security breaches. If unauthorized parties gain access to our
networks or databases, or those of our vendors, they may be able to steal, publish, delete, or modify our private
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and sensitive internal and third-party information, including credit card information and personal identification
information. In addition, employees may intentionally or inadvertently cause data or security breaches that result
in unauthorized release of personal or confidential information. In such circumstances, we could be held liable to
our customers, other parties, or employees as well as be subject to regulatory or other actions for breaching
privacy law or failing to adequately protect such information. This could result in costly investigations and
litigation exceeding applicable insurance coverage or contractual rights available to us, civil or criminal
penalties, operational changes, or other response measures, loss of consumer confidence in our security
measures, and negative publicity that could adversely affect our financial condition, results of operations, and
reputation. Further, if we are unable to comply with the security standards, established by banks and the payment
card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which
could adversely affect our retail operations.
Our profitability may decline as a result of increasing pressure on margins, including deflationary pressures
on our selling price and increases in production costs.
The apparel industry is subject to pricing pressure caused by many factors, including intense competition, the
promotional retail environment, and changes in consumer demand. The demand for baby and young children’s
apparel and accessories in particular may also be subject to other external factors, such as birth rates, and the
costs of our products, which are driven in part by the costs of raw materials (including cotton and other
commodities), labor, fuel, and transportation, as well as general inflationary pressures. If external pressures cause
us to reduce our sales prices and we fail to sufficiently reduce our product costs or operating expenses, or if we
are unable to fully pass on increased costs to our customers, our profitability could decline. This could have a
material adverse effect on our results of operations, liquidity, and financial condition.
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Our revenues, product costs, and other expenses are subject to foreign economic and currency risks due to our
operations outside of the United States.
We have operations in Canada, Mexico, the European Union, and Asia, and our vendors, independent
manufacturers, and licensees are located around the world. The value of the U.S. dollar against other foreign
currencies has seen significant volatility in recent years. While our business is primarily conducted in U.S.
dollars, we source substantially all of our production from Asia, and we generate significant revenues in Canada.
Cost increases caused by currency exchange rate fluctuations could make our products less competitive or have a
material adverse effect on our profitability. Currency exchange rate fluctuations could also disrupt the business of
our independent manufacturers that produce our products by making their purchases of raw materials or products
more expensive and more difficult to finance. Additionally, fluctuations in exchange rates impact the amount of
our reported sales and expenses, which could have a material adverse effect on our financial position, results of
operations, and cash flows.
We source substantially all of our products through foreign production arrangements. Our dependence on
foreign supply sources are subject to risks associated with global sourcing and manufacturing which could
result in disruptions to our operations.
We source substantially all of our products through a network of vendors primarily in Asia, principally
coordinated by our Hong Kong sourcing office. Our foreign supply chain could be negatively affected due to a
number of factors, including:
•
•
financial instability, including bankruptcy or insolvency, of one or more of our major vendors;
the imposition of new regulations relating to imports, duties, taxes, and other charges on imports,
including those that the U.S. government has and may implement on imports from China;
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increased costs of raw materials (including cotton and other commodities), labor, fuel, and
transportation;
political instability or other global events resulting in the disruption of trade in foreign countries from
which we source our products;
interruptions in the supply of raw materials, including cotton, fabric, and trim items;
increases in the cost of labor in our sourcing locations;
the occurrence of a natural disaster, unusual weather conditions, or a disease epidemic in foreign
countries from which we source our products;
changes in the U.S. customs procedures concerning the importation of apparel products;
unforeseen delays in customs clearance of any goods;
disruptions in the global transportation network, such as a port strike, work stoppages or other labor
unrest, capacity withholding, world trade restrictions, acts of terrorism, or war;
the application of adverse foreign intellectual property laws;
the ability of our vendors to secure sufficient credit to finance the manufacturing process, including
the acquisition of raw materials;
potential social compliance concerns resulting from our use of international vendors, independent
manufacturers, and licensees, over whom we have limited control;
manufacturing delays or unexpected demand for products may require the use of faster, but more
expensive, transportation methods, such as air-freight services;
the use of “conflict minerals” sourced from the Democratic Republic of the Congo or its surrounding
countries in our products; and
other events beyond our control that could interrupt our supply chain and delay receipt of our products
into the United States.
The occurrence of one or more of these events could result in disruptions to our operations, which in turn could
increase our cost of goods sold, decrease our gross profit, or impact our ability to deliver to our customers.
A relatively small number of vendors supply a significant amount of our products, and losing one or more of
these vendors could have a material adverse effect on our business.
In fiscal 2018, we purchased approximately 70% of our products from ten vendors, of which approximately half
comes from three vendors. We expect that we will continue to source a significant portion of our products from
these vendors. We do not have agreements with our major vendors that would provide us with assurances on a
long-term basis as to adequate supply or pricing of our products. If any of our major vendors decide to
discontinue or significantly decrease the volume of products they manufacture for us, raise prices on products we
purchase from them, or become unable to perform their responsibilities (e.g., if our vendors experience financial
difficulties, lack of manufacturing capacity or significant labor disputes) our business, results of operations, and
financial condition may be adversely affected.
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Labor or other disruptions along our supply chain may adversely affect our relationships with customers,
reputation with consumers, and results of operations.
Our business depends on our ability to source and distribute products in a timely manner. Labor disputes at third
party factories where our goods are produced, the shipping ports we use, or our transportation carriers create
significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or
other disruptions during our peak manufacturing and importing times. For example, we source a significant
portion of our products through a single port on the west coast of the United States. Work slowdowns and
stoppages relating to labor agreement negotiations involving the operators of our west coast port and unions have
in the past resulted in a significant backlog of cargo containers entering the United States. The insolvency of
major shipping companies have also had an effect on our supply chain. As a result, we have in the past
experienced delays in the shipment of our products. In the event that these slow-downs, disruptions or strikes
occur in the future in connection with labor agreement negotiations or otherwise, it may have a material adverse
effect on our financial position, results of operations, or cash flows.
Our inability to effectively source inventory could negatively impact our ability to timely deliver our inventory
supply and disrupt our business, which may adversely affect our operating results.
We source all of our garments and other products from a global network of third party suppliers. If we experience
significant increases in demand, or need to replace an existing vendor or shift production to vendors in new
countries, there can be no assurance that additional manufacturing capacity will be available when required on
terms that are acceptable to us or that any vendor would allocate sufficient capacity to us in order to meet our
requirements. In addition, for any new vendors, we may encounter delays in production and added costs as a
result of the time it takes to train our vendors in producing our products and adhering to our quality control
standards. Moreover, in the event of a significant disruption in the supply of the fabrics or raw materials used by
our vendors in the manufacture of our products, our vendors might not be able to locate alternative suppliers of
materials of comparable quality at an acceptable price. Any delays, interruption, or increased costs in the
manufacture of our products could have a material adverse effect on our operating results.
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Profitability and our reputation and relationships could be negatively affected if we do not adequately forecast
the demand for our products and, as a result, create significant levels of excess inventory or insufficient levels
of inventory.
There can be no assurance that we will be able to successfully anticipate changing consumer preferences and
product trends or economic conditions and, as a result, we may not successfully manage inventory levels to meet
our future order requirements. If we fail to accurately forecast consumer demand, we may experience excess
inventory levels or a shortage of product required to meet the demand. Inventory levels in excess of consumer
demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could
have an adverse effect on the image and reputation of our brands and negatively impact profitability. On the
other hand, if we underestimate demand for our products, our manufacturing facilities or third-party
manufacturers may not be able to produce products to meet consumer requirements, and this could result in
delays in the shipment of products and lost revenues, as well as damage to our reputation and relationships.
These risks could have a material adverse effect on our brand image, as well as our results of operations and
financial condition.
We expect to make significant capital investments and have significant expenses related to our omni-channel
sales strategy and failure to execute our strategy could have a material adverse effect on how we meet
consumer expectations.
We distribute our products through multiple channels in the children’s apparel market, which, as of
December 29, 2018, included 844 stores in the United States (which excludes five temporary Skip Hop stores
that were closed in January 2019), 188 stores in Canada, 42 stores in Mexico, over 17,000 wholesale locations in
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the United States (including department stores, national chain stores, specialty stores and discount retailers), our
eCommerce sites in the United States, Canada, and China, as well as our other international wholesale accounts
and licensees. Our muli-channel global business model, which includes retail store, e-commerce, and wholesale
sales channels, enables us to reach a broad range of consumers around the world.
This strategy has and will continue to require significant investment in cross-functional operations and
management focus, along with investment in supporting technologies. Omni-channel retailing is rapidly evolving
and we must anticipate and meet changing customer expectations and counteract new developments and
technology investments by our competitors. Our omni-channel retailing strategy includes implementing new
technology, software, and processes to be able to fulfill customer orders from any point within our system of
stores and distribution centers, which is extremely complex and may not meet customer expectations for timely
and accurate deliveries. If we are unable to attract and retain employees or contract with third-parties having the
specialized skills needed to support our multi-channel efforts, implement improvements to our customer-facing
technology in a timely manner, allow real-time and accurate visibility to product availability when customers are
ready to purchase, quickly and efficiently fulfill our customers’ orders using the fulfillment and payment
methods they demand, or provide a convenient and consistent experience for our customers regardless of the
ultimate sales channel, our ability to compete and our results of operations could be adversely affected. In
addition, if our retail eCommerce sites or our other customer-facing technology systems do not appeal to our
customers, reliably function as designed, or maintain the privacy of customer data, or if we are unable to
consistently meet our brand and delivery promises to our customers, we may experience a loss of customer
confidence or lost sales, or be exposed to fraudulent purchases, which could adversely affect our reputation and
results of operations.
Our retail success is dependent upon identifying locations and negotiating appropriate lease terms for retail
stores.
A significant portion of our revenues are through our retail stores in leased retail locations across the United
States, Canada, and Mexico. Successful operation of a retail store depends, in part, on the overall ability of the
retail location to attract a consumer base sufficient to make store sales volume profitable. If we are unable to
identify new retail locations with consumer traffic sufficient to support a profitable sales level, our retail growth
may be limited. Further, if existing stores do not maintain a sufficient customer base that provides a reasonable
sales volume or we are unable to negotiate appropriate lease terms for the retail stores, there could be a material
adverse impact on our sales, gross margin, and results of operations. In addition, if consumer shopping
preferences transition more from brick-and-mortar stores to online retail experiences, any increase we may see in
our eCommerce sales may not be sufficient to offset the decreases in sales from our brick-and-mortar stores.
We also must be able to effectively renew our existing store leases on acceptable terms. In addition, from time to
time, we may seek to downsize, consolidate, reposition, or close some of our real estate locations, which in most
cases requires a modification of an existing store lease. Failure to renew existing store leases, secure adequate
new locations, or successfully modify existing locations, or failure to effectively manage the profitability of our
existing fleet of stores, could have a material adverse effect on our results of operations.
Additionally, the economic environment may at times make it difficult to determine the fair market rent of real
estate properties within the United States and internationally. This could impact the quality of our decisions to
exercise lease options and renew expiring leases at negotiated rents. Any adverse effect on the quality of these
decisions could impact our ability to retain real estate locations adequate to meet our targets or efficiently
manage the profitability of our existing fleet of stores, and could have a material adverse effect on our results of
operations.
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Our eCommerce business faces distinct risks, and our failure to successfully manage it could have a negative
impact on our profitability.
The successful operation of our eCommerce business as well as our ability to provide a positive shopping
experience that will generate orders and drive subsequent visits depends on efficient and uninterrupted operation
of our order-taking and fulfillment operations. Risks associated with our eCommerce business include:
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the failure of the computer systems, including those of third-party vendors, that operate our
eCommerce sites including, among others, inadequate system capacity, computer viruses, human
error, changes in programming, security breaches, system upgrades or migration of these services to
new systems;
disruptions in telecom services or power outages;
reliance on third parties for computer hardware and software, as well as delivery of merchandise to
our customers on-time and without damage;
rapid technology changes;
the failure to deliver products to customers on-time and within customers’ expectations;
credit or debit card fraud;
the diversion of sales from our physical stores;
natural disasters or adverse weather conditions;
changes in applicable federal, state and international regulations;
liability for online content; and
consumer privacy concerns and regulation.
Problems in any of these areas could result in a reduction in sales, increased costs and damage to our reputation
and brands, which could adversely affect our business and results of operations.
We may be unsuccessful in expanding into international markets.
We cannot be sure that we can successfully complete any planned international expansion or that new
international business will be profitable or meet our expectations. We do not have significant experience
operating in markets outside of the United States and Canada. Consumer demand, behavior, tastes, and
purchasing trends may differ in international markets and, as a result, sales of our products may not be successful
or meet our expectations, or the margins on those sales may not be in line with those we currently anticipate. We
may encounter differences in business culture and the legal environment that may make working with
commercial partners and hiring and retaining an adequate employee base more challenging. We may also face
difficulties integrating foreign business operations with our current operations. Significant changes in foreign
relations, such as the withdrawal of the United Kingdom from the European Union and potential trade wars
between nations in which we operate, may also hinder our success in new markets. Our entry into new markets
may have upfront investment costs that may not be accompanied by sufficient revenues to achieve typical or
expected operational and financial performance and such costs may be greater than expected. If our international
expansion plans are unsuccessful, our results could be materially adversely affected.
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Our results of operations, financial position, and cash flows, and our ability to conduct business in
international markets may be affected by legal, regulatory, political, and economic risks.
Our ability to conduct business in new and existing international markets is subject to legal, regulatory, political,
and economic risks. These include the burdens of complying with foreign laws and regulations (including trade
and labor restrictions), unexpected changes in regulatory requirements, and new tariffs or other barriers in some
international markets. Additionally, the U.S. Foreign Corrupt Practices Act, and similar world-wide anti-bribery
laws, prohibit companies and their intermediaries from making improper payments to government officials for
the purpose of obtaining or retaining business. Our policies mandate compliance with anti-bribery laws. Our
internal control policies and procedures, or those of our vendors, may not adequately protect us from reckless or
criminal acts committed by our employees, agents, or vendors. Violations of these laws, or allegations of such
violations, could disrupt our business and result in a material adverse effect on our financial condition, results of
operations, and cash flows.
We are also subject to general political and economic risks in connection with our global operations, including
political instability and terrorist attacks, differences in business culture, different laws governing relationships
with employees and business partners, changes in diplomatic and trade relationships, and general economic
fluctuations in specific countries or markets.
We may not achieve sales growth plans, cost savings, and other assumptions that support the carrying value of
our intangible assets.
The carrying values of our goodwill and tradename assets are subject to annual impairment reviews as of the last
day of each fiscal year or more frequently, if deemed necessary, due to any significant events or changes in
circumstances. Estimated future cash flows used in these impairment reviews could be negatively affected if we
do not achieve our sales plans and planned cost savings. Other assumptions that support the carrying value of
these intangible assets, including a deterioration of macroeconomic conditions which would negatively affect the
cost of capital and/or discount rates, could also result in impairment of the remaining asset values. Any material
impairment would adversely affect our results of operations.
We have substantial debt, which could adversely affect our financial health and our ability to obtain financing
in the future and to react to changes in our business.
As of December 29, 2018, we had $596.0 million aggregate principal amount of debt outstanding (excluding
$5.0 million of outstanding letters of credit), and $549.0 million of undrawn availability under our senior secured
revolving credit facility after giving effect to $5.0 million of letters of credit issued under our senior secured
revolving credit facility. As a result, our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, debt service requirements, or general corporate or other purposes may be limited, and
we may be unable to renew or refinance our debt on terms as favorable as our existing debt or at all.
If our cash flows and capital resources are insufficient to fund our debt service obligations and other cash
requirements, we could be forced to reduce or delay investments and capital expenditures or to sell assets or
operations, seek additional capital, or restructure or refinance our indebtedness. We may not be able to effect any
such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such
alternative actions may not allow us to meet our scheduled debt service obligations. In the absence of such
operating results and resources, we could face substantial liquidity problems and might be required to dispose of
material assets or operations to meet our debt service and other obligations.
In addition, both our senior secured revolving credit facility and indenture governing the senior notes contain
restrictive covenants that, subject to specified exemptions, restrict our ability to incur indebtedness, grant liens,
make certain investments (including business acquisitions), pay dividends or distributions on our capital stock,
engage in mergers, dispose of assets and use the proceeds from any such dispositions, and raise debt or equity
capital to be used to repay other indebtedness when it becomes due. These restrictions may limit our ability to
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engage in acts that may be in our long-term best interests, and may make it difficult for us to execute our
business strategy successfully or effectively compete with companies that are not similarly restricted. In
particular, we cannot guarantee that we will have sufficient cash from operations, borrowing capacity under our
debt documents, or the ability to raise additional funds in the capital markets to pursue our growth strategies as a
result of these restrictions or otherwise. We may also incur future debt obligations that might subject us to
additional restrictive covenants that could affect our financial and operational flexibility.
Our success is dependent upon retaining key individuals within the organization to execute our strategic plan.
Our ability to attract and retain qualified executive management, marketing, merchandising, design, sourcing,
operations, and support function staffing is key to our success. If we are unable to attract and retain qualified
individuals in these areas, this may result in an adverse impact on our growth and results of operations. Our
inability to retain personnel could cause us to experience business disruption due to a loss of historical
knowledge and a lack of business continuity and may adversely affect our results of operations, financial
position, and cash flows.
Our failure to properly manage strategic initiatives in order to achieve our objectives may negatively impact
our business.
The implementation of our business strategy periodically involves the execution of complex initiatives, such as
acquisitions, which may require that we make significant estimates and assumptions about a project, and these
projects could place significant demands on our accounting, financial, information, and other systems, and on our
business overall. In addition, we are dependent on our management ability to oversee these projects effectively
and implement them successfully. If our estimates and assumptions about a project are incorrect, or if we
miscalculate the resources or time we need to complete a project or fail to implement a project effectively, our
business and operating results could be adversely affected.
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We may be unable to successfully integrate acquired businesses and such acquisitions may fail to achieve the
financial results we expected.
From time to time we may acquire other businesses as part of our growth strategy, such as our acquisitions of the
Skip Hop brand and our Mexican licensee in fiscal 2017, and we may partially or fully fund future acquisitions
by taking on additional debt. We may be unable to successfully integrate businesses we acquire and such
acquisitions may fail to achieve the financial results we expected. Integrating completed acquisitions into our
existing operations, particularly larger acquisitions, involves numerous risks, including harmonizing divergent
technology platforms, diversion of our management attention, failure to retain key personnel, and failure of the
acquired business to be financially successful. In addition, we cannot be certain of the extent of any unknown or
contingent liabilities of any acquired business, including liabilities for failure to comply with applicable laws,
including those relating to product safety or anti-bribery and anti-corruption. We may incur material liabilities
for past activities of acquired businesses. Also, depending on the location of the acquired business, we may be
required to comply with laws and regulations that may differ from those of the jurisdictions in which our
operations are currently conducted. Our inability to successfully integrate businesses we acquire, or if such
businesses do not achieve the financial results we expect, may increase our costs and have a material adverse
impact on our financial condition and results of operations.
Failure to implement new information technology systems or needed upgrades to our systems, including
operational and financial systems, could adversely affect our business.
As our business has grown in size, complexity, and geographic footprint, we have enhanced and upgraded our
information technology infrastructure and we expect there to be a regular need for additional enhancements and
upgrades as we continue to grow. Failure to implement new systems or upgrade systems, including operational
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and financial systems, as needed or complications encountered in implementing new systems or upgrading
existing systems could cause disruptions that may adversely affect our business and results of operations.
Further, additional investments needed to upgrade and expand our information technology infrastructure may
require significant investment of additional resources and capital, which may not always be available or available
on favorable terms.
Our Braselton, Georgia distribution facility handles a large portion of our merchandise distribution. If we
encounter problems with this facility, our ability to deliver our products to the market could be adversely
affected.
We handle a large portion of our merchandise distribution for our U.S. stores and our eCommerce operations
from our facility in Braselton, Georgia. Our ability to meet consumer expectations, manage inventory, complete
sales, and achieve objectives for operating efficiencies depends on proper operation of this facility. If we are not
able to distribute merchandise to our stores or customers because we have exceeded our capacity at the
distribution facility (such as a high level of demand during peak periods) or because of natural disasters,
accidents, system failures, disruptions, or other events, our sales could decline, which may have a materially
adverse effect on our earnings, financial position, and our reputation. In addition, we use an automated system
that manages the order processing for our eCommerce business. In the event that this system becomes inoperable
for any reason, we may be unable to ship orders in a timely manner, and as a result, we could experience a
reduction in our direct-to-consumer business, which could negatively impact our sales and profitability.
Failure to comply with the various laws and regulations as well as changes in laws and regulations could have
an adverse impact on our reputation, financial condition, or results of operations.
We must comply with various laws and regulations, including applicable employment, privacy and consumer
protection laws. Our policies, procedures, and internal controls are designed to help us comply with all applicable
foreign and domestic laws, accounting and reporting requirements, regulations, and tax requirements, including
those imposed by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the SEC, and the New York Stock Exchange (“NYSE”) as well as other laws. Our failure to comply with
these various laws and regulations could have an adverse impact on our reputation, financial condition, or results
of operations.
In addition, any changes in regulations, the imposition of additional regulations or the enactment of any new
legislation that affects employment and labor, trade, product safety, data privacy, transportation and logistics,
health care, tax, privacy, operations, or environmental issues, among other things, may increase the complexity
of the regulatory environment in which we operate and the related cost of compliance. Although we undertake to
monitor changes in these laws, if these laws change without our knowledge, or are violated by importers,
designers, manufacturers, distributors, or agents, we could experience delays in shipments and receipt of goods,
or be subject to fines or other penalties under the controlling regulations, any of which could negatively affect the
our business and results of operations.
We may experience fluctuations in our tax obligations and effective tax rate.
We are subject to income taxes in federal and applicable state and local tax jurisdictions in the United States,
Canada, Hong Kong, Mexico, and other foreign jurisdictions. We record tax expense based on our estimates of
current and future payments, which include reserves for estimates of uncertain tax positions. At any time, many
tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with
taxing authorities may impact the ultimate settlement of these tax positions. As a result, there could be ongoing
variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, our effective
tax rate in any financial statement period may be materially affected by changes in the mix and level of earnings.
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In December 2017, the U.S. government enacted tax law changes known as the Tax Cuts and Jobs Act (the “2017
Tax Act”). The 2017 Tax Act significantly effects U.S. taxation for multinational corporations. The major
implementation provisions of the 2017 Tax Act include a one-time transition tax on earnings of certain foreign
subsidiaries that were previously tax deferred and the remeasurement of certain deferred income tax balances. As
permitted by Staff Accounting Bulletin No. 118, we made provisional estimates in our fiscal 2017 financial
statements, and completed our accounting for the enactment of the 2017 Tax Act in fiscal 2018. The adjustment
to our provisional estimates recorded in 2018 was not material. Other provisions of the 2017 Tax Act include a
reduction in the U.S. corporate tax rate, certain provisions to broaden the U.S. tax base, imposition of a minimum
tax on income earned by foreign subsidiaries, an incentive for foreign sourced income earned by US entities and
an incentive to encourage the repatriation of foreign sourced income. In conjunction with the 2017 Tax Act, the
Internal Revenue Service has issued numerous regulations, and has expressed an intention to issue additional
guidance during the first half of 2019. This guidance is expected to be applied retroactively to fiscal 2017. We
have considered the impact of the 2017 Tax Act on our 2018 financial condition and results of operations.
However, we continue to assess the effects that additional IRS regulations, notices, and other guidance will have
on our business, financial condition, or results of operations in future periods.
Various states have selectively adapted certain provisions of the 2017 Tax Act, and other states have expressed
that they continue to evaluate the impact this tax law has on state revenue. We anticipate that states will continue
to legislatively adopt certain provisions of the 2017 Tax Act that may impact our state tax liability for current and
deferred state taxes in the period adopted. In addition, following a decision by the US Supreme Court in 2018,
states may have additional ability to tax entities operating in each state, but lacking physical presence. This case
and state’s response to its findings may impact our business, financial condition, or results of operations in future
periods.
We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States
or foreign countries upon the import or export of our products in the future, or what effect any of these actions
would have, if any, on our business, financial condition, or results of operations. Changes in regulatory,
geopolitical, social or economic policies, treaties between the United States and other countries, and other factors
may have a material adverse effect on our business in the future or may require us to exit a particular market or
significantly modify our current business practices.
In addition, during the requisite service period for compensable equity-based compensation awards that we may
grant to certain employees, we recognize a deferred income tax benefit on the compensation expense we incur for
these awards for all employees other than our named executive officers. At time of subsequent vesting, exercise,
or expiration of an award, the difference between our actual income tax deduction, if any, and the previously
accrued income tax benefit is recognized in our income tax expense/benefit during the current period and can
consequently raise or lower our effective tax rate for the period. Such differences are largely dependent on
changes in the market price for our common stock.
Failure to continue to pay quarterly cash dividends to our shareholders could cause the market price for our
common stock to decline.
We currently pay a quarterly cash dividend. Future declarations of quarterly cash dividends and the establishment
of future record and payment dates are at the discretion of our Board of Directors based on a number of factors,
including our future financial performance and other investment priorities. Additionally, provisions in our senior
credit facility and the indenture governing our senior notes could have the effect of restricting our ability to pay
future cash dividends on, or make future repurchases of, our common stock. Any reduction or discontinuance by
us of the payment of quarterly cash dividends could cause the market price of our common stock to decline.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The following is a summary of our principal owned and leased properties as of December 29, 2018.
Our corporate headquarters occupies 304,000 square feet of leased space in a building in Atlanta, Georgia. Our
lease for that space expires in April 2030. In addition, we occupy 28,000 square feet of leased space in a building
in Mississauga, Ontario, which serves as our regional headquarters for Canada, and occupy 56,000 square feet of
leased space in Hong Kong, China, which serves as our principal sourcing office in Asia. We also lease other
space in Georgia, Wisconsin, and New York, as well as in Bangladesh, Cambodia, China, Mexico, and the
United Kingdom that, depending on the site, serves as a sourcing, sales, or administrative office. We also own a
224,000 square foot facility in Griffin, Georgia.
Our largest distribution centers, which we lease, are located in Braselton, Georgia and Stockbridge, Georgia, and
are 1,062,000 and 505,000 square feet, respectively. We lease additional space in Canada and Mexico for
distribution and warehousing purposes. We also use third-party logistics providers in various territories,
including California and China, to provide warehousing and distribution services.
We also operate the following number of leased retail stores: 844 in the United States (excluding five temporary
Skip Hop stores that were closed in January 2019); 188 in Canada; and 42 in Mexico. Our average remaining
lease term for retail store leases in the United States is approximately 4.9 years, excluding renewal options.
ITEM 3.
LEGAL PROCEEDINGS
We are subject to various claims and pending or threatened lawsuits in the normal course of our 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
HISTORICAL STOCK PRICE AND NUMBER OF RECORD HOLDERS
Our common stock trades on the New York Stock Exchange (NYSE) under the symbol CRI. The last reported
sale price per share of our common stock on February 19, 2019 was $89.62. On that date there were 181 holders
of record of our common stock.
SHARE REPURCHASES
The following table provides information about shares repurchased through our repurchase program described
below during the fourth quarter of fiscal 2018:
Period
Total number
of shares
purchased
(*)
Average
price paid
per share
Total number of
shares
purchased as
part of publicly
announced plans
or programs
Approximate
dollar value of
remaining
shares that can
be purchased
under the plans
or programs
September 30, 2018 through October 27, 2018 . . . . . .
257,460
$97.07
257,460
$415,155,995
October 28, 2018 through November 24, 2018 . . . . . .
90,182
$93.30
89,296
$406,824,924
November 25, 2018 through December 29, 2018 . . . .
168,353
$84.42
168,353
$392,612,940
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
515,995
515,109
(*) Includes shares of our common stock surrendered by our employees to satisfy required tax withholding
upon the vesting of restricted stock awards. There were 886 shares surrendered between October 28, 2018
and December 29, 2018.
Share Repurchase Program
Prior to 2016, our Board of Directors authorized the repurchase of shares of our common stock in amounts up to
$462.5 million. On both February 26, 2016 and February 22, 2018, our Board of Directors authorized an
additional $500 million of share repurchases, thereby authorizing total repurchase amounts up to
$1,462.5 million. These authorizations are in addition to the $400 million authorized in 2013 for the Company’s
completed accelerated share repurchase (ASR) program. The total remaining capacity under the repurchase
authorizations was approximately $392.6 million as of December 29, 2018.
Open-market repurchases of our common stock during fiscal years 2018, 2017, and 2016 were as follows:
Fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,879,529
2,103,401
3,049,381
Aggregate cost of shares repurchased (dollars in thousands) . . . . . . .
$ 193,028
$ 188,762
$ 300,445
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
102.70
$
89.74
$
98.53
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In addition to the open-market repurchases completed in fiscal years 2018, 2017, and 2016, we completed open-
market repurchases totaling $387.6 million in fiscal years prior to 2016.
Repurchases under the authorizations may be made in the open market or in privately-negotiated transactions,
with the level and timing of such activity at the discretion of our management depending on market conditions,
stock price, other investment priorities, and other factors. The share repurchase authorizations have no expiration
dates.
DIVIDENDS
On February 14, 2019, our Board of Directors authorized a quarterly cash dividend payment of $0.50 per
common share, payable on March 22, 2019 to shareholders of record at the close of business on March 12, 2019.
In fiscal 2018, we paid quarterly cash dividends of $0.45 per share each quarter. In fiscal 2017, we paid quarterly
cash dividends of $0.37 per share each quarter.
Future declarations of quarterly dividends and the establishment of future record and payment dates are at the
discretion of our Board of Directors based on a number of factors, including our future financial performance and
other investment priorities.
Provisions in our secured revolving credit facility and indenture governing our senior notes could have the effect
of restricting our ability to pay future cash dividends on or make future repurchases of our common stock. For
more information concerning these dividend restrictions, refer to the “Financial Condition, Capital Resources,
and Liquidity” section of Item 7 in this Annual Report on Form 10-K.
RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
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ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial and other data has been derived from our consolidated financial statements for
each of the five fiscal years presented. The following information should be read in conjunction with Item 7—
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8-“Financial
Statements and Supplementary Data” which includes the consolidated financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K, or the respective prior fiscal years’ Form 10-K.
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 years. All fiscal years for which financial information is
set forth below contained 52 weeks, except for the fiscal year ended January 3, 2015, which contained 53 weeks.
(dollars in thousands, except per share data)
For the fiscal year ended
December 29,
2018
December 30,
2017
(4)
December 31,
2016
(4)
January 2,
2016
January 3,
2015
Operating Data:
U.S. Retail
U.S. Wholesale . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,851,193 $ 1,775,378 $ 1,655,784 $ 1,514,355 $ 1,422,305
1,155,089
316,474
1,178,034
364,725
1,209,663
415,463
1,173,313
326,211
1,180,687
430,389
Total net sales . . . . . . . . . . . . . . . . . . . . . $ 3,462,269 $ 3,400,504 $ 3,198,543 $ 3,013,879 $ 2,893,868
6.06 $
6.00 $
391,433 $
355,975 $
282,068 $
419,607 $
391,072 $
302,848 $
392,857 $
368,188 $
237,822 $
425,928 $
395,440 $
257,709 $
Cost of goods sold . . . . . . . . . . . . . . . . . . . $ 1,964,786 $ 1,917,150 $ 1,820,024 $ 1,755,855 $ 1,709,428
. . . . . . . . . . . . . . . . . . . . . . . . $ 1,497,483 $ 1,483,354 $ 1,378,519 $ 1,258,024 $ 1,184,440
Gross profit
333,345
Operating income . . . . . . . . . . . . . . . . . . . . $
302,906
Income before income taxes . . . . . . . . . . . $
194,670
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $
Per Common Share Data:
Basic net income . . . . . . . . . . . . . . . . . . . . $
Diluted net income . . . . . . . . . . . . . . . . . . . $
Balance Sheet Data:
Working capital (1) (2) (3) . . . . . . . . . . . . . $
792,675
Total assets (2) (3) . . . . . . . . . . . . . . . . . . . $ 2,058,858 $ 2,071,042 $ 1,949,037 $ 2,003,654 $ 1,886,825
579,728
Total debt, net (2) . . . . . . . . . . . . . . . . . . . . $
Stockholders’ equity . . . . . . . . . . . . . . . . . $
786,684
Cash Flow Data:
369,229 $
282,397
307,987 $
Net cash provided by operating activities . . $
(88,340) $ (103,425) $ (104,732)
Net cash used in investing activities . . . . . $
Net cash used in financing activities . . . . . $ (298,946) $ (223,075) $ (363,507) $ (162,005) $ (122,438)
Other Data:
Capital expenditures . . . . . . . . . . . . . . . . . . $
Dividend declared and paid per common
356,198 $
329,621 $
(63,307) $ (227,915) $
593,264 $
869,433 $
617,306 $
857,416 $
580,376 $
788,363 $
578,972 $
875,051 $
6.31 $
6.24 $
5.12 $
5.08 $
4.55 $
4.50 $
689,464 $
715,537 $
779,717 $
867,890 $
103,497 $
3.65
3.62
88,556 $
69,473 $
63,783 $
103,453
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.80 $
1.48 $
1.32 $
0.88 $
0.76
(1) Represents total current assets less total current liabilities.
(2) All periods have been adjusted to reflect the retrospective adoption of Accounting Standards Update
No. 2015-03, Presentation of Debt Issuance Cost for Term Debt.
(3) Fiscal 2017 reflects the prospective adoption of Accounting Standards Update No. 2015-17, Balance Sheet
Classification of Deferred Taxes.
(4) Fiscal 2017 and 2016 reflect the retrospective adoption of Accounting Standards Codification No. 606,
Revenue from Contracts with Customers.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of our results of operations and current financial condition. You should read this
discussion in conjunction with our consolidated historical financial statements and notes included elsewhere in
this Annual Report on Form 10-K. Our discussion of our results of operations and financial condition includes
various forward-looking statements about our markets, the demand for our products and services, and our future
results. We based these statements on assumptions that we consider reasonable. Actual results may differ
materially from those suggested by our forward-looking statements for various reasons including those discussed
in the “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Those risk factors expressly qualify all
subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. Except
for any ongoing obligations to disclose material information as required by the federal securities laws, we do not
have any intention or obligation to update forward-looking statements after we file this Annual Report on
Form 10-K.
Fiscal Years
Our “52/53 week” fiscal year ends on the Saturday in December or January nearest December 31, resulting in an
additional 53rd week of results every five or six years. Fiscal 2018, 2017, and 2016 each contained 52 calendar
weeks and ended on December 29, 2018, December 30, 2017, and December 31, 2016, respectively.
Our Business
We are the largest branded marketer in North America of apparel exclusively for babies and young children. We
own two of the most highly recognized and most trusted brand names in the children’s apparel industry, Carter’s
and OshKosh B’gosh (or “OshKosh”), and a leading baby and young child lifestyle brand, Skip Hop.
Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel for
children in sizes newborn to 14 and accessories.
Established in 1895, OshKosh is a well-known brand, trusted by consumers for apparel for children in sizes
newborn to 14, with a focus on playclothes for toddlers and young children, and accessories.
Established in 2003, the Skip Hop brand takes durable childhood necessities, and re-thinks, re-energizes, and
re-imagines them to produce higher value, superior quality, and top-performance goods for parents, babies, and
toddlers. We acquired the Skip Hop brand in February 2017.
Our vision is to be the leader in baby and young children’s apparel and accessories, and to consistently provide
high-quality products at a compelling value to consumers. We believe our brands provide a complementary
product offering and aesthetic, and are each uniquely positioned in the marketplace. In the approximately
$21 billion baby and young children’s apparel market ages zero to seven in the U.S., our Carter’s brand has the
#1 position with approximately 14% of market share and our OshKosh brand has approximately 2% market
share.
Our multi-channel global business model—which includes retail store, e-commerce, and wholesale sales
channels—enables us to reach a broad range of consumers around the world. As of December 29, 2018, our
channels included 844 stores in the United States (excluding five temporary Skip Hop stores that were closed in
January 2019), 188 stores in Canada, 42 stores in Mexico, over 17,000 wholesale locations in the United States
(including department stores, national chain stores, specialty stores and discount retailers), our eCommerce sites
in the United States, Canada, and China, as well as our other international wholesale, licensing, and online
channels.
26
We have extensive experience in the young children’s apparel and accessories market and focus on delivering
products that satisfy our consumers’ needs. Our long-term growth strategy is focused on:
providing the best value and experience in young children’s apparel and accessories;
extending the reach of our brands by improving the convenience of shopping for our products, and our
omni-channel experience, as well as expanding our international operations;
improving profitability by strengthening distribution and direct-sourcing capabilities, as well as
inventory management disciplines; and
investing in new sources of growth.
•
•
•
•
Segments
The three segments we use to manage and evaluate our performance are: U.S. Retail, U.S. Wholesale, and
International. These segments are our operating and reporting segments. Our U.S. Retail segment consists of
revenue primarily from sales of products in the United States through our retail and online stores. Similarly, our
U.S. Wholesale segment consists of revenue primarily from sales in the United States of products to our
wholesale partners. Finally, our International segment consists of revenue primarily from sales of products
outside the United States, largely through our retail stores in Canada and Mexico, our eCommerce sites in
Canada and China, and sales to our international wholesale accounts and licensees.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected statement of operations data expressed as a
percentage of consolidated net sales.
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For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Net sales
U.S. Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53.5%
34.1%
12.4%
100.0%
56.7%
43.3%
1.1%
33.1%
11.3%
1.0%
n/m
n/m
10.3%
2.1%
8.1%
52.2%
35.6%
12.2%
100.0%
56.4%
43.6%
1.3%
32.6%
12.3%
0.9%
n/m
0.1%
11.5%
2.6%
8.9%
51.8%
36.8%
11.4%
100.0%
56.9%
43.1%
1.3%
31.1%
13.3%
0.8%
n/m
(0.1)%
12.4%
4.3%
8.1%
n/m—rounds to less than 0.1%; therefore not material.
Note: Results may not be additive due to rounding.
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COMPARABLE RETAIL SALES METRICS
Our management’s discussion and analysis includes comparable sales metrics for our company-owned retail
stores and our eCommerce sites in our U.S. Retail and International segments.
Our comparable store sales metrics include sales for all stores and eCommerce sites that were open and operated
by us during the comparable fiscal period, including stand-alone format stores that converted to dual-branded
format stores and certain remodeled or relocated stores. A store or site becomes comparable following 13
consecutive full fiscal months of operations. If a store relocates within the same center with no business
interruption or material change in square footage, the sales of such store will continue to be included in the
comparable store metrics. If a store relocates to another center, or there is a material change in square footage,
such store is treated as a new store. Stores that are closed during the relevant fiscal period are included in the
comparable store sales metrics up to the last full fiscal month of operations. All sales that were made from the
new Skip Hop tab on our existing U.S. eCommerce site are included in our comparable eCommerce site sales
metrics.
At the beginning of fiscal 2018, we transitioned to disclosing a total comparable retail sales metric, including
both retail stores and eCommerce. This change aligns with how management views and evaluates our retail
business. We believe it reflects our maturing omni-channel strategy and consumers’ increasing tendency to shop
with us both in our stores and online.
Methods of calculating sales metrics vary across the retail industry. As a result, our method of calculating
comparable sales may not be the same as that of other retailers.
2018 FISCAL YEAR ENDED DECEMBER 29, 2018 COMPARED TO 2017 FISCAL YEAR ENDED
DECEMBER 30, 2017
CONSOLIDATED NET SALES
Compared to fiscal 2017, consolidated net sales in fiscal 2018 increased $61.8 million, or 1.8%, to $3.46 billion.
This increase reflected sales growth in our U.S. Retail and International segments, partially offset by a decline in
our U.S. Wholesale segment. Changes in foreign currency exchange rates used for translation in fiscal 2018, as
compared to fiscal 2017, had an unfavorable effect on our consolidated net sales of approximately $2.6 million.
Net sales by segment, and each segment’s percentage of consolidated net sales, were as follows:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
% of
Total
December 30,
2017
% of
Total
Net sales:
U.S. Retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,851,193
1,180,687
430,389
53.5% $1,775,378
34.1% 1,209,663
415,463
12.4%
52.2%
35.6%
12.2%
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,462,269
100.0% $3,400,504
100.0%
Note: Results may not be additive due to rounding.
U.S. RETAIL SALES
Store Count Data for Company-Operated Retail Stores in our U.S. Retail segment
Region:
December 29,
2018
Store Count
December 30,
2017
December 31,
2016
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
844(*)
830
792
(*) Excludes five temporary Skip Hop stores that were closed in January 2019.
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At the beginning of fiscal 2017, we changed our methodology for U.S. store counts related to certain dual-
branded format stores. Accordingly, our store count data is not comparable to data previously presented in prior
fiscal years.
Comparable Sales for our U.S. Retail segment
Comparable retail net sales increased 2.8% during fiscal 2018 compared to fiscal 2017. We believe the
comparable retail net sales increase was attributable to strong sales during the November and December holiday
season, partially offset by lower demand from international consumers due to the effect of a strong U.S. dollar
relative to other currencies.
Sales Results
U.S. Retail segment net sales increased $75.8 million, or 4.3%, in fiscal 2018 to $1.85 billion. The increase in net
sales in fiscal 2018 primarily reflected an/a:
•
•
•
•
Increase of $68.0 million from new stores that are not yet comparable;
Increase of $60.7 million from eCommerce sales;
Decrease of $37.9 million due to the effect of store closings; and
Decrease of $15.8 million in comparable retail store sales.
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U.S. WHOLESALE SALES
U.S. Wholesale segment net sales decreased $29.0 million, or 2.4%, in fiscal 2018 to $1.18 billion. This decline
reflected a 3.0% decrease in the number of units shipped, which was primarily the result of reduced demand due
to customer bankruptcies, partially offset by a 0.6% increase in the average price per unit and contributions from
the Skip Hop business that was acquired during the first quarter of fiscal 2017.
INTERNATIONAL SALES
Store Count Data for Company-Operated Retail Stores in our International segment
Region:
December 29,
2018
Store Count
December 30,
2017
December 31,
2016
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
188
42
179
41(2)
164
N/A(1)
(1) We operated retail stores in Mexico upon the acquisition of our former licensee in Mexico on August 1,
2017.
(2) Includes 39 retail stores acquired in fiscal 2017.
Sales Results
International segment net sales increased $14.9 million, or 3.6%, in fiscal 2018 to $430.4 million. Changes in
foreign currency exchange rates, primarily between the U.S. dollar and the Canadian dollar, had a $2.6 million
unfavorable affect on International segment net sales in fiscal 2018 compared to fiscal 2017.
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The $14.9 million increase in net sales in our International segment for fiscal 2018 primarily reflected an/a:
•
•
•
•
Increase of $21.2 million related to contributions from acquired businesses;
Increase of $6.7 million from our Canada business, including wholesale and retail operations;
Decrease of $9.0 million from a decrease in sales in China; and
Decrease of $4.0 million from international sales to customers across various regions.
Compared to fiscal 2017, our Canadian total retail comparable sales increased 0.5% in fiscal 2018.
GROSS PROFIT AND GROSS MARGIN
Our consolidated gross profit increased $14.1 million, or 1.0%, to $1.50 billion in fiscal 2018. Consolidated gross
margin decreased from 43.6% in fiscal 2017 to 43.3% in fiscal 2018.
The increase in consolidated gross profit was primarily due to sales growth in the U.S. Retail and International
segments, partially offset by a decrease in sales related to wholesale customer bankruptcies, higher eCommerce
shipping costs, and higher provisions for inventory.
The decrease in consolidated gross margin was primarily attributable to higher eCommerce shipping costs,
higher provisions for inventory, higher promotional activity, and loss of higher margin customers as a result of
bankruptcies.
ROYALTY INCOME
Royalty income decreased $4.3 million, or 9.8%, to $38.9 million in fiscal 2018. The decrease was primarily
attributable to insourcing certain formerly licensed products and the absence of royalty income from Carter’s
Mexico, which we acquired in the third fiscal quarter of 2017.
SELLING, GENERAL, AND ADMINISTRATIVE (“SG&A”) EXPENSES
Consolidated SG&A expenses in fiscal 2018 increased $38.1 million, or 3.4%, to $1.14 billion. As a percentage
of consolidated net sales, consolidated SG&A expenses increased from 32.6% in fiscal 2017 to 33.1% in fiscal
2018.
The increase in SG&A expenses, as a percentage of net sales, in fiscal 2018 primarily reflected a:
•
•
•
•
•
•
$17.2 million increase primarily related to new store expenses and higher labor costs in Canada;
$14.9 million increase in distribution and freight costs;
$10.9 million increase in expenses due to customer bankruptcies, partially offset by the recovery
claims settlement;
$6.5 million increase in expenses related to marketing and brand management;
$3.9 million increase in investments related to information systems; and
$2.6 million increase in employee benefit costs;
30
which were partially offset by a:
•
$29.6 million decrease in performance based compensation, primarily attributable to provisions for
special employee compensation in fiscal 2017.
OPERATING INCOME
Compared to fiscal 2017, consolidated operating income for fiscal 2018 decreased $28.2 million, or 6.7%, to
$391.4 million. Consolidated operating margin decreased from 12.3% in fiscal 2017 to 11.3% in fiscal 2018. The
table below summarizes the changes in each of our segments’ operating results and unallocated corporate
expenses between the fiscal years:
(dollars in thousands)
Operating income for fiscal 2017 . . . . . . . . . . . .
Favorable (unfavorable) change in fiscal 2018:
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses . . . . . . . . . . . . . . . . . . . . . .
U.S. Retail
U.S.
Wholesale
International
Unallocated
Corporate
Expenses
Consolidated
$215,640
$252,090
$46,426
$(94,549)
$419,607
32,747
(2,664)
(20,939)
(19,085)
(1,256)
(7,555)
363
(331)
(7,205)
104
—
(2,353)
14,129
(4,251)
(38,052)
Operating income for fiscal 2018 . . . . . . . . . . . .
$224,784
$224,194
$39,253
$(96,798)
$391,433
The following table presents changes in the operating margin for each of our three operating segments in basis
points (“bps”) relative to net sales.
Operating margin for fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1%
20.8%
11.2%
Favorable (unfavorable) bps changes in fiscal 2018:
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(40) bps
(20) bps
60 bps
(90) bps
—
(90) bps
(150) bps
(10) bps
(50) bps
Operating margin for fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1%
19.0%
9.1%
U.S. Retail
U.S.
Wholesale
International
U.S. RETAIL OPERATING INCOME
U.S. Retail segment operating income in fiscal 2018 increased $9.1 million, or 4.2%, from fiscal 2017 to
$224.8 million. The segment’s operating margin was 12.1% in fiscal 2018 and fiscal 2017. The primary drivers
of the change in the operating margin were a:
•
•
•
40 bps decrease in gross profit due to higher promotional activity and increased eCommerce shipping
costs;
20 bps decrease in royalty income; and
60 bps decrease in SG&A expenses, primarily due to a/an:
•
•
80 bps decrease in performance based compensation, primarily due to the absence of special
employee compensation awarded in fiscal 2017; and
40 bps increase in distribution expenses.
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U.S. WHOLESALE OPERATING INCOME
U.S. Wholesale segment operating income in fiscal 2018 decreased $27.9 million, or 11.1%, from fiscal 2017 to
$224.2 million. The segment’s operating margin decreased 180 bps from 20.8% in fiscal 2017 to 19.0% in fiscal
2018. The primary drivers of the change in the operating margin were a:
•
•
90 bps decrease in gross profit due to changes in customer mix, in part due to customer bankruptcies;
and
90 bps increase in SG&A expenses, primarily due to a:
•
•
•
90 bps increase in provisions for accounts receivable due to customer bankruptcies;
30 bps increase in distribution and freight expenses; and
30 bps decrease in performance based compensation, primarily due to the absence of special
employee compensation awarded in fiscal 2017.
INTERNATIONAL OPERATING INCOME
International segment operating income in fiscal 2018 decreased $7.2 million, or 15.5%, from fiscal 2017 to
$39.3 million. This segment’s operating margin decreased 210 bps from 11.2% in fiscal 2017 to 9.1% in fiscal
2018. The primary drivers of the change in the operating margin were a:
•
•
150 bps decrease in gross profit due to higher provisions for inventory related to changes in the
Company’s business model in China and unfavorable sales channel mix; and
50 bps increase in SG&A expenses, primarily due to a:
•
•
•
•
•
•
90 bps increase in expenses associated with new retail stores and higher labor costs in Canada;
40 bps increase in distribution costs;
30 bps increase in expenses related to marketing and brand management;
30 bps increase in severance associated with changes to the Company’s business model in China;
110 bps decrease in expenses related to the eCommerce business in Canada and China; and
30 bps decrease in provisions for accounts receivable.
Unallocated Corporate Expenses
Unallocated corporate expenses increased by $2.2 million, or 2.4%, from $94.5 million in fiscal 2017 to
$96.8 million in fiscal 2018. Unallocated corporate expenses, as a percentage of consolidated net sales, was 2.8%
in fiscal 2017 and fiscal 2018. In fiscal 2017, unallocated corporate expenses included a $3.6 million credit for an
earn out adjustment.
INTEREST EXPENSE
Interest expense and effective interest rate calculations include the amortization of debt issuance costs.
Interest expense in fiscal 2018 and fiscal 2017 was approximately $34.6 million and $30.0 million, respectively.
Weighted-average borrowings for fiscal 2018 were $686.9 million at an effective interest rate of 4.90%,
compared to weighted-average borrowings for fiscal 2017 of $652.9 million at an effective interest rate of 4.55%.
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The increase in weighted-average borrowings during fiscal 2018 was attributable to additional borrowings under
our secured revolving credit facility. The increase in the effective interest rate for fiscal 2018 compared to fiscal
2017 was due primarily to a higher LIBOR rate for the outstanding borrowings on our variable-rate secured
revolving credit facility during the 2018 period.
On our consolidated balance sheets, unamortized debt issuance costs associated with our senior notes is presented
as a direct reduction in the carrying value of the associated debt liability for all periods presented.
OTHER (INCOME) EXPENSE, NET
Other income, net is comprised primarily of gains and losses on foreign currency transactions and, if utilized
during a reporting period, gains and losses on foreign currency forward contracts.
INCOME TAXES
Our consolidated effective income tax rate for fiscal 2018 and 2017 were 20.8% and 22.6%, respectively. The
lower effective tax rate in 2018 is primarily attributable to the reduction in the U.S. federal income tax rate from
35% to 21% under the 2017 Act.
NET INCOME
Our consolidated net income for fiscal 2018 decreased $20.8 million, or 6.9%, to $282.1 million compared to
$302.8 million in fiscal 2017. This decrease was due to the factors previously discussed.
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2017 FISCAL YEAR ENDED DECEMBER 30, 2017 COMPARED TO 2016 FISCAL YEAR ENDED
DECEMBER 31, 2016
At the beginning of fiscal 2018 the Company adopted the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) No. 606, Revenue from Contracts with Customers, and related
amendments (“ASC 606”) using the full retrospective adoption method. The full retrospective method required
the Company to apply the standard to the financial statements for the period of adoption as well as to each prior
reporting period presented. The fiscal 2017 and fiscal 2016 periods reflect this adoption.
CONSOLIDATED NET SALES
Compared to fiscal 2016, consolidated net sales in fiscal 2017 increased $202.0 million, or 6.3%, to $3.4 billion.
This improvement reflected sales growth in each of our operating segments, as presented below. Changes in
foreign currency exchange rates in fiscal 2017 as compared to fiscal 2016 had a favorable impact on our
consolidated net sales of approximately $6.6 million.
(dollars in thousands)
For the fiscal year ended
December 30,
2017
% of
Total
December 31,
2016
% of
Total
Net sales:
U.S. Retail
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Wholesale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,775,378
1,209,663
415,463
52.2% $1,655,784
35.6% 1,178,034
364,725
12.2%
51.8%
36.8%
11.4%
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,400,504
100.0% $3,198,543
100.0%
Note: Results may not be additive due to rounding.
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U.S. RETAIL SALES
At the beginning of fiscal 2017, we changed our methodology for U.S. store counts related to certain dual-
branded format stores. Accordingly, our store count data is not comparable to data previously presented in prior
fiscal years.
Comparable Sales for our U.S. Retail segment
Change from fiscal 2016 to fiscal 2017
% Increase (Decrease)
Retail stores . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
eCommerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3.3)%
+21.6%
+2.7%
The decrease in U.S. Retail store comparable sales during fiscal 2017 was primarily due to a lower average
transaction price and lower store traffic, which we believe was partially offset by the stabilization of the effects
of a decline in shopping by international consumers that we experienced in the first half of fiscal 2016 (as
discussed further below). The increase in eCommerce site comparable sales during fiscal 2017 was primarily due
to an increase in the number of transactions, partially offset by a lower average transaction price.
These sales metrics take into account sales (and returns) that occur at our points of sale in our U.S. retail stores
and through our U.S. eCommerce site. It is important to note, however, that as our omni-channel strategy
continues to mature, our sales can cross between our U.S. retail stores and eCommerce site. For example:
•
•
•
•
on-line purchases can easily be returned in our stores;
our stores increase on-line sales by providing customers opportunities to view, touch and/or try on
physical merchandise before ordering on-line;
our in-store customers can order on-line in our stores; and
our customers can order on-line and ship to and pick-up in stores.
Sales Results
U.S. Retail segment net sales increased $119.6 million, or 7.2%, in fiscal 2017 to $1.8 billion. The increase in net
sales in fiscal 2017 primarily reflected an/a:
•
•
•
•
Increase of $85.8 million in comparable eCommerce sales, including sales of Skip Hop branded
products on our U.S. eCommerce site;
Increase of $81.8 million in sales from new stores that are not yet comparable;
Decrease of $41.7 million in comparable store sales; and
Decrease of $14.4 million due to the effect of store closings.
U.S. WHOLESALE SALES
U.S. Wholesale segment net sales increased $31.6 million, or 2.7%, in fiscal 2017 to $1.2 billion. The increase in
net sales in fiscal 2017 primarily reflected an/a:
•
•
Increase of $55.7 million from new sales of Skip Hop branded products; and
Decrease of $24.0 million in comparable sales of our other products, which primarily reflected a 2.7%
decrease in number of units shipped.
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INTERNATIONAL SALES
International segment net sales increased $50.7 million, or 13.9%, in fiscal 2017 to $415.5 million. Changes in
foreign currency exchange rates, primarily between the U.S. dollar and the Canadian dollar, had a $6.6 million
favorable impact on International segment net sales in fiscal 2017 compared to fiscal 2016.
The $50.7 million increase in net sales in our International segment for fiscal 2017 primarily reflected an/a:
•
•
•
•
•
Increase of $31.8 million from sales of Skip Hop branded product to our wholesale customers;
Increase of $15.4 million from the acquisition of Carter’s Mexico;
Increase of $15.0 million from our company-operated retail stores in Canada;
Increase of $8.5 million from eCommerce net sales, primarily from our eCommerce sites in Canada
and China; and
Decrease of $20.0 million from international wholesale customers across various markets.
Compared to fiscal 2016, our Canadian total retail comparable sales increased 0.2% in fiscal 2017, primarily due
to eCommerce comparable sales growth of 37.6%, which was partially offset by a retail store comparable sales
decline of 3.1%.
GROSS MARGIN AND GROSS PROFIT
Our consolidated gross profit increased $104.8 million, or 7.6%, to $1.48 billion in fiscal 2017. Consolidated
gross margin increased from 43.1% in fiscal 2016 to 43.6% in fiscal 2017. These increases were due primarily to
overall lower product costs and increases in higher-margin eCommerce sales, partially offset by lower margins in
our wholesale channels.
We include distribution costs in selling, general, and administrative (“SG&A”) expenses. Accordingly, our gross
profit and gross margin may not be comparable to other entities that include such distribution costs in their cost
of goods sold.
ROYALTY INCOME
We license the use of our Carter’s, Just One You, Child of Mine, OshKosh B’gosh, OshKosh, Genuine Kids from
OshKosh, Baby B’gosh, Simple Joys, and Precious Firsts brand names. Royalty income from these brands
increased $0.4 million, or 0.9%, to $43.2 million in fiscal 2017. This increase was primarily attributable to sales
growth from our domestic licensees, partially offset by decreases in income from certain licensees due to the
insourcing of formerly licensed product categories and the acquisition of our former licensee in Mexico.
SELLING, GENERAL, AND ADMINISTRATIVE (“SG&A”) EXPENSES
Consolidated SG&A expenses in fiscal 2017 increased $111.5 million, or 11.2%, to $1.11 billion. As a
percentage of consolidated net sales, consolidated SG&A expenses increased from 31.1% in fiscal 2016 to 32.6%
in fiscal 2017.
The increase in SG&A expenses, as a percentage of net sales, in fiscal 2017 primarily reflected a:
•
•
$48.2 million increase in expenses related to retail store operations, primarily due to new store
openings;
$24.9 million in expenses for selling, distribution, and administrative expenses for Skip Hop;
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•
•
•
•
•
$21.2 million for provisions for special employee compensation;
$17.4 million increase in expenses for eCommerce operations;
$6.4 million increase in expenses for marketing and brand management;
$3.0 million increase in expenses for in-housed sourcing operations; and
$2.5 million increase in expenses for other general and administrative expenses.
which were partially offset by a:
•
•
•
•
$4.4 million decrease in information technology and systems costs;
$3.6 million decrease in the fair value of the earn-out obligation for Skip Hop;
$2.4 million decrease in performance-based compensation expenses; and
$1.7 million decrease in amortization of the H.W. Carter & Sons trademarks.
OPERATING INCOME
Compared to fiscal 2016, consolidated operating income for fiscal 2017 decreased $6.3 million, or 1.5%, to
$419.6 million. Consolidated operating margin decreased from 13.3% in fiscal 2016 to 12.3% in fiscal 2017. The
table below summarizes the changes in each of our segments’ operating results and unallocated corporate
expenses between the fiscal years:
(dollars in thousands)
Operating income for fiscal 2016 . . . . . . . . . . . .
Favorable (unfavorable) change in fiscal 2017:
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses . . . . . . . . . . . . . . . . . . . . . .
U.S. Retail
U.S.
Wholesale
International
Unallocated
Corporate
Expenses
Consolidated
$211,951
$260,953
$ 59,194
$(106,170) $ 425,928
76,937
3,224
(76,472)
11,902
(1,233)
(19,532)
15,745
(1,625)
(26,888)
250
—
11,371
104,834
366
(111,521)
Operating income for fiscal 2017 . . . . . . . . . . . .
$215,640
$252,090
$ 46,426
$ (94,549) $ 419,607
The following table presents changes in the operating margin for each of our three operating segments between
fiscal 2016 and fiscal 2017. The primary drivers of these change are presented in terms of the difference in each
driver’s margin (based on net sales) between fiscal years, in each case expressed in bps.
Operating margin for fiscal 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.8%
22.2%
16.2%
Favorable (unfavorable) bps changes in fiscal 2017:
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80 bps
10 bps
(160) bps
20 bps
(20) bps
(140) bps
(190) bps
(60) bps
(250) bps
Operating margin for fiscal 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1%
20.8%
11.2%
U.S. Retail
U.S.
Wholesale
International
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U.S. RETAIL OPERATING INCOME
U.S. Retail segment operating income in fiscal 2017 increased $3.7 million, or 1.7%, from fiscal 2016 to
$215.6 million. The segment’s operating margin decreased 70 bps from 12.8% in fiscal 2016 to 12.1% in fiscal
2017. The primary drivers of the change in the operating margin were an:
•
•
•
80 bps increase in gross profit primarily due to growth in higher-margin eCommerce business and
lower product costs;
10 bps increase in royalty income; and
160 bps increase in SG&A expenses primarily due to a:
•
•
•
•
80 bps increase due to provisions for special employee compensation;
40 bps increase in expenses associated with eCommerce;
20 bps increase in expenses associated with new retail stores and store restructuring costs; and
20 bps increase in distribution expenses.
U.S. WHOLESALE OPERATING INCOME
U.S. Wholesale segment operating income in fiscal 2017 decreased $8.9 million, or 3.4%, from fiscal 2016 to
$252.1 million. The segment’s operating margin decreased 140 bps from 22.2% in fiscal 2016 to 20.8% in fiscal
2017. The primary drivers of the change in the operating margin were a:
•
•
•
20 bps increase in gross profit due to favorable product costs;
20 bps decrease in royalty income primarily due to insourcing formerly licensed product categories;
and
140 bps increase in SG&A expenses, primarily due to a:
•
•
•
•
70 bps increase in distribution expenses;
30 bps increase due to provisions for special employee compensation;
20 bps increase in marketing and brand management expenses; and
20 bps increase in provisions for accounts receivable.
INTERNATIONAL OPERATING INCOME
International segment operating income in fiscal 2017 decreased $12.8 million, or 21.6%, from fiscal 2016 to
$46.4 million. This segment’s operating margin decreased 500 bps from 16.2% in fiscal 2016 to 11.2% in fiscal
2017. The primary drivers of the change in the operating margin were a:
•
•
•
190 bps decrease in gross profit due to changes in channel and customer mix;
60 bps decrease in royalty income related to the purchase of our Mexican licensee, and decreases in
income from certain licensees due to the insourcing of formerly licensed product categories; and
250 bps increase in SG&A expenses, primarily due to a:
•
70 bps increase expenses associates with eCommerce growth;
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•
•
•
60 bps increase marketing and brand management expenses;
50 bps increase due to provisions for special employee compensation;
40 bps increase in expenses associated with new store costs; and
30 bps increase due to higher provisions for wholesale accounts receivable.
Unallocated Corporate Expenses
Unallocated corporate expenses decreased by $11.6 million, or 10.9%, from $106.2 million in fiscal 2016 to
$94.5 million in fiscal 2017. Unallocated corporate expenses, as a percentage of consolidated net sales, decreased
from 3.3% in fiscal 2016 to 2.8% in fiscal 2017. The decrease primarily reflected a/an:
•
•
•
•
•
Decrease of $5.2 million in consulting expenses;
Decrease of $4.7 million in expenses related to information technology and systems;
Decrease of $2.6 million in insurance and other employee-related costs;
Decrease of $1.7 million in amortization expense for the H.W. Carter & Sons tradenames; and
Increase of $2.9 million due to provisions for special employee compensation.
INTEREST EXPENSE
Interest expense and effective interest rate calculations include the amortization of debt issuance costs.
Interest expense in fiscal 2017 and fiscal 2016 was approximately $30.0 million and $27.0 million, respectively.
Weighted-average borrowings for fiscal 2017 were $652.9 million at an effective interest rate of 4.55%,
compared to weighted-average borrowings for fiscal 2016 of $585.2 million at an effective interest rate of 4.57%.
The increase in weighted-average borrowings during fiscal 2017 was attributable to additional borrowings under
our secured revolving credit facility.
The decrease in the effective interest rate for fiscal 2017 compared to fiscal 2016 was primarily due to a higher
portion of our outstanding borrowings under our secured revolving credit facility as compared to the total debt
outstanding under our senior notes, partially offset by higher LIBOR rates for the variable portions of
outstanding borrowings on our secured revolving credit facility during fiscal 2017. Borrowings under our secured
revolving credit facility accrued variable-rate interest at a lower interest rate than our senior notes during fiscal
2017 and 2016.
On our consolidated balance sheets, unamortized debt issuance costs associated with our senior notes is presented
as a direct reduction in the carrying value of the associated debt liability for all periods presented.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net is comprised primarily of gains and losses on foreign currency transactions and, if
utilized during a reporting period, gains and losses on foreign currency forward contracts. These amounts
represented a net gain of approximately $1.3 million for fiscal 2017 and a net loss of approximately $3.9 million
for fiscal 2016. When we acquired our former licensee in Mexico on August 1, 2017, the licensee had unsettled
foreign currency forward contracts between the U.S. dollar and the Mexican peso.
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INCOME TAXES
On December 22, 2017, the United States enacted tax law changes known as the Tax Cuts and Jobs Act of 2017
(the “2017 Act”). The 2017 Act, among other things, reduces the U.S. federal corporate tax rate from 35% to
21%, requires companies to pay a one-time transition tax (or “toll tax”) on earnings of certain foreign
subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings.
Our accounting for the enactment of the 2017 Act, including its effects on our consolidated income tax expense,
is not complete. The income tax expense reported in our consolidated statement of operations for the fiscal year
ended December 30, 2017 reflects certain provisional estimates related to our accounting for the enactment of the
2017 Act, as allowed by SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax
Cuts and Jobs Act. Any subsequent adjustments to the provisional estimates will be reflected in our income tax
expense/benefit in one or more future periods in fiscal 2018.
During the fourth quarter of fiscal 2017, we recognized an income tax benefit of $40.0 million related to the
enactment of the 2017 Act, which is included as a component of our income tax expense on our consolidated
statement of operations. This $40.0 million income tax benefit is comprised of a benefit of approximately
$50.4 million related to the remeasurement of certain deferred income tax balances, partially offset by a
provisional estimate for additional income tax expense of $10.4 million related to foreign earnings. We will
continue to refine our calculations as additional analysis is completed. Additional information is contained in
Item 8 “Financial Statements and Supplementary Data” under Note 12, Income Taxes, to the consolidated
financial statements.
Our consolidated effective tax rate for fiscal 2017 and 2016 was 22.6% and 34.8%, respectively. Of this 12.2%
decrease for fiscal 2017, approximately 10.2% was related to our accounting for the implementation of the 2017
Act, including the estimates for provisional amounts. Other drivers of the lower effective tax rate in fiscal 2017
were: 1) changes in the mix of taxable income among our domestic and international tax-paying entities and 2)
the new accounting guidance which required certain income tax benefits realized in fiscal 2017 from settled
stock-based compensation awards to be reflected as a benefit to income tax expense instead of a credit to
additional paid-in capital.
NET INCOME
Our consolidated net income for fiscal 2017 increased $45.1 million, or 17.5%, to $302.8 million as compared to
$257.7 million in fiscal 2016. This increase was due to the factors previously discussed.
FINANCIAL CONDITION, CAPITAL RESOURCES, AND LIQUIDITY
Our ongoing cash needs are primarily for working capital and capital expenditures. We expect that our primary
sources of liquidity will continue to be cash and cash equivalents on hand, cash flow from operations, and
borrowings available under our secured revolving credit facility. We expect that these sources will fund our
ongoing requirements for the foreseeable future, and we believe that we also have access to the capital markets.
Further, we do not expect current economic conditions to prevent us from meeting our cash requirements. These
sources of liquidity may be affected by events described in our risk factors, as further discussed in Part I, Item
1.A., Risk Factors, in this Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
As of December 29, 2018, we had approximately $170.1 million of cash and cash equivalents in major financial
institutions, including approximately $36.7 million in financial institutions located outside of the United States.
We maintain cash deposits with major financial institutions that exceed the insurance coverage limits provided
by the Federal Deposit Insurance Corporation in the United States. and by similar insurers for deposits located
outside the United States. To mitigate this risk, we utilize a policy of allocating cash deposits among major
financial institutions that have been evaluated by us and third-party rating agencies.
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BALANCE SHEET
Net accounts receivable at December 29, 2018 were $258.3 million compared to $240.6 million at December 30,
2017. The increase of $17.7 million, or 7.4%, as compared to December 30, 2017, was primarily the result of the
timing of wholesale customer receipts. Net accounts receivable at December 30, 2017 were $240.6 million
compared to $202.5 million at December 31, 2016. The increase of $38.1 million, or 18.8%, as compared to
December 31, 2016 was primarily due to the Skip Hop acquisition in fiscal 2017.
Inventories at December 29, 2018 were $574.2 million compared to $548.7 million at December 30, 2017. The
increase of $25.5 million, or 4.6%, compared to December 30, 2017, primarily reflected an increased average
unit cost, timing of receipts, and business growth from retail locations. Inventories at December 30, 2017 were
$548.7 million compared to $487.6 million at December 31, 2016. The increase of $61.1 million, or 12.5%,
compared to December 31, 2016, primarily reflected acquisitions and business growth.
CASH FLOW
Net cash provided by operating activities for fiscal 2018 was $356.2 million compared to net cash provided by
operating activities of $329.6 million in fiscal 2017. The increase in operating cash flow primarily reflected a
reduction in cash taxes paid, partially offset by lower net income and higher working capital in fiscal 2018. The
timing of payments and receipts in the normal course of business can impact our working capital.
Net cash provided by operating activities for fiscal 2017 was $329.6 million compared to net cash provided by
operating activities of $369.2 million in fiscal 2016. This decrease in operating cash flow for fiscal 2017
primarily reflected unfavorable changes in working capital.
Net cash used in investing activities was approximately $63.3 million in fiscal 2018, compared to net cash used
of approximately $227.9 million in fiscal 2017. This decrease in net cash used in investing activities for fiscal
2018 is primarily due to business acquisitions in fiscal 2017. Our capital expenditures were approximately
$63.8 million, including $38.1 million for our U.S. and international retail store openings and remodelings,
$8.7 million for information technology initiatives, $7.4 million for our Braselton, Georgia distribution facility,
and $4.1 million for wholesale fixtures.
Our capital expenditures were approximately $69.5 million in fiscal 2017, compared to $88.6 million in fiscal
2016. Expenditures in fiscal 2017 primarily reflected expenditures of $42.5 million for our U.S. and international
retail store openings and remodelings, $11.5 million for information technology initiatives, $8.8 million for our
Braselton, Georgia distribution facility, and $1.1 million for wholesale fixtures.
We plan to invest approximately $85 million in capital expenditures in fiscal 2019, primarily for U.S. and
international retail store openings and remodelings, information technology initiatives, and distribution facilities.
Net cash used in financing activities was $298.9 million in fiscal 2018 compared to $223.1 million in fiscal 2017.
This increase in cash used for financing activities in fiscal 2018 reflected a decrease in net borrowings under our
amended revolving credit facility, higher cash dividends paid to stockholders, and an increase in repurchases of
our common stock.
Net cash used in financing activities was $223.1 million in fiscal 2017 compared to $363.5 million in fiscal 2016.
This decrease in cash used for financing activities in fiscal 2017 reflected fewer repurchases of our common
stock, partially offset by an increase in net borrowings under our amended revolving credit facility and higher
cash dividends paid to stockholders in fiscal 2017.
40
SECURED REVOLVING CREDIT FACILITY
On August 25, 2017, TWCC and the syndicate of lenders entered into a fourth amended and restated secured
revolving credit agreement. This amendment to the secured revolving credit facility provides: (a) an extension of
the term of the facility to August 25, 2022 and (b) an increase in the aggregate credit line to $750 million which
includes a $650 million U.S. dollar facility and a $100 million multicurrency facility denominated in U.S.
dollars, Canadian dollars, Euros, Pounds Sterling, or other currencies agreed to by the applicable lenders. The
$650 million U.S. dollar facility is inclusive of a $100 million sub-limit for letters of credit and a swing line
sub-limit of $70 million. The $100 million multicurrency facility is inclusive of a $40 million sub-limit for letters
of credit and a swing line sub-limit of $15 million. In addition, the secured revolving credit facility provides for
incremental borrowing facilities up to $425 million, which are comprised of an incremental $350 million U.S.
dollar revolving credit facility and an incremental $75 million multicurrency revolving credit facility. The
incremental U.S. dollar revolving credit facility can increase to an unlimited borrowing amount so long as the
consolidated first lien leverage ratio (as defined in the secured revolving credit facility) does not exceed
2.25:1.00.
On September 21, 2018, TWCC and a syndicate of lenders entered into Amendment No. 1 to its fourth amended
and restated credit agreement that, among other things, extended the term of the facility from August 25, 2022 to
September 21, 2023. In connection with the amendment, the Company paid approximately $1.0 million in debt
issuance costs. These newly-incurred debt issuance costs, together with existing unamortized debt issuance costs,
are being amortized over the five-year remaining term of the secured revolving credit facility.
As of December 29, 2018 and December 30, 2017, we had $196.0 million and $221.0 million in outstanding
borrowings under our secured revolving credit facility, exclusive of $5.0 million and $4.5 million of outstanding
letters of credit, respectively. As of December 29, 2018 and December 30, 2017, approximately $549.0 million
and $524.5 million were available for future borrowing, respectively. Weighted-average borrowings for fiscal
2018 were $286.9 million compared to weighted-average borrowings for fiscal 2017 of $252.9 million. All
outstanding borrowings under our secured revolving credit facility are classified as non-current liabilities on our
consolidated balance sheet because of the contractual repayment terms under the credit facility. However, these
repayment terms also allow us to repay some or all of the outstanding borrowings at any time.
The interest rate margins applicable to our secured revolving credit facility as of December 29, 2018 were
1.625% for LIBOR rate loans (which may be adjusted based on a leverage-based pricing grid ranging from
1.125% to 1.875%) and 0.625% for base rate loans (which may be adjusted based on a leverage-based pricing
grid ranging from 0.125% to 0.875%).
As of December 29, 2018 and December 30, 2017, U.S. dollar borrowings outstanding under the secured
revolving credit facility accrued interest at a LIBOR rate plus the applicable base rate, which resulted in a
weighted-average borrowing rate of 4.11% and 2.93%, respectively. The effective interest rate for fiscal 2018
was 3.45% compared to an effective interest rate of 2.51% for fiscal 2017. All outstanding Canadian dollar
borrowings were repaid during the first quarter of fiscal 2017.
As of December 29, 2018, we were in compliance with the financial and other covenants under our secured
revolving credit facility.
SENIOR NOTES
As of December 29, 2018, TWCC had $400 million principal amount of senior notes outstanding, bearing
interest at a rate of 5.25% per annum, and maturing on August 15, 2021. On our consolidated balance sheet,
the $400 million outstanding is reported net of $2.7 million and $3.7 million of unamortized issuance-related
debt costs at December 29, 2018 and December 30, 2017, respectively.
The senior notes are unsecured and are fully and unconditionally guaranteed by Carter’s, Inc. and certain
subsidiaries of TWCC.
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On and after August 15, 2017, TWCC may redeem all or part of the senior notes at the redemption prices
(expressed as a percentage 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 12-month period
beginning on August 15 of each of the years indicated as follows: 2018, 101.31%; and 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, we will be required to make an
offer to purchase the senior notes at 101% of their principal amount. In addition, if we or any of our restricted
subsidiaries engages in certain asset sales, under certain circumstances we 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 to: (i) incur, assume or guarantee additional indebtedness; (ii) issue
disqualified stock and preferred stock; (iii) pay dividends, among other things, or make distributions or other
restricted payments; (iv) prepay, redeem or repurchase certain debt; (v) make loans and investments (including
joint ventures); (vi) incur liens; (vii) create restrictions on the payment of dividends or other amounts from
restricted subsidiaries that are not guarantors of the notes; (viii) sell or otherwise dispose of assets, including
capital stock of subsidiaries; (ix) consolidate or merge with or into, or sell substantially all of TWCC’s assets to,
another person; (x) designate subsidiaries as unrestricted subsidiaries; and (xi) enter into transactions with
affiliates. 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.
SHARE REPURCHASES
On February 22, 2018, our Board of Directors authorized an additional $500 million of share repurchases, for
total authorizations of amounts up to $1.46 billion. There is no expiration date on these authorizations. Total
remaining capacity under all of the repurchase authorizations as of December 29, 2018 was approximately
$392.6 million.
Open-market repurchases of our common stock during fiscal years 2018, 2017 and 2016 were as follows:
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . .
Aggregate cost of shares repurchased (dollars in
Fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
1,879,529
2,103,401
3,049,381
thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 193,028
102.70
$
$ 188,762
89.74
$
$ 300,445
98.53
$
In addition to the open-market repurchases completed in fiscal years 2018, 2017, and 2016, open-market
repurchases totaling $387.6 million were made in fiscal years prior to 2016.
Future share repurchases may be made in the open market or in privately negotiated transactions, with the level
and timing of activity being at our discretion depending on market conditions, share price, other investment
priorities, and other factors. Our share repurchase authorizations have no expiration dates.
DIVIDENDS
Our Board of Directors authorized quarterly cash dividends of $0.45 per share in each quarter of fiscal 2018, and
cash dividends of $0.37 per share in each quarter of fiscal 2017. The dividends were paid during the fiscal quarter
in which they were declared.
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On February 14, 2019, our Board of Directors authorized a quarterly cash dividend payment of $0.50 per
common share, payable on March 22, 2019 to shareholders of record at the close of business on March 12, 2019.
Future declarations of quarterly dividends and the establishment of future record and payment dates are at the
discretion of our Board of Directors, and are based on a number of factors, including our future financial
performance and other investment priorities.
Provisions in our secured revolving credit facility and indenture governing our senior notes could have the effect
of restricting our ability to pay future cash dividends on or make future repurchases of our common stock.
COMMITMENTS
The following table summarizes as of December 29, 2018, the maturity or expiration dates of mandatory
contractual obligations and commitments for the following fiscal years:
(dollars in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
Long-term debt . . . . . . . . . . . . . $
Interest on debt (1) . . . . . . . . . .
Operating leases . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
— $
— $400,000 $
— $196,000 $
29,143
163,963
288
29,707
150,010
288
21,267
134,203
288
8,142
116,773
288
5,906
102,487
120
— $ 596,000
94,165
—
903,167
235,731
1,272
—
Total financial obligations . . . . $193,394 $180,005 $555,758 $125,203 $304,513 $235,731 $1,594,604
5,018
Letters of credit . . . . . . . . . . . . .
5,018
—
—
—
—
—
Total financial obligations and
commitments (2) (3) (4) . . . . $198,412 $180,005 $555,758 $125,203 $304,513 $235,731 $1,599,622
(1) Reflects: i) estimated variable rate interest on obligations outstanding on our secured revolving
credit facility as of December 29, 2018 using an interest rate of 4.11% and ii) a fixed interest rate of
5.25% for the senior notes.
(2) The table above excludes our reserves for income taxes, as we are unable to reasonably predict the
ultimate amount or timing of settlement.
(3) The table above excludes purchase obligations. Our estimate as of December 29, 2018 for
commitments to purchase inventory in the normal course of business, which are cancellable (with or
without penalty, depending on the stage of production) and span a period of one year or less, was
between $300 million and $400 million.
(4) The table above excludes any potential future Company funding for obligations under our defined
benefit retirement plans. Our estimates of such obligations as of December 29, 2018 have been
determined in accordance with U.S. GAAP and are included in other current liabilities and other long-
term liabilities on our consolidated balance sheet, as described in Item 8 “Financial Statements and
Supplementary Data” under Note 11, Employee Benefit Plans, to the consolidated financial
statements.
OFF-BALANCE SHEET OBLIGATIONS
We do not maintain off-balance sheet arrangements, transaction, obligations, or other relationships with
unconsolidated entities except for those that are made in the normal course of our business and included in our
commitments table presented above.
LIQUIDITY OUTLOOK
Based on our current outlook, we believe that cash generated from operations and available cash, together with
amounts available under our secured revolving credit facility, will be adequate to meet our working capital needs
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and capital expenditure requirements for the foreseeable future, although no assurance can be given in this
regard. Additionally, we believe that we have access to the capital markets as needed to fund our liquidity needs.
EFFECTS OF INFLATION AND DEFLATION
We do not believe that inflation has had a significant effect on our net sales or our profitability. Substantial
increases in product costs, however, could have a significant impact on our business and the industry in the
future. Additionally, while deflation could positively impact our merchandise costs, it could have an adverse
effect on our average unit retail price, resulting in lower sales and profitability.
SEASONALITY
We experience seasonal fluctuations in our sales and profitability due to the timing of certain holidays and key
retail shopping periods, which generally has resulted in lower sales and gross profit in the first half of our fiscal
year versus the second half of the fiscal year. Accordingly, our results of operations during the first half of the
year may not be indicative of the results we expect for the full year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of
contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in our accompanying consolidated financial statements. The
following discussion addresses our critical accounting policies and estimates, which are those policies that
require management’s most difficult and subjective judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE ALLOWANCE
At the beginning of fiscal 2018, the Company adopted the provisions of ASC No. 606, Revenue from Contracts
with Customers, and all related amendments (“ASC 606”) using the full retrospective adoption method.
Our revenues, which are reported as Net sales, consist of sales to customers, net of returns, discounts,
chargebacks, and cooperative advertising. We recognize revenue when (or as) the performance obligation is
satisfied. Generally, the performance obligation is satisfied when we transfer control of the goods to the
customer.
Our retail store revenues, also reported as Net sales, are recognized at the point of sale. Retail sales through our
on-line channels are recognized at time of delivery to the customer. We recognize retail sales returns at the time
of transaction by recording adjustments to both revenue and cost of goods sold. Additionally, we maintain an
asset, representing the goods we expect to receive from the customer, and a liability for estimated sales returns.
There are no accounts receivable associated with our retail customers.
Our 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 our 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
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balances over 90 days are reviewed individually for collectibility. Our 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 our consolidated statement of operations and provisions for chargebacks
are reflected as a reduction in Net sales on our consolidated statement of operations.
We record cooperative advertising arrangements with certain of our major wholesale customers at fair value. Fair
value is determined based upon, among other factors, comparable market analysis for similar advertisements. We
have included the fair value of these arrangements of approximately $3.0 million for fiscal 2018, $3.1 million for
fiscal 2017, and $3.7 million for fiscal 2016 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.
Except in very limited circumstances, we do not allow our wholesale customers to return goods to us.
INVENTORY
Our inventories, which consist primarily of finished goods, are stated approximately at the lower of cost (first-in,
first-out basis for wholesale inventory and average cost for retail inventories) or net realizable value. 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.
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GOODWILL AND TRADENAME
The carrying values of goodwill and indefinite-lived tradename assets are subject to annual impairment reviews
as of the last day of each fiscal year. Between annual assessments, impairment reviews may also be triggered by
any significant events or changes in circumstances affecting our business. Factors affecting such impairment
reviews include the continued market acceptance of our current products and the development of new products.
We use qualitative and quantitative methods to assess for impairment, including the use of discounted cash flows
(“income approach”) and relevant data from guideline public companies (“market approach”).
We perform impairment tests of goodwill at the reporting unit level. A qualitative assessment 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 results of a qualitative test determine that it is “more likely than not” that the fair value of a
reporting unit is less than its carrying value, then a goodwill impairment test using quantitative assessments must
be performed. 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.
Under a quantitative assessment for goodwill, the first step is to compare the fair value of a reporting unit to its
carrying value, including goodwill. We use discounted cash flow models to determine the fair value of a
reporting unit. The assumptions used in these models are consistent with those we believe hypothetical
marketplace participants would use. If the fair value of a reporting unit is less than its carrying value, the second
step of the impairment test must be performed in order to determine the impairment loss, if any. The second step
compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit’s goodwill exceeds its implied fair value, an impairment charge is
recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of the
goodwill.
A tradename is considered impaired if the estimated fair value of the tradename is less than the carrying amount.
Impairment reviews for an indefinite-lived tradename can be conducted using qualitative analysis, and if
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necessary, by a quantitative impairment test. If a tradename is considered impaired, we recognize a loss equal to
the difference between the carrying amount and the estimated fair value of the tradename. The process of
estimating the fair value of a tradename incorporates the relief-from-royalty method, which requires us to make
assumptions and to apply judgment, including forecasting future cash flows and selecting appropriate discount
and royalty rates.
A deterioration of macroeconomic conditions may not only negatively impact the estimated operating cash flows
used in our cash flow models, but may also negatively impact other assumptions used in our analysis, including,
but not limited to, the estimated cost of capital and/or discount rates. Additionally, we are required to ensure that
assumptions used to determine fair value in our analysis are consistent with the assumptions a hypothetical
marketplace participant would use. As a result, the cost of capital and/or discount rates used in our analysis may
increase or decrease based on market conditions and trends, regardless of whether our actual cost of capital has
changed. Therefore, we may recognize an impairment of an intangible asset or assets even though realized actual
cash flows are approximately equal to or greater than our previously forecast amounts.
Based upon our most recent assessment, performed as of December 29, 2018, there were no impairments in the
values of goodwill or indefinite-lived tradename assets.
The fair value of the Skip Hop tradename, which had a carrying value of $56.8 million as of December 29, 2018,
only exceeded its carrying value by 14%. Although the Company determined that no impairment exists, the
Company’s indefinite-lived Skip Hop tradename asset is at risk of impairment if the Company is unable to
achieve its future sales and earnings projections or if market conditions were to deteriorate.
ACCRUED EXPENSES
Accrued expenses for workers’ compensation, incentive compensation, health insurance, 401(k), and other
outstanding obligations are assessed based on actual commitments, statistical trends, and/or estimates based on
projections and current expectations, and these estimates are updated periodically as additional information
becomes available.
LOSS CONTINGENCIES
We record accruals for various contingencies including legal exposures as they arise in the normal course of
business. We determine whether to disclose and accrue for loss contingencies based on an assessment of whether
the risk of loss is remote, reasonably possible, or probable. Our assessment is developed in consultation with our
internal and external counsel and other advisors and is based on an analysis of possible outcomes under various
strategies. Loss contingency assumptions involve judgments that are inherently subjective and can involve
matters that are in litigation, which, by their nature are unpredictable. We believe that our assessment of the
probability of loss contingencies is reasonable.
ACCOUNTING FOR INCOME TAXES
As part of the process of preparing the accompanying consolidated financial statements, we are required to
estimate our actual current tax exposure (state, federal, and foreign). We assess our income tax positions and
record tax benefits for all years subject to examination based upon management’s evaluation of the facts,
circumstances, and information available at the reporting dates. We recognize the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. If it is more likely than not that a tax position would not
be sustained, then no tax benefit would be recognized. Where applicable, associated interest and penalties are
also recognized.
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We also assess permanent and temporary differences resulting from differing bases and treatment of items for tax
and accounting purposes, such as the carrying value of intangibles, deductibility of expenses, depreciation of
property, plant, and equipment, stock-based compensation expense, and valuation of inventories. Temporary
differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.
We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income.
Actual results could differ from this assessment if sufficient taxable income is not generated in future periods. To
the extent we determine the need to establish a valuation allowance or increase such allowance in a period, we
must include an expense within the tax provision in the accompanying consolidated statements of operations.
For current and deferred tax provisions, ASC 740 requires entities to account for the effects of new income tax
legislation in the same reporting period that the tax legislation is enacted. Changes to tax laws known as the U.S.
Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) were enacted on December 22, 2017. SEC Staff Accounting
Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, permitted the Company to
calculate and recognize provisional tax estimates for the fourth quarter of fiscal 2017 related to the enactment of
the 2017 Tax Act. The Company completed its assessment of the implications of the 2017 Tax Act in 2018. The
adjustment to income tax expense recorded in 2018 was not material. Additional information is contained in Item
8 “Financial Statements and Supplementary Data” under Note 12, Income Taxes, to the consolidated financial
statements.
FOREIGN CURRENCY
The functional currency of substantially all of our 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
stockholders’ equity.
Transaction gains and losses, such as those resulting from the settlement of nonfunctional currency receivables
and payables, including intercompany balances, are included in foreign currency gain or loss in our consolidated
statements of operations. Additionally, payable and receivable balances denominated in nonfunctional currencies
are marked-to-market at the end of each reporting period, and the gain or loss is recognized in our consolidated
statements of operations.
As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate
fluctuations, primarily between the U.S. dollar and the currencies of Canada and Mexico, we may use foreign
currency forward contracts to hedge purchases that are made in U.S. dollars, primarily for inventory purchases in
our Canadian and Mexican businesses. As part of a hedging strategy, we may use foreign currency forward
exchange contracts that typically have maturities of less than 12 months and provide continuing coverage
throughout the hedging period. These contracts are not designated for hedge accounting treatment, and therefore
changes in the fair value of these contracts are recorded in our consolidated statement of operations. Such foreign
currency gains and losses include the mark-to-market fair value adjustments at the end of each reporting period
related to any open contracts, as well as any realized gains and losses on contracts settled during the reporting
period. Fair values for open contracts are calculated by using readily observable market inputs (market-quoted
currency exchange rates), classified as Level 2 within the fair value hierarchy. At December 29, 2018, there were
no unsettled foreign currency forward contracts.
EMPLOYEE BENEFIT PLANS
We sponsor a frozen defined benefit pension plan and other unfunded post-retirement plans. The defined benefit
pension and post-retirement plans require an actuarial valuation to determine plan obligations, and related
periodic costs. Plan valuations require economic assumptions, including expected rates of return on plan assets,
discount rates to value plan obligations and employee demographic assumptions including mortality rates. The
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actuarial assumptions used may differ materially from actual results due to changing market and economic
conditions. Actual results that differ from the actuarial assumptions are reflected as unrecognized gains and
losses. Unrecognized gains and losses that exceed 10% of the greater of the plan’s projected benefit obligations
or market value of assets are amortized to earnings over the estimated service life of the remaining plan
participants.
Any future obligation under our pension plan not funded from investment returns on plan assets are expected to
be funded from cash flows from operations.
The most significant assumption used to determine the Company’s projected benefit obligation under its defined
benefit plans is the discount rate. For further details on rates and assumptions, see Item 8 “Financial Statements
and Supplementary Data” under Note 11, Employee Benefit Plans, to the consolidated financial statements.
STOCK-BASED COMPENSATION ARRANGEMENTS
We account for the cost resulting from stock-based compensation arrangements at grant date fair value, utilizing
the Black-Scholes option pricing model, which requires the use of subjective assumptions. These assumptions
include the following:
•
•
•
•
•
Volatility – This is a measure of the amount by which a stock price has fluctuated or is expected to
fluctuate. We use actual monthly historical changes in the market value of our stock covering the
expected life of stock 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 related compensation expense.
Dividend yield – We estimate a dividend yield based on the current dividend amount as a percentage
of our current stock price. An increase in the dividend yield will decrease the fair value of the stock
option and related stock-based compensation expense.
Forfeitures – We estimate forfeitures of stock-based awards based on historical experience and
expected future activity.
Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based
compensation and consequently, the related amount recognized in the accompanying consolidated statements of
operations.
We account for performance-based awards over the vesting term of the awards that are expected to vest based on
whether it is probable that the performance criteria will be achieved. We reassess the probability of vesting at
each reporting period for awards with performance criteria and adjust stock-based compensation expense based
on the probability assessments.
During the requisite service period, we recognize a deferred income tax benefit for the expense recognized for
U.S. GAAP. At time of subsequent vesting, exercise, forfeiture, or expiration of an award, the difference between
our actual income tax deduction, if any, and the previously accrued income tax benefit is recognized in our
income tax expense/benefit during the current period.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CURRENCY AND INTEREST RATE RISKS
In the operation of our business, we have market risk exposures including those related to foreign currency risk
and interest rates. These risks, and our strategies to manage our exposure to them, are discussed below.
Currency Risk
We contract for production with third parties primarily in Asia. While these contracts are stated in U.S. dollars,
there can be no assurance that the cost for the future production of our products will not be affected by exchange
rate fluctuations between the U. S. dollar and the local currencies of these contractors. Due to the number of
currencies involved, we cannot quantify the potential impact that future currency fluctuations may have on our
results of operations in future periods.
The financial statements of our foreign subsidiaries that are denominated in functional currencies other than the
U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities and
weighted-average exchange rates for revenues and expenses. Gains and losses resulting from translating assets
and liabilities from the functional currency to U.S. dollars are included in accumulated other comprehensive
income (loss).
Our foreign subsidiaries typically record sales denominated in currencies other than the U.S. dollar, which are
then translated into U.S. dollars using weighted-average exchange rates. The changes in foreign currency
exchange rates in fiscal 2018, compared to fiscal 2017, negatively affected our International segment’s net sales
by approximately $2.6 million.
Fluctuations in exchange rates between the U.S. dollar and other currencies may affect our results of operations,
financial position, and cash flows. Transactions by our foreign subsidiaries may be denominated in a currency
other than the entity’s functional currency. Foreign currency transaction gains and losses also include the impact
of noncurrent intercompany loans with foreign subsidiaries that are marked to market. In our statement of
operations, these gains and losses are recorded within other expense, net.
As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange rate
fluctuations, primarily between the U.S. dollar and currencies of Canada and Mexico, we may use foreign
currency forward contracts to hedge purchases that are made in U.S. dollars, primarily for inventory purchases for
our Canadian and Mexican operations. As part of this hedging strategy, we have used foreign currency forward
exchange contracts with maturities of less than 12 months to provide coverage throughout the hedging period.
Interest Rate Risk
Our operating results are subject to risk from interest rate fluctuations on our amended revolving credit facility,
which carries variable interest rates. Weighted-average variable rate borrowings for the fiscal year ended
December 29, 2018 were $286.9 million. An increase or decrease of 1% in the effective interest rate on that
amount would have increased or decreased our annual pretax interest cost for fiscal 2018 by approximately
$2.9 million.
OTHER RISKS
We enter into various purchase order commitments with our suppliers. We can cancel these arrangements,
although in some instances, we may be subject to a termination charge reflecting a percentage of work performed
prior to cancellation.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARTER’S, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Page
51
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Consolidated Statements of Operations for the fiscal years ended December 29, 2018, December 30,
2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Consolidated Statements of Comprehensive Income for the fiscal years ended December 29, 2018,
December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2018, December 30,
2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended December 29,
2018, December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Carter’s, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Carter’s, Inc. and its subsidiaries (the
“Company”) as of December 29, 2018 and December 30, 2017, and the related consolidated statements of
operations, comprehensive income, cash flows, and changes in stockholders’ equity for each of the three years in
the period ended December 29, 2018, including the related notes (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of
December 29, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 29, 2018 and December 30, 2017, and the results of their
operations and their cash flows for each of the three years in the period ended December 29, 2018 in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 29, 2018,
based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and
on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
51
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accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 25, 2019
We have served as the Company’s auditor since at least 1968. We have not been able to determine the specific
year we began serving as auditor of the Company.
52
CARTER’S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
December 29,
2018
December 30,
2017
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 170,077
258,259
574,226
40,396
$ 178,494
240,561
548,722
52,935
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradenames, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,042,958
350,437
365,692
227,101
44,511
28,159
1,020,712
377,924
365,551
230,424
47,996
28,435
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,058,858
$2,071,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 199,076
128,345
$ 182,114
149,134
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
327,421
593,264
87,347
181,393
331,248
617,306
84,944
180,128
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,189,425
1,213,626
Commitments and contingencies—Note 18
Stockholders’ equity:
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or
outstanding at December 29, 2018 and December 30, 2017 . . . . . . . . . . . . . . . . . . .
—
—
Common stock, voting; par value $.01 per share; 150,000,000 shares authorized;
45,629,014 and 47,178,346 shares issued and outstanding at December 29, 2018
and December 30, 2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
456
(40,839)
909,816
472
(29,093)
886,037
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
869,433
857,416
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,058,858
$2,071,042
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See accompanying notes to the consolidated financial statements.
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CARTER’S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,462,269
1,964,786
$3,400,504
1,917,150
$3,198,543
1,820,024
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . .
1,497,483
38,930
1,144,980
1,483,354
43,181
1,106,928
1,378,519
42,815
995,406
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
391,433
34,569
(527)
1,416
355,975
73,907
419,607
30,044
(345)
(1,164)
391,072
88,224
425,928
27,044
(563)
4,007
395,440
137,731
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 282,068
$ 302,848
$ 257,709
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend declared and paid per common share . . . . . . . . . . . . . . . . . . .
$
$
$
6.06
6.00
1.80
$
$
$
6.31
6.24
1.48
$
$
$
5.12
5.08
1.32
See accompanying notes to the consolidated financial statements.
54
CARTER’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized loss on OshKosh defined benefit plan, net of tax benefit
of $80, $140, and $400 for the fiscal years 2018, 2017, and 2016,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on Carter’s post-retirement benefit
obligation, net of (tax) or tax benefit of ($70), $70, and ($200)
for fiscal years 2018, 2017, and 2016, respectively . . . . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
$
282,068
$
302,848
$
257,709
(281)
(430)
(666)
214
(11,679)
(11,746)
(262)
6,339
5,647
331
1,962
1,627
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
270,322
$
308,495
$
259,336
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See accompanying notes to the consolidated financial statements.
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CARTER’S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of property, plant, and equipment . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment and accretion of contingent considerations . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash stock-based compensation expense . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
Unrealized foreign currency exchange loss (gain), net
Provisions for doubtful accounts receivable from customers . . . . . .
Income tax benefit from stock-based compensation . . . . . . . . . . . . .
Loss on disposal of property, plant, and equipment . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . .
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
$
282,068
$
302,848
$
257,709
85,936
3,717
—
1,746
14,673
271
15,801
—
995
(1,018)
(34,448)
(30,646)
12,121
4,982
81,796
2,616
(3,600)
1,572
17,549
(624)
4,663
—
1,572
(54,936)
(22,709)
(20,922)
(21,791)
41,587
71,522
1,919
—
1,461
16,847
33
562
(4,800)
1,167
1,061
4,479
(17,482)
1,141
33,610
Net cash provided by operating activities . . . . . . . . . . . . . . . . .
356,198
329,621
369,229
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . .
Disposals of property, plant, and equipment . . . . . . . . . . . . . . . . . . .
(63,783)
96
380
(69,473)
(158,457)
15
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . .
(63,307)
(227,915)
Cash flows from financing activities:
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under secured revolving credit facility . . . . . . . . . . . . . .
Payments on secured revolving credit facility . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit from stock-based compensation . . . . . . . . . . . . .
Withholdings of taxes from vesting of restricted stock . . . . . . . . . . .
Proceeds from exercises of stock options . . . . . . . . . . . . . . . . . . . . .
(968)
290,000
(315,000)
(193,028)
(83,717)
—
(6,830)
10,597
(2,119)
200,000
(163,965)
(188,762)
(70,914)
—
(5,753)
8,438
(88,556)
—
216
(88,340)
—
—
—
(300,445)
(66,355)
4,800
(8,673)
7,166
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . .
(298,946)
(223,075)
(363,507)
Net effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of fiscal year . . . . . . . . . . . . . . .
(2,362)
(8,417)
178,494
505
(120,864)
299,358
767
(81,851)
381,209
Cash and cash equivalents, end of fiscal year . . . . . . . . . . . . . . . . . . . .
$
170,077
$
178,494
$
299,358
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CARTER’S, INC.
(dollars in thousands)
Common
stock -
shares
Common
stock - $
Additional
paid-in
capital
Accumulated
other
comprehensive
(loss)
income
Retained
earnings
Total
stockholders’
equity
Balance at January 2, 2016 . . . . . . . . .
51,764,309
$ 518
$
— $ (36,367)
$ 911,536
$ 875,687
Income tax benefit from stock-
based compensation . . . . . . . . . .
Exercise of stock options . . . . . . . .
Withholdings from vesting of
restricted stock . . . . . . . . . . . . . .
Restricted stock activity . . . . . . . . .
Stock-based compensation
expense . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . .
Repurchase of common stock . . . . .
Cash dividends declared and
paid . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . .
—
160,200
(91,629)
152,413
—
12,758
(3,049,381)
—
—
—
2
(1)
1
—
—
(31)
—
—
4,800
7,164
(8,672)
(1)
15,662
1,185
(20,138)
—
—
—
—
—
—
—
—
—
—
—
4,800
7,166
(8,673)
—
—
—
(280,276)
15,662
1,185
(300,445)
—
—
—
1,627
(66,355)
257,709
(66,355)
259,336
Balance at December 31, 2016 . . .
48,948,670
$489
$
— $(34,740)
$ 822,614
$ 788,363
Exercise of stock options . . . . . . . .
Withholdings from vesting of
restricted stock . . . . . . . . . . . . . .
Restricted stock activity . . . . . . . . .
Stock-based compensation
expense . . . . . . . . . . . . . . . . . . . .
Issuance of common stock . . . . . . .
Repurchases of common stock . . . .
Cash dividends declared and
paid . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . .
240,850
(67,546)
145,913
—
13,860
(2,103,401)
—
—
2
(1)
2
—
1
(21)
—
—
8,436
(5,752)
(2)
16,378
1,170
(20,230)
—
—
—
—
—
—
—
—
—
8,438
(5,753)
—
—
—
(168,511)
16,378
1,171
(188,762)
—
—
—
5,647
(70,914)
302,848
(70,914)
308,495
Balance at December 30, 2017 . . .
47,178,346
$472
$
— $(29,093)
$ 886,037
$ 857,416
Exercise of stock options . . . . . . . .
Withholdings from vesting of
restricted stock . . . . . . . . . . . . . .
Restricted stock activity . . . . . . . . .
Stock-based compensation
expense . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . .
Cash dividends declared and
paid . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . .
261,113
(57,554)
126,638
—
(1,879,529)
—
—
3
(1)
1
—
(19)
—
—
10,594
(6,829)
(1)
14,673
(18,437)
—
—
—
—
—
—
—
—
10,597
(6,830)
—
—
(174,572)
14,673
(193,028)
—
—
—
(11,746)
(83,717)
282,068
(83,717)
270,322
Balance at December 29, 2018 . . .
45,629,014
$456
$
— $(40,839)
$ 909,816
$ 869,433
See accompanying notes to the consolidated financial statements.
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CARTER’S, INC.
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, Precious Baby, Simple
Joys, OshKosh B’gosh (“OshKosh”), Skip Hop, and other brands. The Company’s products are sourced through
contractual arrangements with manufacturers worldwide for: 1) wholesale distribution to leading department
stores, national chains, and specialty retailers domestically and internationally and 2) distribution to the
Company’s own retail stores and eCommerce sites that market its brand name merchandise and other licensed
products manufactured by other companies.
NOTE 2—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 2018, which ended on
December 29, 2018, fiscal 2017, which ended on December 30, 2017, and fiscal 2016, which ended on
December 31, 2016, all contained 52 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.
As disclosed in Note 2, Significant Accounting Policies, and Note 3, Revenue Recognition, at the beginning of
fiscal 2018 the Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC”) No. 606, Revenue from Contracts with Customers, and related amendments (“ASC 606”)
using the full retrospective adoption method. The full retrospective method required the Company to apply the
standard to the financial statements for the period of adoption as well as to each prior reporting period presented.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Translation adjustments
The functional currency of substantially all of the Company’s foreign operations is the local currency in each
foreign country. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 the currencies of Canada and Mexico, 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 and Mexican operations. As part of this 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 have been recorded in Other
(income) expense, 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.
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 29, 2018, the Company had approximately $170.1 million of cash and cash equivalents in major
financial institutions, including approximately $36.7 million in financial institutions located outside of the United
States. 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 as
having acceptable risk profiles.
ACCOUNTS RECEIVABLE
Concentration of credit risk
In fiscal 2018, 2017, and 2016, no one customer accounted for 10% or more of the Company’s consolidated net
sales.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
At December 29, 2018, three wholesale customers each had individual receivable balances in excess of 10% of
gross accounts receivable, and the total receivable balances due from these three wholesale customers in the
aggregate equaled approximately 40% of total gross trade receivables outstanding. At December 30, 2017, 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
28% of total gross accounts receivable outstanding.
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 approximately at the lower of cost (first-in,
first-out basis for wholesale inventory and average cost for retail inventories) or net realizable value. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTERNAL-USE SOFTWARE
The Company purchases software licenses from external vendors and also develops software internally using
Company employees and consultants. Software license 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. If a software application does not include a purchased license for the software, such as a cloud-
based software application, the arrangement is accounted for as a service contract.
GOODWILL AND OTHER INTANGIBLE ASSETS
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.
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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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 term 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-current based on the expiration date of the
credit facility.
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, and any unsettled
foreign currency forward contracts at fair value. The 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 8, Long-Term Debt, to the
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
At the beginning of fiscal 2018, the Company adopted the provisions of ASC No. 606, Revenue from Contracts
with Customers, and all related amendments (“ASC 606”) using the full retrospective adoption method. Refer to
Note 3, Revenue Recognition, for additional information.
The Company uses the five-step model to recognize revenue:
Identify the contract with the customer;
Identity the performance obligation(s);
1)
2)
3) Determine the transaction price;
4) Allocate the transaction price to each performance obligation if multiple obligations exist; and
5) Recognize the revenue as the performance obligations are satisfied
Performance Obligations
The Company identifies each distinct performance obligation to transfer goods (or bundle of goods). The
Company recognizes revenue when (or as) it satisfies a performance obligation by transferring control of the
goods to the customer. Other than inbound and outbound freight and shipping arrangements, the Company does
not use third parties to satisfy its performance obligations in revenue arrangements with customers.
When Performance Obligations Are Satisfied
Wholesale Revenues — The Company typically transfers control upon shipment. However, in certain
arrangements where the Company retains the risk of loss during shipment, satisfaction of the performance
obligation occurs when the goods reach the customer.
Retail Revenues — For transactions in stores, the Company satisfies its performance obligation at point of sale
when the customer takes possession of the goods and tenders payment. The redemption of loyalty points under
the Company’s rewards program and redemptions of gift cards may be part of a transaction. For purchases made
through the Company’s eCommerce channel, revenue is recognized when the goods are physically delivered to
the customer.
The Company satisfies its performance obligations with licensees over time as customers have the right to use
the intellectual property over the contract period.
Significant Payment Terms
Retail customers tender a form of payment, such as cash or a credit/debit card, at point of sale. For wholesale
customers and licensees, payment is due based on established terms.
Returns and Refunds
The Company establishes return provisions for retail customers. It is the Company’s policy not to accept returns
from wholesale customers.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Significant Judgments
Sale of Goods — The Company relies on shipping terms to determine when performance obligations are
satisfied. When goods are shipped to wholesale customers “FOB Shipping Point,” control of the goods is
transferred to the customer at the time of shipment if there are no remaining performance obligations. The
Company recognizes the revenue once control passes to the customer. For retail transactions, no significant
judgments are involved since revenue is recognized at the point of sale when tender is exchanged and the
customer receives the goods.
Royalty Revenues — The Company transfers the right-to-use benefit to the licensee for the contract term and
therefore the Company satisfies its performance obligation over time. Revenue recognized for each reporting
period is based on the greater of: 1) the royalties owed on actual net sales by the licensee and 2) a minimum
royalty guarantee, if applicable.
Transaction Price — The transaction price is the amount of consideration the Company expects to receive under
the arrangement. The Company is required to estimate variable consideration (if any) and to factor that
estimation into the determination of the transaction price. The Company may offer sales incentives to wholesale
and retail customers, including discounts. For retail transactions, the Company has significant experience with
return patterns and relies on this experience to estimate expected returns when determining the transaction price.
Standalone Selling Prices — For arrangements that contain multiple performance obligations, the Company
allocates the transaction price to each performance obligation on a relative standalone selling price basis.
Costs Incurred to Obtain a Contract — Incremental costs to obtain contracts are not material to the Company.
Policy Elections
In addition to those previously disclosed, the Company has made the following accounting policy elections and
practical expedients:
•
•
•
•
•
Portfolio Approach — The Company uses the portfolio approach when multiple contracts or
performance obligations are involved in the determination of revenue recognition.
Taxes — The Company excludes from the transaction price any taxes collected from customers that
are remitted to taxing authorities.
Shipping and Handling Charges — Charges that are incurred before and after the customer obtains
control of goods are deemed to be fulfillment costs.
Time Value of Money — The Company’s payment terms are less than one year from the transfer of
goods. Therefore, the Company does not adjust promised amounts of consideration for the effects of
the time value of money.
Disclosure of Remaining Performance Obligations — The Company does not disclose the aggregate
amount of the transaction price allocated to remaining performance obligations for contracts that are
one year or less in term.
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 $3.0 million
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
for fiscal 2018, $3.1 million for fiscal 2017, and $3.7 million for fiscal 2016 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.
COSTS OF GOODS SOLD AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In addition to the cost of product, cost of goods sold includes expenses related to the merchandising, design, and
procurement of product. Also included are outbound shipping costs incurred in the eCommerce channel related to
delivery of product to the end consumer. Generally, all other expenses, excluding interest and income taxes, are
included in selling, general and administrative (“SG&A”) expenses, including distribution expenses. Distribution
expenses that are included in SG&A primarily consist of payments to third-party shippers and handling costs to
process product through our distribution facilities and delivery to our wholesale customers and to our retail
stores. Distribution expenses included in SG&A totaled $188.9 million, $173.5 million, and $153.7 million for
fiscal years 2018, 2017, and 2016, respectively.
Definitions of gross profit and gross margin very across the industry and as such, our metrics may not be
comparable to other companies.
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INCOME FROM ROYALTIES AND LICENSE FEES
The Company licenses the Carter’s, Child of Mine, Just One You, Precious Firsts, Precious Baby, Carter’s little
baby basics, and Simple Joys 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 eCommerce site 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. During the requisite service period, the Company also recognizes a deferred income tax
benefit for the expense recognized for U.S. GAAP. At time of subsequent vesting, exercise, forfeiture, or
expiration of an award, the difference between the Company’s actual income tax deduction, if any, and the
previously accrued income tax benefit is recognized in income tax expense/benefit during the current period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
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 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The accompanying consolidated financial statements reflect current and deferred tax provisions, in accordance
with ASC 740, Income Taxes. 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. A company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of
the position. If it is more likely than not that a tax position would not be sustained, then no tax benefit would be
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.
For current and deferred tax provisions, ASC 740 requires an entity to account for the effects of new income tax
legislation in the same reporting period that the tax legislation is enacted. Recent tax law changes known as the
U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Act”) were enacted in the United States on December 22, 2017.
The 2017 Act, among other things, reduces the United States federal corporate tax rate from 35% to 21%,
requires companies to pay a one-time transition tax (“toll tax”) on earnings of certain foreign subsidiaries that
were previously tax deferred, and creates new taxes on certain foreign sourced earnings. For the 2017 Act, SEC
Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, permitted
the Company to calculate and recognize provisional estimates during the period of enactment (fourth quarter of
fiscal 2017) for the accounting of the 2017 Act. Subsequent adjustments to provisional estimates were reflected
in the Company’s income tax provisions/benefits during fiscal 2018. See Note 12, Income Taxes, to the
consolidated financial statements.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash approximated $33.6 million, $28.3 million, and $25.4 million for fiscal years 2018, 2017,
and 2016, respectively. Income taxes paid in cash approximated $55.9 million, $132.9 million and $120.6 million
for fiscal years 2018, 2017, and 2016, respectively.
Additions to property, plant and equipment of approximately $1.9 million, $1.9 million, and $2.6 million were
excluded from capital expenditures on the Company’s consolidated statements of cash flows for fiscal years
2018, 2017, and 2016, respectively, since these amounts were accrued and unpaid at the end of each respective
fiscal year.
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).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 2018, 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. Under the provisions of ASU No. 2015-04, Practical
Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, the Company
is permitted to use December 31 of each year, as opposed to the Company’s last day of each fiscal year, as an
alternate measurement date for its defined benefit plans.
FACILITY CLOSURE AND SEVERANCE COSTS
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 2018
Revenue from Contracts with Customers (ASC No. 606)
At the beginning of fiscal 2018, the Company adopted the provisions of ASC No. 606, Revenue from Contracts
with Customers, and all related amendments (“ASC 606”) using the full retrospective adoption method. Refer to
Note 3, Revenue Recognition, for additional information.
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), was
effective for the Company at the beginning of its fiscal 2018. ASC 606 clarifies the principles for recognizing
revenue and is applicable to all contracts with customers regardless of industry-specific or transaction-specific
fact patterns. Further, the guidance requires improved and additional disclosures to help users of financial
statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Beginning
in the first quarter of fiscal 2018, the Company applied the provisions of ASC 606 retrospectively to each prior
reporting period presented for fiscal 2017 and fiscal 2016. For all periods prior to fiscal 2016, the adoption of
ASC 606 is reported as an adjustment to opening retained earnings at the beginning of fiscal 2016 of
approximately $0.6 million. The adoption of ASC 606, including any of the policy elections required or
permitted by ASC 606, had no material effect on the Company’s consolidated financial position, results of
operations, cash flows, processes, systems, or controls.
Classification of Costs Related to Defined Benefit Pension and Other Post-retirement Benefit Plans
(ASU 2017-07)
At the beginning of fiscal 2018, the Company adopted ASU No. 2017-07, Compensation—Retirement Benefits
(Topic 715: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit
Cost (“ASU 2017-07”). ASU 2017-07 changes how employers that sponsor defined benefit pension and/or other
post-retirement benefit plans present the net periodic benefit costs in the statement of operations. Under this new
guidance, an employer’s statement of operations presents service cost arising in the current period in the same
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement line item as other employee compensation. However, all other components of current period costs
related to defined benefit plans, such as prior service costs and actuarial gains and losses, are presented on the
statement of operations on a line item outside (or below) operating income. ASU 2017-07 affects only the
classification of certain costs on the statement of operations, not the determination of costs. Net periodic pension
costs related to the Company’s frozen defined benefit pension plan and post-retirement medical benefit plan were
not material for fiscal 2018, or prior periods. Prior period results have not been reclassified on the Company’s
statement of operations due to materiality.
Modifications to Share-based Compensation Awards (ASU 2017-09)
At the beginning of fiscal 2018, the Company adopted ASU No. 2017-09, Compensation-Stock Compensation
Topic 718-Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies when changes to the
terms and conditions of share-based payment awards must be accounted for as modifications. Entities apply the
modification accounting guidance if the value, vesting conditions, or classification of an award changes. The
Company has not modified any share-based payment awards. If the Company modifies share-based payment
awards in the future, it will apply the provisions of ASU 2017-09.
Definition of a Business (ASU 2017-01)
At the beginning of fiscal 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 assists entities in determining if acquired
assets constitute the acquisition of a business or the acquisition of assets for accounting and reporting purposes.
This distinction is important because goodwill can only be recognized in an acquisition of a business. Prior to
ASU 2017-01, if revenues were generated immediately before and after a transaction, the acquisition was
typically considered a business. Under ASU 2017-01, entities are required to further assess the substance of the
processes they acquire. If the Company commences or completes an acquisition in future periods, it will apply
the provisions of ASU 2017-01.
Statement of Cash Flows (ASU 2016-15)
At the beginning of fiscal 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230)
(“ASU 2016-15”). ASU 2016-15 represents a consensus of the FASB’s Emerging Issues Task Force on eight
separate issues that, if present, can impact classifications on the statement of cash flows. The guidance requires
application using a retrospective transition method. The adoption of ASU 2016-15 only impacted the
classification of certain insurance proceeds on the Company’s consolidated statement of cash flows for fiscal
2018.
To Be Adopted After Fiscal 2018
Leases (ASU 2016-02)
In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases-Topic 842,
which has been codified in ASC 842, Leases (“ASC 842”). Under this new guidance, as a lessee, certain of the
Company’s leases under existing guidance are classified as operating leases that are not recorded on the balance
sheet but are recorded in the statement of operations as expense is incurred. Upon adoption of the standard, the
Company will be required to record substantially all leases on the balance sheet as a right-of-use (“ROU”) asset
and a lease liability. The Company expects to utilize the related package of practical expedients permitted by the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
transition guidance in ASU 2016-02, which allows the Company to carry forward its identification of contracts
that are or contain leases, its historical lease classification and its initial direct costs for existing leases. The
Company expects to recognize lease liabilities for its operating leases totaling between $800 million and
$900 million upon adoption. The initial ROU assets recognized will be equal to the initial operating lease
liabilities, adjusted for the balance on adoption date of prepaid and accrued rent, lease incentives and
unamortized initial direct costs. The Company currently expects to recognize ROU assets totaling between
$650 million and $750 million upon adoption. The Company does not expect adoption of the standard to have a
material impact on the Company’s historical capital leases, which will be presented as finance leases under ASU
2016-02. Additionally, the Company does not believe adoption of this standard will have a material effect on the
Company’s consolidated results of operations or cash flows.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02)
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 permits a company to reclassify the income tax
effects of the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) on items within accumulated other
comprehensive income or loss (“AOCI-L”) to retained earnings. Because most items that are charged to AOCI-L
are recorded net of applicable income taxes, the subsequent reclassification of these items from AOCI-L to the
statement of operations will be at different income tax rates due to the 2017 Tax Act, thereby leaving a
“stranded” tax balance within AOCI-L. ASU 2018-02 will allow a company to transfer these “stranded” amounts
from AOCI-L to retained earnings. ASU 2018-02 will be effective for the Company at the beginning of fiscal
2019, with early adoption permitted. The Company has amounts in its AOCI-L for defined benefit retirement
plans that were recorded net of applicable income taxes, thus the Company anticipates the transfer of “stranded”
tax amounts from its AOCI-L to retained earnings upon the adoption of ASU 2018-02. The believes the effect of
the adoption of ASU 2018-02 will not be material to the Company’s financial position. Further, the Company
does not believe the adoption will have an effect on the Company’s consolidated results of operations or cash
flows.
Credit Losses (ASU 2016-13)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This new guidance will change how
entities account for credit impairment for trade and other receivables, as well as for certain financial assets and
other instruments. ASU 2016-13 will replace the current “incurred loss” model with an “expected loss” model.
Under the “incurred loss” model, a loss (or allowance) is recognized only when an event has occurred (such as a
payment delinquency) that causes the entity to believe that a loss is probable (i.e., that it has been “incurred”).
Under the “expected loss” model, an entity will recognize a loss (or allowance) upon initial recognition of the
asset that reflects all future events that will lead to a loss being realized, regardless of whether it is probable that
the future event will occur. The “incurred loss” model considers past events and current conditions, while the
“expected loss” model includes expectations for the future which have yet to occur. ASU 2016-13 is effective for
public companies for fiscal years beginning after December 15, 2019 with early adoption permitted for fiscal
years beginning after December 15, 2018, including interim periods therein. The standard will require entities to
record a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in
which the guidance is effective. The Company is currently evaluating the potential impact that ASU 2016-13
may have on the timing of recognizing future provisions for expected losses on the Company’s accounts
receivable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill Impairment Testing (ASU 2017-04)
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 will eliminate the requirement to calculate
the implied fair value of goodwill (step 2 of the current goodwill impairment test) to measure a goodwill
impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s
carrying amount over its fair value (i.e., measure the charge based on the current step 1). Any impairment charge
will be limited to the amount of goodwill allocated to an impacted reporting unit. ASU 2017-04 will not change
the current guidance for completing Step 1 of the goodwill impairment test, and an entity will still be able to
perform the current optional qualitative goodwill impairment assessment before determining whether to proceed
to Step 1. Upon adoption, ASU 2017-04 will be applied prospectively. Adoption for public companies is
effective for annual and interim impairment tests performed in periods after December 15, 2019. Early adoption
is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The impact that
ASU 2017-04 may have on the Company’s financial condition or results of operations will depend on the
circumstances of any goodwill impairment event that may occur after adoption.
NOTE 3—REVENUE RECOGNITION
The Company’s revenues are earned from contracts or arrangements with retail and wholesale customers and
licensees. Contracts include written agreements, as well as arrangements that are implied by customary practices
or law.
At the beginning of fiscal 2018, the Company adopted the provisions of ASC 606 using the full retrospective
adoption method. Under the full retrospective method, the Company adjusted all periods in fiscal 2017 and fiscal
2016 to reflect the provisions of ASC 606, and retained earnings at January 2, 2016 (beginning of fiscal 2016)
were adjusted for the cumulative effect for prior periods. Refer to the section “Revenue from Contracts with
Customers (ASC No. 606)” in Note 2, Significant Accounting Policies, for changes to the Company’s accounting
policies due to the adoption of ASC 606.
ASC 606 affected the Company’s retail channels as follows:
•
•
Accelerated the recognition of breakage revenue from unredeemed gift cards, which affected net
sales, gross profit, income before income taxes, and net income on the Company’s statements of
operations. Basic and diluted net income per share were affected by $0.01 or less for each reporting
period. Related gift card liabilities and income tax liabilities were also affected.
A portion of the estimated value of goods expected to be returned by customers was reclassified
between net sales and cost of goods sold, with no net effect on gross profit, income before income
taxes, or net income on the Company’s statement of operations. Related reclassifications were also
made between other current assets and other current liabilities on the Company’s balance sheets.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—REVENUE RECOGNITION (Continued)
The effects of retrospective adoption on the Company’s consolidated Statements of Operations were as follows:
(dollars in thousands, except per share data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the fiscal year ended
2017
$92
$52
$40
$84
$—
$—
2016
$(637)
$
(7)
$(630)
$(397)
$(0.01)
$ —
The cumulative effect to the Company’s retained earnings at January 2, 2016 was an after-tax increase of
approximately $0.6 million.
The effects of adoption of ASC 606 on the Company’s consolidated balance sheet at December 30, 2017 were as
follows:
(dollars in thousands)
ASSETS
As
Previously
Reported
ASC 606
Adjustments
As Amended for
ASC 606
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
49,892
$1,017,669
$2,067,999
$3,043(1)
$3,043
$3,043
$
52,935
$1,020,712
$2,071,042
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 146,510
$ 328,624
$
84,848
$1,210,906
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . .
$ 885,714
$ 857,093
$2,067,999
$2,624(2)
$2,624
$
96
$2,720
$ 323(3)
$ 323
$3,043
$ 149,134
$ 331,248
$
84,944
$1,213,626
$ 886,037
$ 857,416
$2,071,042
(1) Reclassification of estimated inventory expected to be returned by customers through future sales refund
transactions. This amount was reclassified from the returns reserve (current liability) to a current asset.
Prior to the Company’s adoption of ASC 606, the Company’s returns reserve (current liability) was
reported net of the estimated inventory expected to be returned by customers through sales refund
transactions.
(2) Amount includes a reclassification of approximately $3.0 million for estimated inventory expected to be
returned by customers, partially offset by a reclassification of approximately $0.4 million for gift card
liabilities.
(3) Cumulative impact of approximately $0.6 million for after-tax adjustments to retained earnings at the
beginning of fiscal 2016, offset by ASC 606 effects on fiscal 2017 and fiscal 2016 results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—REVENUE RECOGNITION (Continued)
DISAGGREGATION OF REVENUE
The Company sells its products directly to consumers (“direct-to-consumer”) and to other retail companies and
partners that subsequently sell the products directly to their own retail customers. The Company also earns
royalties from its licensees. Disaggregated revenues from these sources for fiscal years 2018, 2017, and 2016
were as follows:
(dollars in thousands)
U.S. Retail
U.S. Wholesale
International
Total
Wholesale channel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct-to-consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $1,180,687
—
1,851,193
$163,637
266,752
$1,344,324
$2,117,945
Fiscal year ended December 29, 2018
$1,851,193
$1,180,687
$430,389
$3,462,269
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,877
$
22,511
$
3,542
$
38,930
(dollars in thousands)
U.S. Retail
U.S. Wholesale
International
Total
Wholesale channel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct-to-consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $1,209,663
—
1,775,378
$160,850
254,613
$1,370,513
$2,029,991
Fiscal year ended December 30, 2017
$1,775,378
$1,209,663
$415,463
$3,400,504
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
15,541
$
23,767
$
3,873
$
43,181
(dollars in thousands)
U.S. Retail
U.S. Wholesale
International
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale channel
Direct-to-consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $1,178,034
—
1,655,784
$133,681
231,044
$1,311,715
$1,886,828
Fiscal year ended December 31, 2016
$1,655,784
$1,178,034
$364,725
$3,198,543
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,318
$
25,000
$
5,497
$
42,815
ACCOUNTS RECEIVABLE FROM CUSTOMERS AND LICENSEES
The components of Accounts receivable, net, were as follows:
(dollars in thousands)
December 29,
2018
December 30,
2017
Trade receivables from wholesale customers, net . . . . . . . . . . .
Royalties receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant allowances and other receivables . . . . . . . . . . . . . . . . .
$
244,258
9,279
16,588
$
229,968
9,818
14,511
Total gross receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
270,125
$
254,297
Less:
Wholesale accounts receivable reserves . . . . . . . . . . . . . . . . . .
(11,866)
(13,736)
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
258,259
$
240,561
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3—REVENUE RECOGNITION (Continued)
CONTRACT ASSETS AND LIABILITIES
The Company’s contract assets are not material.
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from the customer and has a
future obligation to transfer goods to the customer. Total contract liabilities consisted of the following amounts:
(dollars in thousands)
Contract liabilities-current:
December 29,
2018
December 30,
2017
Unredeemed gift cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed customer loyalty rewards . . . . . . . . . . . . . . . . .
Total contract liabilities-current (*) . . . . . . . . . . . . . . . . . .
$14,471
7,764
$22,235
$11,945
7,355
$19,300
*
Included with Other current liabilities on the Company’s consolidated balance sheet.
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Composition of Contract Liabilities
Unredeemed gift cards—the Company is obligated to transfer goods in the future to customers who have
purchased gift cards. Periodic changes in the gift card contract liability result from the redemption of gift cards
by customers and the recognition of estimated breakage revenue for those gift card balances that are not expected
to be redeemed. The majority of our gift cards do not have an expiration date; however, all outstanding gift card
balances are classified by the Company as current liabilities since gift cards are redeemable on demand by the
valid holder. The majority of the Company’s gift cards are redeemed within one year of issuance.
Unredeemed loyalty rewards—points and reward certificates earned by customers under the Company’s loyalty
programs represent obligations of the Company to transfer goods to the customer upon redemption. Periodic
changes in the loyalty program contract liability result from reward certificate redemptions and expirations. The
earning and redemption cycles for our loyalty program are under one year in duration.
NOTE 4—BUSINESS ACQUISITIONS
Based on their purchase prices and pre-acquisition operating results and assets, neither of the businesses acquired
by the Company in fiscal 2017 met the materiality requirements for preparation and presentation of pro forma
financial information, either individually or in the aggregate.
Skip Hop Acquisition
Carter’s, Inc.‘s wholly-owned subsidiary, The William Carter Company (“TWCC”), acquired 100% of the voting
equity interests of Skip Hop Holdings, Inc. and subsidiaries (collectively “Skip Hop”) after the close of business
on February 22, 2017. The Skip Hop purchase was deemed to be the acquisition of a business under the
provisions of ASC No. 805, Business Combinations (“ASC 805”). The Company’s consolidated financial
statements reflect the consolidation of the financial position, results of operations and cash flows of Skip Hop
beginning February 23, 2017.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4—BUSINESS ACQUISITIONS (Continued)
The measurement period (as defined in ASC 805) for Skip Hop was complete at the end of fiscal 2017 and all
measurement period adjustments were reflected in the Company’s consolidated balance sheet as of December 30,
2017. As a result of the measurement period adjustments recorded between the acquisition date and the end of
fiscal 2017, the net assets acquired consisted of the following: $46.0 million of goodwill including an assembled
workforce; $104.1 million of intangible assets comprised of a tradename and acquired customer
relationships; $53.9 million of tangible assets acquired; and $20.8 million of liabilities in addition to $36.3
million of deferred income tax liabilities. The adjusted purchase price was approximately $142.5 million, net of
$0.8 million of cash acquired.
Acquisition of Mexican Licensee
On August 1, 2017, the Company, through certain of its wholly-owned subsidiaries, acquired the outstanding
equity of the Company’s licensee in Mexico and a related entity (collectively “Carter’s Mexico”). Both entities
are incorporated under Mexican law. Prior to the acquisition, Carter’s Mexico was primarily a licensee and
wholesale customer of the Company. The Carter’s Mexico purchase was deemed to be the acquisition of a
business under the provisions of ASC 805. The Company’s consolidated financial statements reflect the
consolidation of the financial position, results of operations and cash flows of Carter’s Mexico beginning
August 1, 2017. Carter’s Mexico became part of the Company’s International reportable segment.
As of December 30, 2017, preliminary values assigned to assets acquired included inventories of approximately
$8.3 million, a customer relationships intangible asset of approximately $3.5 million, and goodwill of
approximately $6.2 million. Measurement period adjustments made in the first quarter of fiscal 2018 were not
material.
The measurement period (as defined in ASC 805) for the acquisition of Carter’s Mexico was completed during
the second quarter of fiscal 2018 and all measurement period adjustments were reflected in the Company’s
consolidated balance sheet as of December 29, 2018. As a result of the measurement period adjustments recorded
between the acquisition date and the end of the second quarter of fiscal 2018, the values assigned to assets
acquired included inventories of approximately $8.0 million, a customer relationships intangible asset of
approximately $3.5 million, and goodwill of approximately $6.3 million.
NOTE 5—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net consists of the following:
(dollars in thousands)
December 29,
2018
December 30,
2017
Fixtures, equipment, computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . .
Land, building, and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 425,686
348,131
7,001
18,517
$ 430,156
336,981
7,602
7,358
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
799,335
(448,898)
782,097
(404,173)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 350,437
$ 377,924
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5—PROPERTY, PLANT, AND EQUIPMENT (Continued)
Depreciation and amortization expense related to property, plant, and equipment was approximately
$85.9 million, $81.8 million, and $71.5 million for fiscal years 2018, 2017, and 2016, respectively.
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the Company’s goodwill and other intangible assets at the end of the fiscal year:
(dollars in thousands)
Weighted-
average
useful life
December 29, 2018
December 30, 2017
Gross
amount
Accumulated
amortization
Net
amount
Gross
amount
Accumulated
amortization
Net
amount
Carter’s goodwill (1) . . . . . . . . . .
Canada goodwill (2) . . . . . . . . . .
Skip Hop goodwill (3) . . . . . . . . .
Carter’s Mexico goodwill (4) . . .
Indefinite $136,570
38,869
Indefinite
45,960
Indefinite
5,702
Indefinite
$ — $136,570 $136,570
42,223
38,869
45,997
45,960
5,634
5,702
—
—
—
$ — $136,570
42,223
45,997
5,634
—
—
—
Total goodwill . . . . . . . . . . . . . . .
$227,101
$ — $227,101 $230,424
$ — $230,424
Carter’s tradename . . . . . . . . . . .
OshKosh tradename . . . . . . . . . . .
Skip Hop tradename . . . . . . . . . . .
Indefinite $220,233
85,500
Indefinite
56,800
Indefinite
3,911
Finite-life tradenames . . . . . 5 - 20years
$ — $220,233 $220,233
85,500
85,500
56,800
56,800
3,550
3,159
—
—
752
$ — $220,233
85,500
56,800
3,018
—
—
532
Total tradenames, net
. . . . . . . . .
$366,444
$ 752
$365,692 $366,083
$ 532
$365,551
Skip Hop customer
relationships . . . . . . . . . . . . . . .
15years
$ 47,300
$5,480
$ 41,820 $ 47,300
$2,304
$ 44,996
Carter’s Mexico customer
relationships . . . . . . . . . . . . . . .
10years
3,146
455
2,691
3,135
135
3,000
Carter’s Mexico customer
relationships . . . . . . . . . . . . . . .
10years
3,135
135
3,000
—
—
—
Total customer relationships,
net
. . . . . . . . . . . . . . . . . . . . . .
$ 50,446
$5,935
$ 44,511 $ 50,435
$2,439
$ 47,996
(1) $45.9 million is assigned to the U.S. Wholesale segment, $82.0 million is assigned to the U.S. Retail
segment, and $8.6 million is assigned to the International segment.
(2) Goodwill for Canada (Bonnie Togs) is assigned to the International segment.
(3) $28.6 million is assigned to the U.S. Wholesale segment, $15.5 million is assigned to the International
segment, and $1.9 million is assigned to the U.S. Retail segment.
(4) Goodwill for Carter’s Mexico is assigned to the International segment.
Changes in the carrying values between comparative periods for goodwill related to the Company’s 2011
acquisition of its Canadian business (Bonnie Togs) were due to fluctuations in the foreign currency exchange
rates between the Canadian and U.S. dollar that were used in the remeasurement process for preparing the
Company’s consolidated financial statements. The changes in the carrying values of goodwill, customer
relationships, and tradename intangible assets for Skip Hop and Carter’s Mexico, including the related
accumulated amortization, that were not attributable to amortization expense was also impacted by foreign
currency exchange rate fluctuations.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Amortization expense for intangible assets subject to amortization was approximately $3.7 million, $2.6 million,
and $1.9 million for fiscal years 2018, 2017, and 2016, respectively.
The estimated amortization expense for the next five fiscal years is as follows:
(dollars in thousands)
Amortization expense
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,732
$3,732
$3,732
$3,732
$3,690
NOTE 7—ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income is summarized as follows:
(dollars in thousands)
Pension liability
adjustments
Post-retirement
liability
adjustments
Cumulative
translation
adjustments
Accumulated
other
comprehensive
(loss) income
Balance at January 2, 2016 . . . . . . . . . . . . . . . .
Fiscal year 2016 change . . . . . . . . . . . . . . . . . . .
$
(8,185) $
(666)
Balance at December 31, 2016 . . . . . . . . . . . . .
Fiscal year 2017 change . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2017 . . . . . . . . . . . . .
Fiscal year 2018 change . . . . . . . . . . . . . . . . . . .
(8,851)
(430)
(9,281)
(281)
1,404
331
1,735
(262)
1,473
214
$
(29,586) $
1,962
(27,624)
6,339
(21,285)
(11,679)
(36,367)
1,627
(34,740)
5,647
(29,093)
(11,746)
Balance at December 29, 2018 . . . . . . . . . . . . .
$
(9,562) $
1,687
$
(32,964) $
(40,839)
As of December 29, 2018 and December 30, 2017, the cumulative tax effect on the pension liability adjustments
were $5.4 million and $5.3 million, respectively. As of December 29, 2018 and December 30, 2017, the
cumulative tax effect on the post-retirement liability adjustments were approximately $1.0 million for both years.
The deferred income taxes associated with these obligations are subject to adjustments upon the Company’s
adoption of ASC 2018-02. See Note 2, Significant Accounting Policies.
For the fiscal years ended December 29, 2018 and December 30, 2017, 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. For additional
information, see Note 11, Employee Benefit Plans, to the consolidated financial statements.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8—LONG-TERM DEBT
Long-term debt consisted of the following:
(dollars in thousands)
December 29,
2018
December 30,
2017
Senior notes at amounts repayable . . . . . . . . . . . . . . . . . . . . . . .
Less: unamortized issuance-related costs for senior notes . . . .
$400,000
(2,736)
$400,000
(3,694)
Senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$397,264
$396,306
Secured revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . .
196,000
221,000
Total long-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$593,264
$617,306
SENIOR NOTES
During fiscal 2013, the Company’s 100% owned subsidiary, 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 29, 2018. 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.
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The senior notes are unsecured and are fully and unconditionally guaranteed by Carter’s, Inc. and certain
domestic subsidiaries of TWCC. The guarantor subsidiaries are 100% owned directly or indirectly by Carter’s,
Inc. and all guarantees are joint, several and unconditional.
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 is applicable when the redemption occurs during the twelve-month
period beginning on August 15 of each of the years indicated is as follows:
Year
2018 . . . . . . . . . . . . . . . . . . . . . . . .
2019 and thereafter . . . . . . . . . . . . . . . . .
Percentage
101.31%
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, 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
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8—LONG-TERM DEBT (Continued)
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 August 25, 2017, TWCC and the syndicate of lenders entered into a fourth amended and restated secured
revolving credit agreement. This amendment to the secured revolving credit facility provides: (a) an extension of
the term of the facility to August 25, 2022 and (b) an increase in the aggregate credit line to $750 million which
includes a $650 million U.S. dollar facility and a $100 million multicurrency facility denominated in U.S.
dollars, Canadian dollars, Euros, Pounds Sterling, or other currencies agreed to by the applicable lenders. The
$650 million U.S. dollar facility is inclusive of a $100 million sub-limit for letters of credit and a swing line
sub-limit of $70 million. The $100 million multicurrency facility is inclusive of a $40 million sub-limit for letters
of credit and a swing line sub-limit of $15 million. In addition, the secured revolving credit facility provides for
incremental borrowing facilities up to $425 million, which are comprised of an incremental $350 million U.S.
dollar revolving credit facility and an incremental $75 million multicurrency revolving credit facility. The
incremental U.S. dollar revolving credit facility can increase to an unlimited borrowing amount so long as the
consolidated first lien leverage ratio (as defined in the secured revolving credit facility) does not exceed
2.25:1.00. In connection with the amendment, the Company paid approximately $2.1 million in debt issuance
costs. These debt issuance costs, together with existing unamortized debt issuance costs, are being amortized
over the five-year remaining term of the secured revolving credit facility.
On September 21, 2018, TWCC and a syndicate of lenders entered into Amendment No. 1 to its fourth amended
and restated credit agreement that, among other things, extended the term of the facility from August 25, 2022 to
September 21, 2023. In connection with the amendment, the Company paid approximately $1.0 million in debt
issuance costs. These newly-incurred debt issuance costs, together with existing unamortized debt issuance costs,
are being amortized over the five-year remaining term of the secured revolving credit facility.
Under the secured revolving credit facility, TWCC and its domestic subsidiaries have granted to the collateral
agent, for the benefit of the lenders, valid and perfected first priority security interests in substantially all of their
present and future assets, excluding certain customary exceptions, and guarantee the obligations of the
borrowers. In addition, The Genuine Canadian Corp., as Canadian borrower, and Carter’s Holdings B.V., as
Dutch borrower, have each guaranteed the obligations of the other.
As of December 29, 2018 and December 30, 2017, the Company had $196.0 million and $221.0 million in
outstanding borrowings under its secured revolving credit facility, respectively, exclusive of $5.0 million and
$4.5 million of outstanding letters of credit, respectively. As of December 29, 2018 and December 30, 2017,
there were approximately $549.0 million and $524.5 million available for future borrowing, respectively.
As of December 29, 2018, the interest rate margins applicable to the amended revolving credit facility were
1.625% 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 0.625% for base rate loans (which may be adjusted
based on a leverage-based pricing grid ranging from 0.125% to 0.875%).
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8—LONG-TERM DEBT (Continued)
As of December 29, 2018 and December 30, 2017, U.S. dollar borrowings outstanding under the secured
revolving credit facility accrued interest at a LIBOR rate plus the applicable base rate, which resulted in a
weighted-average borrowing rate of 4.11% and 2.93%, respectively. There were no Canadian borrowings
outstanding on December 29, 2018 or December 30, 2017.
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 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.
As of December 29, 2018, the Company was in compliance with its financial debt covenants under the secured
revolving credit facility.
NOTE 9—COMMON STOCK
SHARE REPURCHASES
In fiscal years prior to 2016, 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 both February 24, 2016 and February 22, 2018,
the Company’s Board of Directors authorized an additional $500 million of share repurchases, thereby
authorizing repurchase amounts up to $1.46 billion. The total remaining capacity under the repurchase
authorizations as of December 29, 2018 was $392.6 million.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9—COMMON STOCK (Continued)
Open-market repurchases of our common stock during fiscal years 2018, 2017 and 2016 were as follows:
Fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate cost of shares repurchased (dollars in thousands) . . . . . . . . .
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,879,529
$ 193,028
102.70
$
2,103,401
$ 188,762
89.74
$
3,049,381
$ 300,445
98.53
$
In addition to the open-market repurchases completed in fiscal years 2018, 2017 and 2016, the Company
completed additional open-market repurchases totaling approximately $387.6 million in fiscal year priors to
2016.
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 2018, the Company’s Board of Directors declared and paid quarterly cash dividends of $0.45 per share
during all four quarters. In fiscal 2017, the Company’s Board of Directors paid quarterly cash dividends of $0.37
per share during all four quarters.
On February 14, 2019, the Company’s Board of Directors authorized a quarterly cash dividend payment of $0.50
per common share, payable on March 22, 2019 to shareholders of record at the close of business on March 12,
2019.
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 8, Long-Term Debt, to the consolidated financial statements.
NOTE 10—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 17, 2018 shareholders’ meeting, the shareholders approved an amendment to the Plan to
increase the maximum number of shares of stock available under the Plan by 3,000,000 shares from a cumulative
total of 15,778,392 shares to 18,778,392 shares. As of December 29, 2018, there were 3,702,701 remaining
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.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10—STOCK-BASED COMPENSATION (Continued)
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.
The Company recorded stock-based compensation cost as follows:
(dollars in thousands)
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock:
Time-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the fiscal years ended
December 29,
2018
December 30,
2017
December 31,
2016
$
4,788
$
4,244
$
4,237
7,938
744
1,203
7,532
4,602
1,171
7,451
3,974
1,185
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,673
$
17,549
$
16,847
The Company recognizes compensation cost ratably over the applicable performance periods based on the
estimated probability of achievement of its performance targets at the end of each period. During fiscal 2018, the
Company revised the estimated achievement of performance targets related to certain performance-based grants
resulting in a $3.9 million reduction to stock compensation expense.
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 29, 2018 were as follows:
Outstanding, December 30, 2017 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
shares
1,494,223
255,532
(261,113)
(40,533)
(968)
Weighted-
average
exercise price
$ 61.76
$118.43
$ 40.58
$ 98.01
$ 95.10
Weighted-
average
remaining
contractual
terms (years)
Aggregate
intrinsic value
(in thousands)
Outstanding, December 29, 2018 . . . . . . . . . . . . . . . . . . .
1,447,141
$ 74.55
Vested and Expected to Vest, December 29, 2018 . . . . .
Exercisable, December 29, 2018 . . . . . . . . . . . . . . . . . . . .
1,377,440
851,264
$ 73.10
$ 57.33
5.96
5.82
4.31
$21,714
$21,714
$21,714
The intrinsic value of stock options exercised during the fiscal years ended December 29, 2018, December 30,
2017, and December 31, 2016 was approximately $16.6 million, $14.9 million, and $9.0 million, respectively. At
December 29, 2018, there was approximately $8.8 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 2.6 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10—STOCK-BASED COMPENSATION (Continued)
The table below presents the weighted-average assumptions used to calculate the fair value of options granted in
each of the respective fiscal years:
For the fiscal years ended
December 29,
2018
December 30,
2017
December 31,
2016
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value of options granted . . . . . . . . . . . . . . . . . . .
22.93%
2.75%
6.0
1.47%
26.20%
2.06%
6.0
1.77%
26.95%
1.33%
6.0
1.45%
$27.36
$19.57
$21.41
RESTRICTED STOCK AWARDS
Restricted stock awards issued under the Plan vest based upon: 1) continued service (time-based) or 2) a
combination of continued service and performance targets (performance-based).
The following table summarizes activity related to all restricted stock awards during the fiscal year ended
December 29, 2018:
Restricted
stock
awards
Weighted-
average
grant-date
fair value
Outstanding, December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 85.44
397,848
$118.03
143,085
(151,321) $ 84.56
(15,604) $ 97.83
Outstanding, December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
374,008
$ 97.57
During fiscal 2017, a total of 168,471 shares of restricted stock vested with a weighted-average fair value of
$74.00 per share. During fiscal 2016, a total of 218,335 shares of restricted stock vested with a weighted-average
fair value of $62.98 per share. At December 29, 2018, there was approximately $16.0 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 2.3 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 2018, 2017, and 2016, a total of 100,625 shares, 114,703 shares, and 124,135 shares,
respectively, of time-based restricted stock vested with a weighted-average fair value of $85.64 per share, $76.58
per share, and $65.80 per share, respectively. At December 29, 2018, there was approximately $13.4 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 2.4 years.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10—STOCK-BASED COMPENSATION (Continued)
Performance-based Restricted Stock Awards
Fiscal year
Number of shares
granted
Weighted-average
fair value per share
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,070
60,952
45,625
$ 90.66
$ 83.84
$120.25
During the fiscal year ended December 29, 2018, a total of 50,696 performance shares vested with a weighted-
average fair value of $82.40 per share. As of December 29, 2018, a total of 153,922 performance shares were
unvested with a weighted-average fair value of $96.47 per share. Vesting of these 153,922 performance shares is
based on the performance targets for the shares granted in fiscal 2018, 2017, and 2016. As of December 29,
2018, there was approximately $2.6 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.
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 2018, 2017, and 2016, such awards were as follows:
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Fiscal year
Number of shares
issued
Fair value per
share
Aggregate value
(in thousands)
2016 . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . .
12,758
13,860
10,971
$101.10
$ 84.46
$109.67
$1,290
$1,171
$1,203
The Company received no proceeds from the issuance of these shares.
NOTE 11—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.
85
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
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:
(dollars in thousands)
Change in projected benefit obligation:
For the fiscal year ended
December 29, 2018 December 30, 2017
Projected benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
66,747
2,287
(4,371)
(2,366)
62,297
54,437
(2,507)
6,000
(2,366)
55,564
6,733
$
$
$
$
$
62,427
2,446
4,269
(2,395)
66,747
51,213
5,619
—
(2,395)
54,437
12,310
The accumulated benefit obligation is equal to the projected benefit obligation as of December 29, 2018 and
December 30, 2017 because the plan is frozen. The unfunded status is included in other long-term liabilities in
the Company’s consolidated balance sheet. The Company made a discretionary contribution of $6.0 million to
the OshKosh B’Gosh pension plan in fiscal 2018. The Company does not expect to make any contributions to the
OshKosh B’Gosh pension plan during fiscal 2019 as the plan’s funding exceeds the minimum funding
requirements. The actuarial gain in fiscal 2018 was primarily attributable to a higher discount rate while the
actuarial loss incurred in fiscal 2017 was primarily attributable to a lower discount rate.
86
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
Net Periodic Pension Cost and Changes Recognized in Other Comprehensive Income
The components of net periodic pension cost recognized in the statement of operations and changes recognized in
other comprehensive income were as follows:
(dollars in thousands)
December 29, 2018 December 30, 2017 December 31, 2016
For the fiscal year ended
Recognized in the statement of operations:
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Recognized actuarial loss (1) . . . . . . . . . . . . . . . . . . . . . . .
Net periodic pension cost
. . . . . . . . . . . . . . . . . . . . .
Changes recognized in other comprehensive income:
Net loss arising during the fiscal year . . . . . . . . . . . . . .
Amortization of net loss (1) . . . . . . . . . . . . . . . . . . . . . .
Total changes recognized in other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net periodic cost and changes recognized in
other comprehensive income . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
2,287
(2,934)
709
62
1,070
(709)
361
423
$
$
$
$
$
2,446
(2,601)
681
526
1,251
(681)
570
1,096
$
$
$
$
$
2,515
(2,701)
578
392
1,644
(578)
1,066
1,458
(1) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2019,
approximately $0.8 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
2018
2017
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.00% 3.50%
Net periodic pension cost
2018
2017
2016
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on assets . . . . . . . . . . . . . . . . . . . . .
3.50% 4.00% 4.25%
6.25% 6.00% 6.00%
The discount rates used at December 29, 2018, December 30, 2017, and December 31, 2016 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 $2.0 million.
87
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
The Company currently expects benefit payments for its defined benefit pension plans as follows for the next ten
fiscal years:
(dollars in thousands)
2019 . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . .
2024-2028 . . . . . . . . . . . . . . . . .
$ 3,020
$ 2,600
$ 2,660
$ 2,860
$ 2,940
$17,850
Plan Assets
The Company’s investment strategy is to invest in a well-diversified portfolio consisting of 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 45% equity securities, 50% bond funds, and 5% real
estate investments. The plan expects to gradually reduce its equity exposure.
The Company’s investment policy anticipates a rate of return sufficient to fund pension plan benefits while
minimizing the risk to the Company of additional funding. Based on actual returns over a long-term basis, the
Company believes that a 5.50% 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 a small exposure to 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 29, 2018 and December 30, 2017, by asset
category, were as follows:
(dollars in thousands)
Asset Category
Cash and cash equivalents . . . . .
Equity Securities:
U.S. Large-Cap blend (1)
. . . . .
U.S. Large-Cap growth . . . . . . .
U.S. Mid-Cap growth . . . . . . . .
U.S. Small-Cap blend . . . . . . . .
International blend . . . . . . . . . . .
Fixed income securities:
Corporate bonds (2) . . . . . . . . . .
Real estate (3) . . . . . . . . . . . . . .
December 29, 2018
December 30, 2017
Total
Level 1
Level 2
Total
Level 1
Level 2
$
550
$
550
$ —
$
539
$
539
$ —
7,693
3,478
3,355
2,224
8,302
7,693
3,478
3,355
2,224
8,302
—
—
—
—
—
7,418
3,331
3,228
2,147
8,142
7,418
3,331
3,228
2,147
8,142
—
—
—
—
—
27,247
2,715
27,006
2,715
241
—
26,888
2,744
26,480
2,744
408
—
$55,564
$55,323
$241
$54,437
$54,029
$408
(1) This category comprises low-cost equity index funds not actively managed that track the Standard & Poor’s 500
Index.
88
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
(2) This category invests in both U.S. Treasuries and mid-term corporate debt from U.S. issuers from diverse
industries.
(3) 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:
(dollars in thousands)
For the fiscal years ended
December 29,
2018
December 30,
2017
APBO at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contribution . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,969
32
123
(573)
1
(324)
APBO at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,228
$
4,125
30
137
26
6
(355)
3,969
Approximately $2.9 million and $3.6 million of the APBO at the end of fiscal 2018 and 2017, respectively, were
classified as other long term liabilities in the Company’s consolidated balance sheets.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
Net Periodic Post-Retirement (Benefit) Cost and Changes Recognized in Other Comprehensive Income
The components of net periodic post-retirement cost (benefit) recognized in the statement of operations and
changes recognized in other comprehensive income were as follows:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Recognized in the statement of operations:
Service cost—benefits attributed to service during the period . . . . . . . .
Interest cost on accumulated post-retirement benefit obligation . . . . . .
Amortization net actuarial gain (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic post-retirement (benefit) cost . . . . . . . . . . . . . . . . . . .
Changes recognized in other comprehensive income:
Net loss (gain) arising during the fiscal year
. . . . . . . . . . . . . . . . . . .
Prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net gain (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total changes recognized in other comprehensive income . . . . . . .
Total net periodic (benefit) cost and changes recognized in
other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
32
123
(289)
$
30
137
(306)
(134) $
(139) $
(573) $
—
289
(284) $
26
—
306
332
(418) $
193
$
$
$
123
177
(198)
102
(740)
11
198
(531)
(429)
(*) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2019,
approximately $0.4 million is expected to be reclassified from accumulated other comprehensive loss as a credit to
periodic net periodic pension cost.
Assumptions
The actuarial computations utilized the following assumptions, using year-end measurement dates:
Benefit obligation
2018
2017
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.00% 3.25%
Net periodic pension cost
2018
2017
2016
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.25% 3.50% 3.75%
The discount rates used at December 29, 2018, December 30, 2017, and December 31, 2016, 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.
90
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11—EMPLOYEE BENEFIT PLANS (Continued)
The Company’s contribution for these post-retirement benefit obligations was approximately $0.3 million in
fiscal year 2018, $0.3 million in fiscal year 2017, and $0.4 million in fiscal year 2016. The Company expects that
its contribution and benefit payments for post-retirement benefit obligations will be approximately $0.3 million
for fiscal years 2019, 2020, 2021, 2022, and 2023. For the five years subsequent to fiscal 2023, the aggregate
contributions and benefit payments for post-retirement benefit obligations is expected to be approximately
$1.1 million. The Company does not pre-fund this plan and as a result there are no plan assets.
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 in the United States and Canada. The U.S. plan
covers employees who are at least 21 years of age and have completed one calendar month of service and, if part-
time, work a minimum of one thousand hours of service within the one-year period following the commencement
of employment or during any subsequent calendar year. The plan provides for a discretionary employer match.
The Company’s expense for the U.S. defined contribution savings plan totaled approximately $8.0 million,
$13.9 million, and $10.5 million for the fiscal years ended December 29, 2018, December 30, 2017, and
December 31, 2016, respectively. Expenses related to the Canadian defined contribution savings plan were
approximately $0.1 million for the fiscal year ended December 29, 2018 and approximately $0.3 million for the
fiscal year ended December 30, 2017; amounts for fiscal 2016 were not material.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12—INCOME TAXES
PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Current tax provision:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
48,129
9,437
17,359
$
$
117,676
11,368
14,116
113,326
11,407
11,937
Total current provision . . . . . . . . . . . . . . . . . . . . . . . . . .
$
74,925
$
143,160
$
136,670
Deferred tax provision (benefit):
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(760) $
140
(398)
(55,191) $
337
(82)
Total deferred provision . . . . . . . . . . . . . . . . . . . . . . . . .
(1,018)
(54,936)
1,215
332
(486)
1,061
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
73,907
$
88,224
$
137,731
The foreign portion of the tax position substantially relates to the Company’s international operations in Canada,
Hong Kong and Mexico in addition to foreign tax withholdings related to the Company’s foreign royalty income.
The Company plans to repatriate undistributed earnings from Hong Kong and a portion of its previously taxed
earnings from Canada, and has provided for deferred income taxes related to these earnings. Due to the impact of
the one-time toll tax enacted under the U.S. Tax Cuts and Jobs Act of 2017 ( the “2017 Act”) which taxed
cumulative earnings in our foreign subsidiaries and the current US tax regime which taxes foreign earnings in the
year earned, taxes associated with repatriation are not material. Deferred income taxes have not been provided
for the portion of undistributed foreign earnings from Canada or Mexico that we do not plan to repatriate, or any
additional outside basis difference inherent in all foreign entities, as these amounts continue to be indefinitely
reinvested in foreign operations. Total undistributed earnings from the Company’s subsidiaries in Canada and
Mexico amounted to approximately $82 million. Unrecognized deferred tax liability related to undistributed
earnings from the Company’s subsidiaries in Canada and Mexico are estimated to be less than $2 million, based
on applicable withholding taxes, levels of foreign income previously taxed in the U.S. and applicable foreign tax
credit limitations. The company accounts for the additional U.S. income tax on its foreign earnings under Global
Intangible Low-Taxed Income (“GILTI”) as a period expense in the period in which additional tax is due.
PROVISIONAL ESTIMATE
The provision for income taxes recognized by the Company during 2017 reflected certain provisional estimates
for the accounting of the December 22, 2017 enactment of tax law changes known as the 2017 Act. During the
fourth quarter of fiscal 2017, the Company recognized an income tax provisional tax expense of $10.4 million
related to the Company’s total post-1986 foreign earnings and profits (“E&P”) that the Company previously
deferred from United States income taxes. During fiscal 2018, the Company completed its calculation of the
one-time transition tax for all of its foreign subsidiaries. The adjustment made to this provisional tax expense
estimate was not material.
92
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12—INCOME TAXES (Continued)
The components of income before income taxes were as follows:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
260,722
95,253
$
325,620
65,452
$
344,674
50,766
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
355,975
$
391,072
$
395,440
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 year ended
December 29,
2018
December 30,
2017
December 31,
2016
Statutory federal income tax rate . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . .
Impact of foreign operations . . . . . . . . . . . . . . . . . . . . . . .
Settlement of uncertain tax positions . . . . . . . . . . . . . . . .
Benefit from stock-based compensation . . . . . . . . . . . . . .
Imposition of transition tax on foreign subsidiaries . . . . .
Revaluation of deferred taxes . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0%
2.8%
(1.5)%
(0.4)%
(1.1)%
—%
—%
20.8%
35.0%
2.1%
(2.7)%
(0.3)%
(1.3)%
2.7%
(12.9)%
22.6%
35.0%
2.3%
(2.1)%
(0.4)%
—%
—%
—%
34.8%
The Company and its subsidiaries file a consolidated United States federal income tax return, as well as separate
and combined income tax returns in numerous state and foreign jurisdictions. In most cases, the Company is no
longer subject to US tax authority examinations for years prior to fiscal 2014.
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93
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12—INCOME TAXES (Continued)
DEFERRED TAXES
The following table reflects the Company’s calculation of the components of deferred assets and liabilities as of
December 29, 2018 and December 30, 2017. Certain previously reported amounts as of December 30, 2017 were
revised in the table below. The revisions were not material to the previously issued financial statements.
(dollars in thousands)
December 29,
2018
December 30,
2017
Deferred tax assets:
Accounts receivable allowance . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$
$
Assets (Liabilities)
3,674
7,785
10,672
5,278
6,425
33,761
3,007
3,632
6,759
13,174
6,796
8,112
34,422
2,335
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,602
75,230
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename and licensing agreements . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
(62,898)
(89,194)
(3,774)
(63,763)
(89,142)
(5,328)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(155,866)
(158,233)
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . .
$ (85,264)
$ (83,003)
Amounts recognized in the consolidated balance sheets:
(dollars in thousands)
December 29,
2018
December 30,
2017
Deferred tax assets (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Assets (Liabilities)
2,083
(87,347)
$
1,941
(84,944)
(85,264)
$
(83,003)
(*) At December 30, 2017, deferred tax assets are a component of non-current Other assets on the Company’s
consolidated balance sheet.
During the fourth quarter of fiscal 2017, the Company remeasured certain deferred tax assets and liabilities based
on the rates at which they are expected to reverse in the future, which is generally a 21% federal rate. The
remeasurement resulted in an income tax benefit of $50.4 million.
94
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12—INCOME TAXES (Continued)
UNCERTAIN TAX POSITIONS
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
(dollars in thousands)
Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to fiscal 2016 . . . . . . . . . . . . . .
Reductions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . .
Reductions for prior year tax settlements . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to fiscal 2017 . . . . . . . . . . . . . .
Reductions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to fiscal 2018 . . . . . . . . . . . . . .
Additions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . .
$ 9,415
2,849
(39)
(995)
(693)
$10,537
3,380
(120)
(1,604)
$12,193
3,350
241
(1,867)
Balance at December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,917
As of December 29, 2018, the Company had gross unrecognized tax benefits of approximately $13.9 million, of
which $11.9 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 $2.9 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 2019
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 2018, expense
recorded on uncertain tax positions was approximately $0.8 million. During fiscal 2017 and 2016, interest
expense recorded on uncertain tax positions was not significant. The Company had accrued interest on uncertain
tax positions of approximately $1.8 million and $1.0 million as of December 29, 2018 and December 30, 2017,
respectively.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13—EARNINGS PER SHARE
The following is a reconciliation of basic common shares outstanding to diluted common and common
equivalent shares outstanding:
Weighted-average number of common and common
equivalent shares outstanding:
Basic number of common shares outstanding . . . . . .
Dilutive effect of equity awards . . . . . . . . . . . . . . . .
Diluted number of common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share:
(dollars in thousands, except per share data)
Basic net income per common share:
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
46,160,935
487,485
47,593,211
552,864
49,917,858
457,849
46,648,420
48,146,075
50,375,707
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income allocated to participating securities . . . . . . .
Net income available to common shareholders . . . .
Basic net income per common share . . . . . . . . . . . . .
Diluted net income per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income allocated to participating securities . . . . . . .
Net income available to common shareholders . . . .
Diluted net income per common share . . . . . . . . . . .
$
$
$
$
$
$
282,068
(2,148)
279,920
6.06
282,068
(2,132)
279,936
6.00
$
$
$
$
$
$
302,848
(2,407)
300,441
6.31
302,848
(2,386)
300,462
6.24
$
$
$
$
$
$
257,709
(2,046)
255,663
5.12
257,709
(2,032)
255,677
5.08
Anti-dilutive shares excluded from dilutive earnings
. . . . . . . . . . . . . . . . . . .
per share calculations (1)
289,839
629,944
247,460
(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 10, Stock-based Compensation, to
the consolidated financial statements). 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 represents the lower of the amounts calculated under the treasury stock
method or the two-class method of calculating diluted EPS.
NOTE 14—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.
96
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14—SEGMENT INFORMATION (Continued)
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, to the consolidated financial statements.
At the beginning of fiscal 2017, the Company combined its Carter’s Retail and OshKosh Retail operating
segments into a single U.S. Retail operating segment, and its Carter’s Wholesale and OshKosh Wholesale
operating segments into a single U.S. Wholesale operating segment, in order to reflect the sales-channel approach
the Company’s executive management now uses to evaluate its business performance and manage operations in
the United States. The Company’s International operating segment was not affected by these changes. The
Company’s operating and reportable segments are now U.S. Retail, U.S. Wholesale, and International.
Prior periods have been conformed to reflect the Company’s current segment structure by adding together
Carter’s Retail and OshKosh Retail as U.S. Retail and Carter’s Wholesale and OshKosh Wholesale as U.S.
Wholesale. Prior results for the International segment and Corporate expenses were not impacted.
The table below presents certain segment information for the periods indicated
For the fiscal year ended
(dollars in thousands)
December 29,
2018
% of
Total
December 30,
2017
% of
Total
December 31,
2016
% of
Total
Net sales:
. . . . . . . . . . . . . . . . . . . . . . $1,851,193
U.S. Retail
U.S. Wholesale . . . . . . . . . . . . . . . . . . 1,180,687
430,389
International . . . . . . . . . . . . . . . . . . . . .
53.5% $1,775,378
34.1% 1,209,663
12.4% 415,463
52.2% $1,655,784
35.6% 1,178,034
12.2% 364,725
51.8%
36.8%
11.4%
Total net sales . . . . . . . . . . . . . . . $3,462,269 100.0% $3,400,504 100.0% $3,198,543 100.0%
Operating income:
% of
segment
net sales
% of
segment
net sales
% of
segment
net sales
U.S. Retail (1) (2) (4) . . . . . . . . . . . . . . $ 224,784
224,194
U.S. Wholesale (3) (4) . . . . . . . . . . . . .
39,253
International (4) (5) . . . . . . . . . . . . . . .
12.1% $ 215,640
19.0% 252,090
46,426
9.1%
12.1% $ 211,951
20.8% 260,953
59,194
11.2%
12.8%
22.2%
16.2%
Corporate expenses (6) (7) . . . . . . . . . .
(96,798)
(94,549)
(106,170)
Total operating income . . . . . . . . $ 391,433
11.3% $ 419,607
12.3% $ 425,928
13.3%
(1) Fiscal 2018 includes insurance recovery of approximately $0.4 million associated with unusual storm-related store
closures in 2017.
(2) Fiscal 2017 includes approximately $2.7 million of expenses related to store restructuring and approximately
$12.7 million for provisions for special employee compensation.
(3) Includes approximately $12.8 million of charges, partially offset by a $1.9 million recovery claim settlement,
related to a customer bankruptcy for fiscal 2018. Fiscal 2017 includes approximately $3.3 million for provisions
for special employee compensation.
97
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14—SEGMENT INFORMATION (Continued)
(4) Includes $1.2 million of certain costs related to inventory acquired from Skip Hop in operating income between
U.S. Wholesale, U.S. Retail, and International for fiscal 2017.
(5) Includes international licensing income. Fiscal 2018 includes approximately $5.3 million in costs associated with
changes to the Company’s business model in China, which includes inventory and severance charges. Fiscal 2017
includes approximately $2.3 million for provisions for special employee compensation.
(6) Includes 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.
(7) Includes the following charges for fiscal 2017 and fiscal 2016:
(dollars in millions)
For the fiscal year ended
December 30,
2017
December 31,
2016
Provisions for special employee compensation . . . . . . . . . . . . .
Amortization of H.W. Carter and Sons tradenames . . . . . . . . .
Adjustment to Skip Hop contingent consideration . . . . . . . . . .
Direct sourcing initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9
$
$ —
$ (3.6)
0.3
$
3.4
$
$ —
$
1.7
$ —
0.7
$
2.4
$
ADDITIONAL DATA BY SEGMENT
Inventory
The table below represents inventory by segment:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
December 30,
2017
U.S. Wholesale (*)
. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
$
414,174
96,241
63,811
$
389,484
93,404
65,834
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
574,226
$
548,722
(*) U.S. Wholesale inventories also include inventory produced and warehoused for the U.S. Retail segment.
The table below represents consolidated net sales by product:
(dollars in thousands)
For the fiscal year ended
December 29,
2018
December 30,
2017
December 31,
2016
Baby . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Playclothes . . . . . . . . . . . . . . . . . . . . . . .
Sleepwear
. . . . . . . . . . . . . . . . . . . . . . . .
Other (*) . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,239,009
1,303,610
431,961
487,689
$
1,294,404
1,239,546
426,703
439,851
$
1,241,452
1,214,995
407,078
335,018
Total net sales . . . . . . . . . . . . . . . . . . .
$
3,462,269
$
3,400,504
$
3,198,543
(*) Other product offerings include bedding, outwear, swimwear, shoes, socks, diaper bags, gift sets, toys, and hair
accessories.
98
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14—SEGMENT INFORMATION (Continued)
GEOGRAPHICAL DATA
Revenue
The Company’s international sales principally represent sales to customers in Canada. Such sales were 64.2%
and 64.9% of total international sales in fiscal 2018 and 2017, respectively.
Long-Lived Assets
The following represents property, plant, and equipment, net, by geographic area:
(dollars in thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the fiscal year ended
December 29,
2018
December 30,
2017
$
$
314,679
35,758
350,437
$
$
337,369
40,555
377,924
Long-lived assets in the international segment relate principally to Canada. Long-lived assets in Canada were
87.4% and 87.6% of total international long-lived assets at the end of fiscal 2018 and 2017, respectively.
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NOTE 15—FAIR VALUE MEASUREMENTS
INVESTMENTS
The Company invests in marketable securities, principally equity based mutual funds, to mitigate the risk
associated with the investment return on employee deferrals of compensation. All of the marketable securities are
included in Other assets on the accompanying consolidated balance sheets, and their aggregate fair values were
approximately $15.7 million and $16.7 million at the end of fiscal 2018 and fiscal 2017, respectively. These
investments are classified as Level 1 within the fair value hierarchy. Investments in marketable securities
incurred a net loss of approximately $1.0 million and $0.1 million for fiscal 2018 and 2017, respectively.
The fair value of the Company’s pension plan assets at December 29, 2018 and December 30, 2017, by asset
category, are disclosed in Note 11, Employee Benefits Plans, to the 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 the U.S. dollar and the currencies of
Canada and Mexico) 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.
As of December 29, 2018, there were no open foreign currency contracts. As of December 30, 2017, the fair
value of open foreign currency contracts was not material.
99
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15—FAIR VALUE MEASUREMENTS (Continued)
Realized and unrealized gains and losses on foreign currency contracts were not material for fiscal 2018 and
2017. For foreign currency contracts settled during fiscal 2016, the Company realized net losses of $3.2 million.
These amounts are included in other (income) expense, net on the Company’s consolidated statement of
operations. The were no open foreign currency contracts at the end of fiscal 2016.
BORROWINGS
As of December 29, 2018, the fair value of the Company’s $196.0 million in borrowings under its secured
revolving credit facility approximated carrying value.
The fair value of the Company’s senior notes at December 29, 2018 was approximately $399 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 16—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:
(dollars in thousands)
December 29,
2018
December 30,
2017
Accrued bonuses and incentive compensation . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,409
17,415
16,421
19,120
$
27,566
16,252
21,735
18,213
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 29,
2018
December 30,
2017
Deferred lease incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
72,345
$
75,104
NOTE 17—LEASE COMMITMENTS
Rent expense under operating leases (including properties and computer and office equipment) was
approximately $165.6 million, $161.9 million, and $150.6 million for the fiscal years ended December 29, 2018,
December 30, 2017, and December 31, 2016, respectively.
100
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17—LEASE COMMITMENTS (Continued)
Minimum annual rental commitments under current non-cancellable operating leases, as of December 29, 2018,
substantially all of which relate to leased real estate, were as follows:
Fiscal Year
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Operating
Leases
163,963
150,010
134,203
116,773
102,487
235,731
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
903,167
Amounts related to property include leases on retail stores as well as various corporate offices, distribution
facilities, and other premises. Our average term remaining for a retail store lease in the United States is
approximately 4.9 years, excluding renewal options.
Total commitments under capital leases were approximately $1.3 million at December 29, 2018.
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NOTE 18—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 19—VALUATION AND QUALIFYING ACCOUNTS
Information regarding accounts receivable is as follows:
(dollars in thousands)
Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Wholesale
accounts
receivable
reserves
Wholesale
sales
returns
reserves
8,543
6,088
(5,879)
8,752
8,204
(3,220)
$
$
400
—
(400)
$ — $
—
—
Total
8,943
6,088
(6,279)
8,752
8,204
(3,220)
13,736
30,280
(32,150)
$ — $
—
—
13,736
30,280
(32,150)
Balance at December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
11,866
$ — $
11,866
101
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20—UNAUDITED QUARTERLY FINANCIAL DATA
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.
The unaudited summarized financial data by quarter for the fiscal years ended December 29, 2018 and
December 30, 2017 is presented in the table below:
(dollars in thousands, except per share data)
Quarter 1
Quarter 2
Quarter 3 Quarter 4 (2)
Fiscal 2018:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$755,786
$332,477
7,994
$
$280,162
$ 60,309
$ 42,469
$696,197
$309,958
$ 10,355
$263,343
$ 56,970
$ 37,268
$923,907
$387,450
$ 10,224
$294,117
$103,557
$ 71,770
$1,086,379
$ 467,598
10,357
$
$ 307,358
$ 170,597
$ 130,561
Basic net income per common share (1) . . . . . . . . . . . . . . . . . . .
Diluted net income per common share (1) . . . . . . . . . . . . . . . . . .
$
$
0.90
0.89
$
$
0.80
0.79
$
$
1.55
1.53
$
$
2.85
2.83
Fiscal 2017:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$732,827
$315,692
$ 10,558
$247,794
$ 78,456
$ 46,595
$691,751
$303,247
$ 11,210
$250,146
$ 64,311
$ 37,793
$948,046
$403,578
$ 10,350
$283,480
$130,448
$ 82,316
$1,027,880
$ 460,837
$
11,063
$ 325,508
$ 146,392
$ 136,144
Basic net income per common share (1) . . . . . . . . . . . . . . . . . . .
Diluted net income per common share (1) . . . . . . . . . . . . . . . . . .
$
$
0.96
0.95
$
$
0.78
0.77
$
$
1.73
1.71
$
$
2.88
2.85
(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.
(2) The provision for income taxes recognized during the fourth quarter of fiscal 2017 reflects a benefit of
$40.0 million related to the accounting for the December 22, 2017 enactment of tax law changes known
as the U.S. Tax Cuts and Jobs Act of 2017.
NOTE 21—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.
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
102
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
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.
F
o
r
m
1
0
-
K
103
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Balance Sheet
As of December 29, 2018
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $
Accounts receivable, net . . . . . . . . . .
Intercompany receivable . . . . . . . . . .
Finished goods inventories . . . . . . . .
Prepaid expenses and other current
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
— $ 118,600 $
— 203,546
89,201
—
— 329,989
14,735 $ 36,742 $
38,753
156,965
199,091
15,960
70,684
63,811
— $ 170,077
— 258,259
—
574,226
(316,850)
(18,665)
assets . . . . . . . . . . . . . . . . . . . . . . .
—
8,483
23,987
7,926
—
40,396
Total current assets . . . . . . . . . . . .
Property, plant, and equipment, net . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . .
Tradenames, net . . . . . . . . . . . . . . . . . . .
Customer relationships, net . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . .
Intercompany long-term receivable . . . .
Intercompany long-term note
— 749,819
— 133,765
— 136,570
— 223,073
—
—
—
24,399
—
433,531
180,914
45,368
142,619
41,820
1,321
— 541,629
195,123
35,758
45,163
—
2,691
2,439
—
(335,515) 1,042,958
— 350,437
— 227,101
— 365,692
44,511
—
28,159
—
—
(541,629)
receivable . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . .
— 100,000
1,173,415
869,433
—
303,368
(100,000)
—
— (2,346,216)
—
—
Total assets . . . . . . . . . . . . . . . . . . . . . . $869,433 $2,541,041 $1,690,570 $281,174 $(3,323,360) $2,058,858
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $
Intercompany Liabilities . . . . . . . . . .
Other current liabilities . . . . . . . . . . .
— $ 137,524 $
— 220,033
35,311
—
44,066 $ 17,486 $
93,790
78,595
3,027
14,439
(316,850)
— $ 199,076
—
— 128,345
Total current liabilities . . . . . . . . .
Long-term debt, net . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . .
Intercompany long-term liability . . . . . .
Intercompany long-term note
payable . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . .
Total liabilities and
— 392,868
— 593,264
—
46,640
— 541,629
216,451
—
40,327
—
34,952
—
380
—
(316,850)
327,421
— 593,264
87,347
—
—
(541,629)
—
—
869,433
— 100,000
91,218
1,242,574
78,542
888,098
—
11,633
234,209
(100,000)
—
— 181,393
869,433
(2,364,881)
stockholders’ equity . . . . . . . $869,433 $2,541,041 $1,690,570 $281,174 $(3,323,360) $2,058,858
104
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Balance Sheet
As of December 30, 2017
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $
Accounts receivable, net
. . . . . . . . . .
Intercompany receivable . . . . . . . . . .
Finished goods inventories . . . . . . . . .
Prepaid expenses and other current
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
— $ 129,463 $
— 182,944
87,702
—
— 296,065
10,030 $ 39,001 $
40,286
162,007
206,556
17,331
58,980
66,569
— $ 178,494
— 240,561
—
548,722
(308,689)
(20,468)
assets . . . . . . . . . . . . . . . . . . . . . . . .
—
17,012
21,354
14,569
—
52,935
Total current assets . . . . . . . . . . . . .
Property, plant, and equipment, net . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . .
Tradenames, net . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .
Customer relationships, net
Other assets . . . . . . . . . . . . . . . . . . . . . .
Intercompany long-term receivable . . . .
Intercompany long-term note
— 713,186
— 147,858
— 136,570
— 223,251
—
—
—
23,884
—
440,233
189,511
45,368
142,300
44,996
2,392
— 441,294
196,450
40,555
48,486
—
3,000
2,159
(329,157) 1,020,712
— 377,924
— 230,424
— 365,551
47,996
—
28,435
—
—
— (441,294)
receivable . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . .
— 100,000
1,053,224
857,416
—
231,994
— (100,000)
— (2,142,634)
—
—
Total assets . . . . . . . . . . . . . . . . . . . . . . . $857,416 $2,397,973 $1,538,088 $290,650 $(3,013,085) $2,071,042
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $
Intercompany payables . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . .
— $ 115,658 $
— 215,573
11,805
—
49,313 $ 17,143 $
91,697
122,989
1,419
14,340
(308,689)
— $ 182,114
—
— 149,134
F
o
r
m
1
0
-
K
Total current liabilities . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . .
Intercompany long-term liability . . . . . .
Intercompany long-term note
payable . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . .
Total liabilities and
— 343,036
— 617,306
—
46,619
— 441,294
263,999
—
37,647
—
—
—
857,416
— 100,000
92,570
1,043,872
71,834
877,884
32,902
—
678
(308,689)
331,248
— 617,306
84,944
—
—
— (441,294)
— (100,000)
—
— 180,128
857,416
(2,163,102)
15,724
241,346
stockholders’ equity . . . . . . . . $857,416 $2,397,973 $1,538,088 $290,650 $(3,013,085) $2,071,042
105
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statements of Operations
For the fiscal year ended December 29, 2018
(dollars in thousands)
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . .
— $1,936,576 $2,039,889 $431,745
213,462
— 1,458,934
1,217,110
$(945,941) $3,462,269
(924,720) 1,964,786
Gross profit . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . .
Selling, general, and administrative
— 477,642
32,958
—
822,779
18,652
218,283
—
(21,221) 1,497,483
38,930
(12,680)
expenses . . . . . . . . . . . . . . . . . . . . . .
— 191,068
856,665
132,951
(35,704) 1,144,980
Operating income (loss)
. . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . .
(Income) loss in subsidiaries . . . . . . . . .
Other expense (income), net . . . . . . . . .
— 319,532
34,523
—
(5,329)
—
(38,528)
(282,068)
495
—
Income (loss) before income taxes . . . .
Provision for income taxes . . . . . . . . . .
282,068
—
328,371
48,106
(15,234)
5,310
(2)
(71,671)
(189)
51,318
12,790
85,332
44
(504)
1,803
(5,308)
5,308
— 392,267
—
1,110
84,682
13,011
(390,464)
—
391,433
34,569
(527)
—
1,416
355,975
73,907
Net income (loss)
. . . . . . . . . . . . . . . . . $ 282,068 $ 280,265 $
38,528 $ 71,671
$(390,464) $ 282,068
For the fiscal year ended December 30, 2017
(dollars in thousands)
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of goods sold . . . . . . . . . . . . . . . . .
— $1,922,930 $1,955,703 $372,314
196,391
— 1,406,517
1,143,867
$(850,443) $3,400,504
(829,625) 1,917,150
Gross profit . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . .
Selling, general, and administrative
— 516,413
34,816
—
811,836
19,725
175,923
—
(20,818) 1,483,354
43,181
(11,360)
expenses . . . . . . . . . . . . . . . . . . . . . .
— 181,129
837,252
126,057
(37,510) 1,106,928
. . . . . . . . . . . .
Operating income (loss)
Interest expense . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . .
(Income) loss in subsidiaries . . . . . . . . .
Other (income) expense, net . . . . . . . . .
— 370,100
29,758
—
(5,497)
—
(25,426)
(302,848)
(1,154)
—
Income (loss) before income taxes . . . .
Provision for income taxes . . . . . . . . . .
302,848
—
372,419
74,903
(5,691)
5,498
—
(38,948)
1,281
26,478
1,052
49,866
96
(156)
5,332
(5,308)
5,308
— 367,222
—
(1,291)
51,217
12,269
(361,890)
—
419,607
30,044
(345)
—
(1,164)
391,072
88,224
Net income (loss)
. . . . . . . . . . . . . . . . . $ 302,848 $ 297,516 $
25,426 $ 38,948
$(361,890) $ 302,848
106
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING 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 . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . .
$
— $1,881,918
— 1,358,209
$1,762,252
1,033,403
$300,523
155,560
$(746,150) $3,198,543
1,820,024
(727,148)
Gross profit . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . .
Selling, general, and
administrative expenses . . . .
Operating income (loss)
. . . . . .
Interest expense . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . .
(Income) loss in subsidiaries . . .
Other (income) expense, net . . .
Income (loss) before income
—
—
—
523,709
32,728
728,849
19,660
144,963
—
(19,002)
(9,573)
1,378,519
42,815
177,605
753,874
101,494
(37,567)
995,406
—
—
—
(257,709)
—
378,832
26,475
(5,756)
4,808
(382)
(5,365)
5,435
—
(29,308)
482
43,469
442
(115)
—
3,907
8,992
(5,308)
5,308
282,209
—
425,928
27,044
(563)
—
4,007
F
o
r
m
1
0
-
K
taxes . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . .
257,709
—
353,687
104,970
18,026
22,834
39,235
9,927
(273,217)
—
395,440
137,731
Net income (loss)
. . . . . . . . . . .
$ 257,709
$ 248,717
$
(4,808) $ 29,308
$(273,217) $ 257,709
107
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Comprehensive Income (Loss)
For the fiscal year ended December 29, 2018
(dollars in thousands)
Net income . . . . . . . . . . . . . . . . . . .
Post-retirement benefit plans . . . . .
Foreign currency translation
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$282,068
(67)
$280,265
(67)
$ 38,528
(282)
$ 71,671
—
$(390,464)
349
$282,068
(67)
adjustments . . . . . . . . . . . . . . . . .
(11,679)
(11,679)
(11,679)
(11,679)
35,037
(11,679)
Comprehensive income . . . . . . . . . .
$270,322
$268,519
$ 26,567
$ 59,992
$(355,078)
$270,322
For the fiscal year ended December 30, 2017
(dollars in thousands)
Net income (loss) . . . . . . . . . . . . . .
Post-retirement benefit plans . . . . .
Foreign currency translation
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$302,848
(692)
$297,516
(692)
$25,426
(430)
$38,948
—
$(361,890)
1,122
$302,848
(692)
adjustments . . . . . . . . . . . . . . . . .
6,339
6,339
6,339
6,339
(19,017)
6,339
Comprehensive income (loss) . . . . .
$308,495
$303,163
$31,335
$45,287
$(379,785)
$308,495
For the fiscal year ended December 31, 2016
(dollars in thousands)
Net income (loss) . . . . . . . . . . . . . .
Post-retirement benefit plans . . . . .
Foreign currency translation
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
$257,709
(335)
$248,717
(335)
$(4,808)
(666)
$29,308
—
$(273,217)
1,001
$257,709
(335)
adjustments . . . . . . . . . . . . . . . . .
1,962
1,962
1,962
1,962
(5,886)
1,962
Comprehensive income (loss) . . . . .
$259,336
$250,344
$(3,512)
$31,270
$(278,102)
$259,336
108
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Cash Flows
For the fiscal year ended December 29, 2018
(dollars in thousands)
Cash flows provided by operating
activities: . . . . . . . . . . . . . . . . . . . . . . . $
— $ 202,214 $ 60,391
$ 93,593
$
— $ 356,198
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
96
—
380
F
o
r
m
1
0
-
K
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash
acquired . . . . . . . . . . . . . . . . . . . . . .
Intercompany investing activity . . . . . .
Disposals and recoveries from
— (17,589)
(39,657)
(6,537)
—
(63,783)
—
272,978
—
(815)
—
3,024
96
1,558
—
(276,745)
property, plant, and equipment . . . . .
—
—
370
10
—
Net cash provided by (used in)
investing activities . . . . . . . . . . . . $ 272,978 $ (18,404) $(36,263) $ (4,873) $(276,745) $ (63,307)
Cash flows from financing activities:
Intercompany financing activity . . . . .
Borrowings under secured revolving
— (168,705)
(97,945)
(10,095)
276,745
—
credit facility . . . . . . . . . . . . . . . . . .
— 290,000
—
—
— 290,000
Payments on secured revolving credit
facility . . . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . .
Withholdings from vesting of
— (315,000)
—
(968)
(83,717)
(193,028)
—
—
— 78,522
—
—
—
—
(78,522)
—
restricted stock . . . . . . . . . . . . . . . . .
(6,830)
Proceeds from exercises of stock
options . . . . . . . . . . . . . . . . . . . . . . .
10,597
—
—
—
—
—
—
Net cash (used in) provided by
— (315,000)
(968)
—
—
(83,717)
— (193,028)
—
—
(6,830)
10,597
financing activities . . . . . . . . . . . .
(272,978)
(194,673)
(19,423)
(88,617)
276,745
(298,946)
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
(2,362)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . .
— (10,863)
4,705
(2,259)
—
—
(2,362)
(8,417)
Cash and cash equivalents, beginning of
fiscal year . . . . . . . . . . . . . . . . . . . . . . .
— 129,463
10,030
39,001
— 178,494
Cash and cash equivalents, end of fiscal
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $ 118,600 $ 14,735
$ 36,742
$
— $ 170,077
109
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (Continued)
CARTER’S, INC.
Condensed Consolidating Statement of Cash Flows
For the fiscal year ended December 30, 2017
(dollars in thousands)
Cash flows provided by operating
activities: . . . . . . . . . . . . . . . . . . . . . . $
— $ 167,000 $118,814
$ 43,807
$
— $ 329,621
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Consolidating
Adjustments Consolidated
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . .
Acquisitions of businesses, net of
cash acquired . . . . . . . . . . . . . . . . .
Intercompany investing activity . . . . .
Disposals and recoveries from
— (21,690)
(38,899)
(8,884)
—
(69,473)
— (143,270)
(25,606)
256,991
746
894
15
(15,933)
27,397
— (158,457)
—
(259,676)
—
—
15
property, plant, and equipment
. . .
—
—
Net cash provided by (used in)
investing activities . . . . . . . . . . . $ 256,991 $(190,566) $ (37,244) $ 2,580
$(259,676) $(227,915)
Cash flows from financing activities:
Intercompany financing activity . . . .
Borrowings under secured revolving
credit facility . . . . . . . . . . . . . . . . .
Payments on secured revolving credit
facility . . . . . . . . . . . . . . . . . . . . . .
Payment of debt issuance costs . . . . .
Dividends paid . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . .
Withholdings from vesting of
— (128,908)
(83,357)
(47,411)
259,676
—
— 200,000
—
—
— 200,000
— (145,000)
(2,119)
—
—
(70,914)
—
(188,762)
— (18,965)
—
—
—
—
—
—
— (163,965)
(2,119)
—
—
(70,914)
— (188,762)
—
—
(5,753)
8,438
restricted stock . . . . . . . . . . . . . . . .
(5,753)
Proceeds from exercises of stock
options . . . . . . . . . . . . . . . . . . . . . .
8,438
—
—
—
—
—
—
Net cash (used in) provided by
financing activities . . . . . . . . . . .
(256,991)
(76,027)
(83,357)
(66,376)
259,676
(223,075)
Effect of exchange rate changes on
cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of
fiscal year . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of fiscal
—
—
—
505
—
505
— (99,593)
(1,787)
(19,484)
— (120,864)
— 229,056
11,817
58,485
— 299,358
year . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $ 129,463 $ 10,030
$ 39,001
$
— $ 178,494
110
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21—GUARANTOR CONDENSED CONSOLIDATING 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: . . . . . . . .
$
— $ 206,841
$127,018
$ 35,370
$
— $ 369,229
Cash flows from investing
activities:
Capital expenditures . . . . . . . . .
Intercompany investing
—
(22,934)
(55,072)
(10,550)
—
(88,556)
activity . . . . . . . . . . . . . . . . .
368,307
480
(2,118)
131
(366,800)
—
Disposals and recoveries from
property, plant, and
equipment . . . . . . . . . . . . . . .
Net cash provided by (used
—
23
—
193
—
216
in) investing activities . . .
$ 368,307
$ (22,431) $ (57,190)
$(10,226)
$(366,800)
(88,340)
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— (283,907)
—
(66,355)
(74,681)
—
(8,212)
—
366,800
—
—
(66,355)
Cash flows from financing
activities:
Intercompany financing
activity . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . .
Repurchases of common
stock . . . . . . . . . . . . . . . . . . .
Income tax benefit from stock-
based compensation . . . . . . .
Withholdings from vesting of
(300,445)
—
—
—
2,782
2,018
restricted stock . . . . . . . . . . .
(8,673)
Proceeds from exercises of
stock options . . . . . . . . . . . . .
7,166
—
—
—
—
Net cash (used in) provided
—
—
—
—
—
—
—
—
(300,445)
4,800
(8,673)
7,166
by financing activities . . .
(368,307)
(281,125)
(72,663)
(8,212)
366,800
(363,507)
Effect of exchange rate changes
on cash . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash
and cash equivalents . . . . . . . . .
Cash and cash equivalents,
—
—
—
—
767
(96,715)
(2,835)
17,699
beginning of fiscal year . . . . . .
— 325,771
14,652
40,786
—
—
—
767
(81,851)
381,209
Cash and cash equivalents, end of
fiscal year . . . . . . . . . . . . . . . . .
$
— $ 229,056
$ 11,817
$ 58,485
$
— $ 299,358
111
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the
period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are effective as of December 29, 2018.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is
a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of
the Company’s internal control over financial reporting as of December 29, 2018. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Based on this assessment,
management has concluded that the Company’s internal control over financial reporting was effective as of
December 29, 2018.
The effectiveness of Carter’s, Inc. and its subsidiaries’ internal control over financial reporting as of
December 29, 2018 has been audited by PricewaterhouseCoopers LLP, the independent registered public
accounting firm that audited the financial statements included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP has issued an attestation report on Carter’s, Inc.‘s internal control over financial
reporting containing the required disclosures, which appears herein.
112
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter of
fiscal 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is incorporated herein by reference to the definitive proxy statement
relating to the Annual Meeting of Stockholders of Carter’s, Inc. scheduled to be held on May 16, 2019. We
intend to file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is incorporated herein by reference to the definitive proxy statement
referenced above in Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about our equity compensation plan as of our most recent fiscal year
end:
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Plan Category
Equity compensation plans approved by security
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants,
and rights
Weighted-average
exercise price of
outstanding
options, warrants,
and rights
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in first column)
holders (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,447,141
$74.55
3,702,701
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,447,141
—
$74.55
—
3,702,701
(*) Represents stock options that are outstanding or that are available for future issuance pursuant to the
Carter’s, Inc. Amended and Restated Equity Incentive Plan.
Additional information called for by Item 12 is incorporated herein by reference to the definitive proxy statement
referenced above in Item 10.
113
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by reference to the definitive proxy statement
referenced above in Item 10.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by Item 14 is incorporated herein by reference to the definitive proxy statement
referenced above in Item 10.
114
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)
1. Financial Statements filed as part of this report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 29, 2018 and December 30, 2017 . . . . . . . . . . . .
Page
50
51
53
Consolidated Statements of Operations for the fiscal years ended December 29, 2018,
December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54
Consolidated Statements of Comprehensive Income for the fiscal years ended December 29,
2018, December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2018,
December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended
December 29, 2018, December 30, 2017, and December 31, 2016 . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
58
2. Financial Statement Schedules: None
(B)
Exhibits:
Exhibit Number
Description of Exhibits
3.1
3.2
4.1
4.2
4.2.1
4.2.2
Certificate of Incorporation of Carter’s, Inc., as amended on May 22, 2017 (incorporated
by reference to Exhibit 3.1 of Carter’s, Inc.’s Current Report on Form 8-K filed on
May 23, 2017).
Amended and Restated By-laws of Carter’s, Inc., as amended on May 22, 2017
(incorporated by reference to Exhibit 3.2 of Carter’s, Inc.’s Current Report on Form 8-K
filed on May 23, 2017).
Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 of
Carter’s, Inc.’s Registration Statement on Form S-1 (No. 333-98679) filed on October 10,
2003).
Indenture, dated August 12, 2013, by and among The William Carter Company, certain
guarantors party thereto from time to time, and Wells Fargo Bank, National Association, as
trustee (incorporated by reference to Exhibit 4.1 of Carter’s, Inc.’s Current Report on Form
8-K filed on August 12, 2013).
First Supplemental Indenture, dated June 25, 2014, by and among The William Carter
Company, certain guarantors party thereto from time to time, and Wells Fargo Bank,
National Association, as Trustee (incorporated by reference to Exhibit 4.2 of Carter’s,
Inc.’s Amendment No. 1 to Registration Statement on Form S-4 (No. 333-194896) filed on
June 27, 2014).
Second Supplemental Indenture, dated May 11, 2017, by and among Skip Hop Holdings,
Inc., Skip Hop, Inc., and Wells Fargo Bank, National Association, as Trustee.
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Exhibit Number
Description of Exhibits
10.1
10.1.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7
10.8
Fourth Amended and Restated Credit Agreement, dated as of August 25, 2017, by and
among The William Carter Company, as U.S. Borrower, The Genuine Canadian Corp., as
Canadian Borrower, Carter’s Holdings B.V., as Dutch Borrower, JPMorgan Chase Bank,
N.A., as Administrative Agent, U.S. Dollar Facility Swing Line Lender, U.S. Dollar
Facility L/C Issuer and Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as
Canadian Agent, a Multicurrency Facility Swing Line Lender and a Multicurrency Facility
L/C Issuer, J.P. Morgan Europe Limited, as European Agent, JPMorgan Chase Bank, N.A.,
London Branch, as a Multicurrency Facility Swing Line Lender and a Multicurrency
Facility L/C Issuer, Bank of America, N.A. and Bank of Montreal, as Co-Syndication
Agents, JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and BMO Capital Markets Corp., as Joint Lead Arrangers and Bookrunners, Branch
Banking & Trust Company, HSBC Securities (USA) Inc., Royal Bank of Canada,
SunTrust Bank, U.S. Bank National Association and Wells Fargo Bank, National
Association, as Co-Documentation Agents and certain other lenders party thereto
(incorporated by reference to Exhibit 10.1 of Carter’s, Inc.’s Current Report on Form 8-K
filed on August 31, 2017).
Amendment No. 1, dated as of September 21, 2018, to the Fourth Amended and Restated
Credit Agreement dated as of August 25, 2017, by and among The William Carter
Company, as U.S. Borrower, The Genuine Canadian Corp., as Canadian Borrower,
Carter’s Holdings B.V., as Dutch Borrower, JPMorgan Chase Bank, N.A., as
Administrative Agent, Collateral Agent, U.S. Dollar Facility Swing Line Lender and
U.S. Dollar Facility L/C Issuer, JPMorgan Chase Bank, N.A., Toronto Branch, as
Canadian Agent, a Multicurrency Facility Swing Line Lender and a Multicurrency Facility
L/C Issuer, J.P. Morgan Europe Limited, as European Agent, JPMorgan Chase Bank, N.A.,
London Branch, as a Multicurrency Facility Swing Line Lender and a Multicurrency
Facility L/C Issuer, each lender from time to time party thereto and the other parties party
thereto (incorporated by reference to Exhibit 10.1 of Carter’s, Inc.’s Current Report on
Form 8-K filed on September 26, 2018).
Form of Severance Agreement entered into from time to time between The William Carter
Company and executive officers (incorporated by reference to Exhibit 10.2 of Carter’s
Inc.’s Quarterly Report on Form 10-Q filed on October 29, 2015).
Amended and Restated Equity Incentive Plan (incorporated by reference to Appendix B of
Carter’s, Inc.’s Schedule 14A filed on April 4, 2018).
Amended and Restated Annual Incentive Compensation Plan (incorporated by reference to
Appendix C of Carter’s, Inc.’s Schedule 14A filed on March 31, 2016).
The William Carter Company Severance Plan, dated as of March 1, 2009 (incorporated by
reference to Exhibit 10.19 of Carter’s, Inc.’s Annual Report on Form 10-K filed on
March 2, 2011).
The William Carter Company Deferred Compensation Plan, dated as of November 10,
2010 (incorporated by reference to Exhibit 10.20 of Carter’s, Inc.’s Annual Report on
Form 10-K filed on March 2, 2011).
Lease Agreement dated March 29, 2012, between The William Carter Company and Duke
Secured Financing 2009-1 ALZ, LLC (incorporated by reference to Exhibit 10.21 of
Carter’s, Inc.’s Quarterly Report on Form 10-Q filed on April 27, 2012).
Lease Agreement dated December 14, 2012, between The William Carter Company and
Phipps Tower Associates, LLC (incorporated by reference to Exhibit 10.1 of Carter’s,
Inc.’s Current Report on Form 8-K filed on December 14, 2012).
116
Exhibit Number
10.8.1
Description of Exhibits
Second Amendment to the Lease Agreement dated June 17, 2013, between The William
Carter Company and Phipps Tower Associates, LLC (incorporated by reference to Exhibit
10.19 of Carter’s, Inc.’s Quarterly Report on Form 10-Q filed on October 24, 2013).
21
23
31.1
31.2
32
101
Subsidiaries of Carter’s, Inc.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-15(e)/15d-15(e) and 13a-15(f)/15d-15(f) Certification.
Rule 13a-15(e)/15d-15(e) and 13a-15(f)/15d-15(f) Certification.
Section 1350 Certification.
Interactive Data File
*
Indicates a management contract or compensatory plan.
ITEM 16. FORM 10-K SUMMARY
Omitted at registrant’s option.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CARTER’S, INC.
/s/ MICHAEL D. CASEY
Michael D. Casey
Chief Executive Officer
Date: February 25, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ MICHAEL D. CASEY
Michael D. Casey
Chairman and Chief Executive Officer
(Principal Executive Officer)
February 25, 2019
/s/ RICHARD F. WESTENBERGER
R Richard F. Westenberger
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 25, 2019
/s/ AMY WOODS BRINKLEY
Amy Woods Brinkley
Director
February 25, 2019
/s/ GIUSEPPINA BUONFANTINO
Director
February 25, 2019
Giuseppina Buonfantino
/s/ A. BRUCE CLEVERLY
A. Bruce Cleverly
/s/ JEVIN S. EAGLE
Jevin S. Eagle
Director
February 25, 2019
Director
February 25, 2019
118
Name
Title
Date
/S/ MARK P. HIPP
Mark P. Hipp
Director
February 25, 2019
/S/ WILLIAM J. MONTGORIS
William J. Montgoris
Director
February 25, 2019
/S/ DAVID PULVER
David Pulver
Director
February 25, 2019
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Exhibit 31.1
I, Michael D. Casey, certify that:
1.
I have reviewed this annual report on Form 10-K of Carter’s, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
February 25, 2019
/s/ MICHAEL D. CASEY
Michael D. Casey
Chief Executive Officer
120
CERTIFICATION
I, Richard F. Westenberger, certify that:
1.
I have reviewed this annual report on Form 10-K of Carter’s, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
February 25, 2019
/s/ RICHARD F. WESTENBERGER
Richard F. Westenberger
Chief Financial Officer
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CERTIFICATION
Exhibit 32
Each of the undersigned in the capacity indicated hereby certifies that, to his knowledge, this Annual Report on
Form 10-K for the fiscal year ended December 29, 2018 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all
material respects, the financial condition and results of operations of Carter’s, Inc.
February 25, 2019
February 25, 2019
/S/ MICHAEL D. CASEY
Michael D. Casey
Chief Executive Officer
/S/ RICHARD F. WESTENBERGER
Richard F. Westenberger
Chief Financial Officer
The foregoing certifications are being furnished solely pursuant to 18 U.S.C. § 1350 and are not being filed as
part of the Annual Report on Form 10-K or as a separate disclosure document.
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Notice of 2019 Annual Meeting of Shareholders and
Proxy Statement
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April 4, 2019
Dear Shareholder,
It is my pleasure to invite you to attend our 2019 Annual Meeting of Shareholders on May 16, 2019 (the
“Annual Meeting”). The meeting will be held at 8:00 a.m. at our offices located at 3438 Peachtree Road NE,
Atlanta, Georgia 30326.
The attached Notice of the 2019 Annual Meeting of Shareholders and Proxy Statement describe the formal
business to be conducted at the meeting. Whether or not you plan to attend the Annual Meeting, your shares can
be represented if you promptly submit your voting instructions over the internet, by telephone, by completing,
signing, dating, and returning your proxy card in the enclosed envelope, or by following the instructions you
have received from your broker or other nominee.
On behalf of our Board of Directors and Leadership Team, thank you for your investment in Carter’s, Inc.
Sincerely,
Michael D. Casey
Chairman and Chief Executive Officer
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2019 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2019 Annual Meeting of Shareholders of Carter’s, Inc. (the “Annual
Meeting”) will be held at 8:00 a.m. on May 16, 2019 at our offices located at 3438 Peachtree Road NE, Atlanta,
Georgia 30326. The business matters for the Annual Meeting are as follows:
1) The election of the nine nominated directors;
2) An advisory approval of compensation for our named executive officers (the “say-on-pay” vote);
3) The ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent
registered public accounting firm for fiscal 2019; and
4) Any other business that may properly come before the meeting.
Shareholders of record at the close of business on March 25, 2019 are entitled to receive notice of, attend,
and vote at the Annual Meeting. Your vote is very important. Whether or not you plan to attend the Annual
Meeting, to ensure that your shares are represented at the Annual Meeting, please submit your voting instructions
over the internet, by telephone, by completing, signing, dating, and returning your proxy card in the enclosed
envelope, or by following the instructions you have received from your broker or other nominee.
If you plan to attend the Annual Meeting and are a registered shareholder, please bring the invitation
attached to your proxy card. If your shares are registered in the name of a bank or your broker, please bring your
bank or brokerage statement showing your beneficial ownership with you to the Annual Meeting or request an
invitation by writing to me at the address set forth above.
Important notice regarding the availability of proxy materials for the
2019 Annual Meeting of Shareholders of Carter’s, Inc. to be held on May 16, 2019:
The proxy materials and the Annual Report to Shareholders are available at
http://www.carters.com/annuals
The Board of Directors recommends that you vote FOR each of the proposals listed above.
By order of the Board of Directors,
Scott F. Duggan
Senior Vice President of Legal and Corporate Affairs, General Counsel & Secretary
Atlanta, Georgia
April 4, 2019
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PROXY STATEMENT
TABLE OF CONTENTS
Page
1
General Information about the Proxy Materials and the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Board of Directors and Corporate Governance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Proposal Number One – Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
Executive Officers’ Biographical Information and Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32
Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
Fiscal 2018 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
Fiscal 2018 Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Outstanding Equity Awards at Fiscal 2018 Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Option Exercises and Stock Vested in Fiscal 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Transactions with Related Persons, Promoters, and Certain Control Persons . . . . . . . . . . . . . . . . . . . . . . . .
41
Securities Ownership of Certain Beneficial Owners, Directors, and Executive Officers . . . . . . . . . . . . . . . .
43
Proposal Number Two – Advisory Vote on Approval of Executive Compensation . . . . . . . . . . . . . . . . . . . .
44
Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
Proposal Number Three – Ratification of Independent Registered Public Accounting Firm . . . . . . . . . . . . .
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Appendix A: 2018 Retail Survey Participant List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
GENERAL INFORMATION ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING
Why am I receiving this proxy statement?
The Board of Directors (the “Board”) of Carter’s, Inc. (“we,” “us,” “our,” “Carter’s,” or the “Company”) is
soliciting proxies for our 2019 Annual Meeting of Shareholders on May 16, 2019 (the “Annual Meeting”). This
proxy statement and accompanying proxy card are being mailed on or about April 11, 2019 to shareholders of
record as of March 25, 2019, the record date (the “Record Date”) for the Annual Meeting.
You are receiving this proxy statement because you owned shares of Carter’s common stock on the Record
Date and are, therefore, entitled to vote at the Annual Meeting. By use of a proxy, you can vote regardless of
whether or not you attend the Annual Meeting. This proxy statement provides information on the matters on
which the Board would like you to vote so that you can make an informed decision.
What is the purpose of the Annual Meeting?
The purpose of the Annual Meeting is to address the following business matters:
1.
The election of the nine nominated directors (see page 16);
2. An advisory approval of the compensation for our named executive officers (“NEOs”) (the
“say-on-pay” vote) (see page 43);
3.
The ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s
independent registered public accounting firm for fiscal 2019 (see page 45); and
4. All other business that may properly come before the meeting.
Who is asking for my vote?
The Company is soliciting your proxy on behalf of the Board. The Company is paying for the costs of this
solicitation and proxy statement.
Who can attend the Annual Meeting?
All shareholders of record, or their duly appointed proxies, may attend the Annual Meeting. Beneficial
holders who hold shares “in street name” may also attend provided they obtain the appropriate documents from
their broker or other nominee and present them at the Annual Meeting. As of the Record Date, there were
45,421,273 shares of common stock issued and outstanding.
What are my voting rights?
Each share of common stock is entitled to one vote on each matter submitted to shareholders at the Annual
Meeting.
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What is the difference between holding shares as a shareholder of record and as a beneficial owner “in street
name”?
If your shares are registered directly in your name with the Company’s transfer agent, American Stock
Transfer & Trust Company, you are considered the shareholder of record for these shares. As the shareholder of
record, you have the right to grant your voting proxy directly to the persons listed on your proxy card or vote in
person at the Annual Meeting.
If your shares are held in a brokerage account or through another nominee, such as a trustee, you are
considered the beneficial owner of shares held “in street name.” These proxy materials are being forwarded to
you together with a voting instruction card. As a beneficial owner, you have the right to direct your broker or
other nominee how to vote, and you are also invited to attend the Annual Meeting. Because you are a beneficial
owner and not the shareholder of record, you may not vote your shares in person at the Annual Meeting unless
you obtain a proxy from the broker or other nominee that holds your shares. Your broker or other nominee
should have provided directions for you to instruct the broker, trustee, or nominee on how to vote your shares.
What is a broker non-vote?
If you are a beneficial owner whose shares are held “in street name” and you do not provide voting
instructions to your broker, your shares will not be voted on any proposal as to which the broker does not have
discretionary authority to vote. This is called a “broker non-vote.” Your broker only has discretionary authority
to vote on Proposal Number Three. Therefore, your broker will not have discretion to vote on any other proposal
unless you specifically instruct your broker how to vote your shares by returning your completed and signed
voting instruction card.
What constitutes a quorum?
A quorum is the minimum number of shares required to be present to transact business at the Annual
Meeting. Pursuant to the Company’s by-laws, the presence at the Annual Meeting, in person, by proxy, or by
remote communication, of the holders of at least a majority of the shares entitled to be voted will constitute a
quorum. Broker non-votes and abstentions will be counted as shares that are present at the meeting for purposes
of determining a quorum. If a quorum is not present, the meeting will be adjourned until a quorum is obtained.
What are my choices when casting a vote with respect to the election of the nine nominated directors, and
what vote is needed to elect the director nominees?
In voting on the election of the director nominees (Proposal Number One), shareholders may:
1.
2.
3.
vote for any of the nominees;
vote against any of the nominees; or
abstain from voting on any of the nominees.
Pursuant to our by-laws, a nominee must receive the vote of a majority of the shares present and entitled to
vote, which means that the number of votes cast “for” a director nominee must exceed the aggregate of the
number of votes cast “against” that nominee and shares as to which the holder “abstains” with respect to that
nominee. Any nominee not receiving such majority must tender his or her resignation for consideration by the
Board. Votes to abstain on Proposal Number One will have the practical effect of a vote “against” a director
nominee. Broker non-votes will not be considered shares entitled to vote on the election of directors and thus will
not affect the outcome of this vote.
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What are my choices when casting an advisory vote on approval of compensation of the Company’s NEOs,
commonly referred to as the “say-on-pay” vote, and what vote is needed to approve this proposal?
In voting on the compensation of the Company’s NEOs (Proposal Number Two), shareholders may:
1.
2.
vote for the approval of compensation of the Company’s NEOs, on an advisory basis, as described in
this proxy statement;
vote against the approval of compensation of the Company’s NEOs, on an advisory basis, as described
in this proxy statement; or
3.
abstain from voting on compensation of the Company’s NEOs as described in this proxy statement.
Because Proposal Number Two asks for a non-binding, advisory vote, there is no required vote that would
constitute approval. We value the opinions expressed by our shareholders in this advisory vote, and our
Compensation Committee will consider the outcome of the vote when evaluating our compensation programs
and making future compensation decisions for our NEOs. Abstentions and broker non-votes, if any, will not have
any effect on this advisory vote.
What are my choices when voting on the ratification of the appointment of PwC as the Company’s
independent registered public accounting firm for fiscal 2019, and what vote is needed to approve this
proposal?
In voting on the ratification of PwC (Proposal Number Three), shareholders may:
1.
vote to ratify PwC’s appointment;
2.
vote against ratifying PwC’s appointment; or
3.
abstain from voting on ratifying PwC’s appointment.
The approval of Proposal Number Three requires the affirmative vote of a majority of the votes properly
cast at our Annual Meeting. Abstentions are not considered votes cast and thus will not affect the outcome of this
proposal. A broker or other nominee will generally have discretionary authority to vote on this proposal because
it is considered a routine matter, and, therefore, we do not expect broker non-votes with respect to this proposal.
How does the Board recommend that I vote?
The Board recommends a vote:
FOR the election of the nine nominated directors (Proposal Number One);
FOR the approval of the compensation of the Company’s NEOs as described in this proxy statement
(Proposal Number Two); and
FOR the ratification of the appointment of PwC (Proposal Number Three).
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How do I vote?
If you are a shareholder of record, you may vote in one of four ways.
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First, you may vote over the internet by completing the voting instruction form found at
www.proxyvote.com. You will need your proxy card when voting over the internet.
Second, you may vote by touch-tone telephone by calling 1-800-690-6903.
Third, you may vote by mail by signing, dating, and mailing your proxy card in the enclosed envelope.
Fourth, you may vote in person at the Annual Meeting.
If your shares are held in a brokerage account or by another nominee, these proxy materials are being
forwarded to you together with a voting instruction card from your broker or nominee. Follow the instructions on
the voting instruction card in order to vote your shares by proxy or in person.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy card, you may change or revoke your vote at any time
before your proxy votes your shares by submitting written notice of revocation to Mr. Duggan at the Company’s
address set forth in the 2019 Notice of Annual Meeting, or by submitting another proxy card bearing a later date.
Alternatively, if you have voted over the internet or by telephone, you may change your vote by calling
1-800-690-6903 and following the instructions. Attendance at the Annual Meeting will not constitute a
revocation of a previously provided proxy unless you affirmatively indicate at the Annual Meeting that you
intend to vote your shares in person by completing and delivering a written ballot.
If you hold your shares through a broker or other custodian and would like to change your voting
instructions, please review the directions provided to you by that broker or custodian.
May I vote confidentially?
Yes. Our policy is to keep your individual votes confidential, except as appropriate to meet legal
requirements, to allow for the tabulation and certification of votes, or to facilitate proxy solicitation.
Who will count the votes?
A representative of Broadridge Financial Solutions, Inc. will count the votes and act as the inspector of
election for the Annual Meeting.
What happens if additional matters are presented at the Annual Meeting?
As of the date of this proxy statement, the Board knows of no matters other than those set forth herein that
will be presented for determination at the Annual Meeting. If, however, any other matters properly come before
the Annual Meeting and call for a vote of shareholders, the Board intends proxies to be voted in accordance with
the judgment of the proxy holders.
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Where can I find the voting results of the Annual Meeting?
We intend to announce preliminary voting results at the Annual Meeting and publish final results in our
current report on Form 8-K within four business days after the Annual Meeting.
What is “householding” of the Annual Meeting materials?
The U.S. Securities and Exchange Commission (the “SEC”) has adopted rules that permit companies and
intermediaries, such as brokers, to satisfy delivery requirements for proxy statements with respect to two or more
shareholders sharing the same address by delivering a single proxy statement to those shareholders. This process,
which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and
cost savings for companies. The Company and some brokers “household” proxy materials, delivering a single
proxy statement and annual report to multiple shareholders sharing an address unless contrary instructions have
been received from the affected shareholders. If, at any time, you no longer wish to participate in householding
and would prefer to receive a separate proxy statement and annual report, or if you are receiving multiple copies
of the proxy statement and annual report and wish to receive only one, please notify your broker if your shares
are held in a brokerage account, or the Company if you hold shares registered directly in your name. You can
notify the Company by sending a written request to Mr. Duggan at the Company’s address set forth in the 2019
Notice of Annual Meeting or by calling us at (678) 791-1000.
How may I obtain a copy of the Company’s Annual Report?
A copy of our fiscal 2018 Annual Report on Form 10-K (the “Annual Report”) accompanies this proxy
statement and is available at http://www.carters.com/annuals. Shareholders may also obtain a free copy of our
Annual Report by sending a request in writing to Mr. Duggan at the Company’s address set forth in the 2019
Notice of Annual Meeting or by calling us at (678) 791-1000.
When are shareholder proposals due for consideration in next year’s proxy statement or at next year’s annual
meeting?
Shareholders may present proper proposals for inclusion in our proxy statement and for consideration at the
2020 annual meeting of shareholders by submitting their proposals in writing to Mr. Duggan at the Company’s
address set forth in the 2019 Notice of Annual Meeting in a timely manner.
If the proposal is to be included in next year’s proxy statement pursuant to Rule 14a-8 under the U.S.
Exchange Act of 1934 (the “Exchange Act”), then the proposal must be submitted and received on or before
December 13, 2019. If we hold our 2020 annual meeting of shareholders more than 30 days before or after
May 16, 2020 (the one-year anniversary date of the 2019 Annual Meeting), we will disclose the new deadline by
which shareholders proposals must be received under Item 5 of Part II of our earliest possible Quarterly Report
on Form 10-Q or, if impracticable, by any means reasonably determined to inform shareholders.
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Our by-laws also establish an advance notice procedure for shareholders who wish to present a proposal
before an annual meeting but do not intend for the proposal to be included in our proxy statement or wish to
nominate a director for consideration at an annual meeting or shareholders. Such proposals or nominations must
be submitted and received no earlier than January 17, 2020, and no later than February 16, 2020 for our annual
meeting of shareholders to be held in 2020. If we hold our 2020 annual meeting of shareholders more than 30
days before or after May 16, 2020 (the one-year anniversary date of the 2019 Annual Meeting), the notice of a
shareholder proposal that is not intended to be included in our proxy statement or a nomination must be received
not later than the close of business on the earlier of the following two dates:
•
•
the 10th day following the day on which notice of the meeting date is mailed, or
the 10th day following the day on which public disclosure of the meeting date is made.
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Please note that there are additional requirements under our by-laws and the proxy rules to nominate a
director or present a proposal, including continuing to own a minimum number of shares of our stock until next
year’s annual meeting and appearing in person at the annual meeting to present the nomination or explain your
proposal.
What do you mean by fiscal years in this proxy statement?
Our 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 years. Fiscal 2020 (which will end on January 2, 2021) will have
53 weeks. Fiscal 2019 (which will end on December 28, 2019), fiscal 2018 (which ended on December 29,
2018), fiscal 2017 (which ended on December 30, 2017), and fiscal 2016 (which ended on December 31, 2016)
all will have or had 52 weeks.
Who can help answer my questions?
If you have any questions about the Annual Meeting or how to submit or revoke your proxy, or to request an
invitation to the Annual Meeting, contact Mr. Duggan at the Company’s address set forth in the 2019 Notice of
Annual Meeting or by calling us at (678) 791-1000.
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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE INFORMATION
Board of Directors
Each of our directors stands for election annually and thereafter holds office for a one-year term. We are
asking our shareholders to re-elect each of our current directors at the Annual Meeting.
The Board believes that each director has valuable skills and experiences that, taken together, provide the
Company with the variety and depth of knowledge, judgment, and strategic vision necessary to provide effective
oversight of the Company’s business operations. Our directors have extensive experience, both domestically and
internationally, in different fields, including apparel and retail, consumer products, brand marketing, logistics and
technology, global sourcing, and finance and accounting.
The Board also believes that, as indicated in the following biographies, each director has demonstrated
significant leadership in positions such as chief executive officer, chief financial officer, division president, and
other senior executive positions. In addition, many of our directors have significant experience in the oversight of
public companies due to their service as directors of Carter’s and other companies.
Amy Woods Brinkley became a director in February 2010. Ms. Brinkley is the manager and owner of AWB
Consulting, LLC, which provides executive advisory and risk management consulting services. Ms. Brinkley
retired from Bank of America Corporation in 2009 after spending more than 30 years with the company.
Ms. Brinkley served as its Chief Risk Officer from 2002 through mid-2009. Prior to 2002, Ms. Brinkley served
as President of Bank of America’s Consumer Products division and was responsible for the credit card,
mortgage, consumer finance, telephone, and eCommerce businesses. Before that, Ms. Brinkley held the positions
of Executive Vice President and Chief Marketing Officer overseeing Bank of America’s Olympic sponsorship
and its national rebranding and name change. Ms. Brinkley is currently a director of The Toronto-Dominion
Bank, Roper Technologies, Inc., and Bank of America Charitable Foundation, Inc. She also serves as a trustee for
the Princeton Theological Seminary, and from 2001 through 2018 was on the board of commissioners for Atrium
Health.
Director Qualifications: Ms. Brinkley brings to the Board valuable perspective and insight with respect to
finance and accounting, eCommerce, brand marketing, talent development and management, general
management, and risk management as a result of her years of service in various senior executive positions at
Bank of America Corporation. She also possesses leadership and corporate governance experience attained
through her service with The Toronto-Dominion Bank, Roper Technologies, Inc., Princeton Theological
Seminary, and Atrium Health.
Giuseppina Buonfantino became a director in June 2016. Ms. Buonfantino is the Chief Marketing Officer
for Kimberly-Clark Corporation, a position she has held since May 2018. From March 2014 until May 2018,
Ms. Buonfantino served as the President, North America, Baby and Child Care for Kimberly-Clark Corporation.
From April 2011 until March 2014, Ms. Buonfantino served as Vice President, Global Adult Care & Feminine
Care Brands for Kimberly-Clark Corporation, and previously held various positions at Johnson & Johnson from
1993 until 2011, most recently as Vice President of Neutrogena Global Franchise.
Director Qualifications: Ms. Buonfantino brings to the Board valuable perspective and insight with respect
to the retail industry, particularly in the baby and child retail space. Ms. Buonfantino also has a deep
understanding of consumer products and marketing, both domestically and internationally.
Michael D. Casey became a director in August 2008 and was named Chairman of the Board of Directors in
August 2009. Mr. Casey joined the Company in 1993 as Vice President of Finance. Mr. Casey was named Senior
Vice President of Finance in 1997, Senior Vice President and Chief Financial Officer in 1998, Executive Vice
President and Chief Financial Officer in 2003, and Chief Executive Officer in 2008. Prior to joining the
Company, Mr. Casey worked for Price Waterhouse LLP, a predecessor firm to PwC, from 1982 to 1993. He also
served on the board of directors of The Fresh Market, Inc. from 2015 until 2016.
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Director Qualifications: Mr. Casey brings to the Board valuable perspective and insight with respect to our
business, industry, challenges, and opportunities as a result of his years serving in a variety of senior executive
positions at the Company. Mr. Casey also represents management’s perspective on important matters to the
Board. His service as a director of The Fresh Market, Inc. provided him with additional insight into corporate
governance matters.
A. Bruce Cleverly became a director in March 2008. Mr. Cleverly retired as President of Global Oral Care
from Procter & Gamble Company/The Gillette Company in September 2007, a position he held since October
2005. Mr. Cleverly joined The Gillette Company in 1975 as a marketing assistant and held positions of
increasing responsibility in brand management and general management in the United States, Canada, and the
United Kingdom. In 2001, Mr. Cleverly became President of Gillette’s worldwide Oral Care business.
Mr. Cleverly is currently a director of Rain Bird Corporation, and was previously a director of Shaser
BioScience, Inc. and WaterPik, Inc.
Director Qualifications: Mr. Cleverly brings to the Board extensive experience in general management,
consumer products, international operations, brand management, and brand marketing, after spending over 30
years at Procter & Gamble Company and The Gillette Company. His thorough understanding and appreciation
for the corporate governance of the Board is reflected by his service on the above-listed boards of directors.
Jevin S. Eagle became a director in July 2010. Mr. Eagle served as Chief Executive Officer and director of
DAVIDsTEA Inc., a specialty tea retailer in the United States and Canada, from April 2012 to April 2014.
Mr. Eagle previously held several senior leadership positions at Staples, Inc. from 2002 to 2012, including
Executive Vice President, Merchandising and Marketing. Prior to joining Staples, Inc., Mr. Eagle worked for
McKinsey & Company, Inc. from 1994 to 2001, ultimately serving as a partner in the firm’s retail practice.
Mr. Eagle is currently the Executive Director of Boston University Hillel.
Director Qualifications: Mr. Eagle brings to the Board broad experience in a number of areas, as the former
Chief Executive Officer and director of DAVIDsTEA Inc. and Executive Vice President, Merchandising and
Marketing of Staples, Inc., including retail, management, merchandising, strategic planning, and brand
marketing. His experience in the retail industry provides our Board with critical insights.
Mark P. Hipp became a director in February 2018. Since April 2017, Mr. Hipp has been a senior advisor at
Centerbridge Partners, L.P., and since January 2013 Mr. Hipp has been the co-Chief Executive Officer of
H2IDD, a mergers and acquisitions advisory firm. From November 2013 until April 2017, Mr. Hipp was the
operating partner at Sterling Partners, a private equity firm. Prior to that, he spent over 13 years at Hewlett
Packard Enterprise Company, most recently as Vice President & General Manager, HP Global Networking
Business Management. Mr. Hipp served previously on the board of directors of Radial Inc., Innotrac
Corporation, and IO Data Centers, LLC.
Director Qualifications: Mr. Hipp brings to the Board valuable perspective and insight with respect to issues
relating to information technology, including cybersecurity, and mergers and acquisitions.
William J. Montgoris became a director in August 2007. Mr. Montgoris retired as Chief Operating Officer
of The Bear Stearns Companies, Inc. in 1999, a position he held since August 1993, after spending 20 years with
the company. While at Bear Stearns, Mr. Montgoris also served as the company’s Chief Financial Officer from
April 1987 until October 1996. Mr. Montgoris currently serves as the non-executive chairman of the board of
directors of Stage Stores, Inc. and is a trustee emeritus of Colby College. Mr. Montgoris was previously a
director of OfficeMax Incorporated, where he served from July 2007 to November 2013.
Director Qualifications: Mr. Montgoris brings to the Board valuable perspective and insight with respect to
finance and accounting after spending over 20 years in the investment banking industry. His financial expertise
offers our Board a deep understanding of financial and audit-related matters. As chairman of the board of
directors for Stage Stores, Inc., Mr. Montgoris also brings valuable insight with respect to the retail industry and
the oversight of public companies.
8
David Pulver became a director in January 2002. Mr. Pulver has been a private investor for more than 25
years and is the President of Cornerstone Capital, Inc. Mr. Pulver was previously a director of Hearst-Argyle
Television, Inc., where he served from 1997 through 2009, and Costco Wholesale Corporation, where he served
from 1983 through 1993. Mr. Pulver currently serves as a trustee emeritus of Colby College and as a director of
the Bladder Cancer Advocacy Network. Mr. Pulver was a founder of The Children’s Place, Inc. and served as its
Chairman and Co-Chief Executive Officer until 1982.
Director Qualifications: Mr. Pulver brings to the Board valuable perspective and insight with respect to
children’s apparel and the retail industry as a founder and former Chairman and Co-Chief Executive Officer of
The Children’s Place, Inc. His former and current service on various boards of directors has given him valuable
experience with respect to finance and accounting, management, and oversight of public companies.
Thomas E. Whiddon became a director in August 2003. Mr. Whiddon retired as Executive Vice President-
Logistics and Technology of Lowe’s Companies, Inc. in March 2003, a position he held since 2000. From 1996
to 2000, Mr. Whiddon served as Lowe’s Chief Financial Officer. Since his retirement, Mr. Whiddon has worked
as a consultant, serving various companies in executive capacities on an interim basis. He is currently a director
of Sonoco Products Company, Inc., Dollar Tree, Inc., and BayCare Health System.
Director Qualifications: Mr. Whiddon brings to the Board valuable perspective and insight with respect to
management, logistics, technology, and finance and accounting through his many years of experience in the retail
industry. His service on the above-listed boards of directors demonstrates his thorough understanding of
corporate governance matters. Also, Mr. Whiddon’s financial expertise offers our Board a deep understanding of
audit-related matters.
Board Leadership Structure
The Company’s Corporate Governance Principles provide that the positions of Chairman of the Board and
Chief Executive Officer may be combined if the non-management directors determine it is in the best interest of
the Company. In August 2009, the non-management directors appointed Mr. Casey as Chairman of the Board.
The Board believes it is appropriate to continue to combine the positions of Chairman and Chief Executive
Officer. Mr. Casey has over 20 years of management, finance, and administrative leadership experience at the
Company. In addition, Mr. Casey has extensive knowledge of, and experience with, all other aspects of the
Company’s business, including with its employees, customers, vendors, and shareholders. Having Mr. Casey
serve as both Chairman and Chief Executive Officer helps promote unified leadership and direction for both the
Board and management.
In connection with Mr. Casey’s appointment as Chairman, the non-management directors also created the
position of Lead Independent Director (“Lead Director”). This position was created to, among other things,
ensure that the non-management directors maintain proper oversight of management and Board process. The
responsibilities of the Lead Director include:
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•
•
•
•
presiding at all meetings of the Board at which the Chairman is not present, including executive
sessions of the independent directors;
calling additional meetings of the independent directors;
facilitating discussion and open dialogue among the independent directors during Board meetings,
executive sessions and outside of Board meetings;
serving as principal liaison between the independent directors and the Chairman, without inhibiting
direct communication between them;
9
•
•
•
•
•
•
•
•
communicating to the Chairman and management, as appropriate, any decisions reached, and
suggestions, views or concerns expressed, by independent directors in executive sessions or outside of
Board meetings;
providing the Chairman with feedback and counsel concerning the Chairman’s interactions with the
Board;
working with the Chairman to develop and approve Board meeting agendas and meeting schedules;
working with the Chairman on the appropriateness (including quality and quantity) and timeliness of
information provided to the Board;
authorizing the retention of advisors and consultants who report directly to the Board when
appropriate;
in consultation with the Nominating and Governance Committee, reviewing and reporting on the
results of the Board performance self-evaluations;
at least annually, meeting individually with independent directors to discuss Board and committee
performance, effectiveness and composition; and
if appropriate, and in coordination with management, being available for consultation and direct
communication with major shareholders.
Mr. Pulver was appointed to serve as Lead Director in November 2018.
Director Independence
The NYSE listing standards and the Company’s Corporate Governance Principles require a majority of the
Company’s directors to be independent from the Company and the Company’s management. For a director to be
considered independent, the Board must determine that the director has no direct or indirect material relationship
with the Company. The Board considers all relevant information provided by each director regarding any
relationships each director may have with the Company or management. As a result of this review, our Board has
determined that all of our non-management directors (comprised of all directors other than Mr. Casey) are
independent and meet the independence requirements under the listing standards of the NYSE, the rules and
regulations of the SEC, and the Company’s Corporate Governance Principles.
Age Limits
At its meetings in February 2019, the Board adopted an amendment to the Company’s Corporate
Governance Principles to include a retirement policy. Under this policy, each independent director’s retirement
will be automatic at the annual meeting of shareholders following such director reaching the age of seventy-five
(75), and no person shall be eligible for nomination or election as an independent director after reaching the age
of seventy-five (75), subject to the following exceptions:
(a) Mr. Pulver will retire at the annual meeting of shareholders following his eightieth (80th) birthday (in
2022) to the extent he is still serving as a director at such time. Each of Mr. Cleverly and
Mr. Montgoris will retire at the annual meeting of shareholders following his seventy-eighth (78th)
birthday (in 2023 and 2025, respectively) to the extent he is still serving as a director at such time.
(b) The Board may waive this policy with respect to an individual upon the recommendation of the
Nominating and Corporate Governance Committee. A waiver may be granted on a case-by-case basis
for any reasonable purpose including, but not limited to, the particular skills and experiences the
10
director brings to the Board, the director’s past performance and ability to continue to constructively
contribute going forward, and the then-current composition of the Board. The affected individual shall
not participate in any vote regarding the waiver if he or she is an incumbent director.
The Board determined that these exceptions are appropriate in order to promote continuity of experience on
the Board, both in the short term, by allowing Messrs. Pulver, Cleverly, and Montgoris to serve beyond their 75th
birthdays if the Nominating and Corporate Governance Committee and the Board determine it is otherwise
appropriate, and in the long term, by allowing the Nominating and Corporate Governance Committee to use
reasonable discretion to allow a director to serve past his or her 75th birthday in the future.
Board and Annual Meetings
Our Corporate Governance Principles require at least four regularly scheduled Board meetings each year,
and each director is expected to attend each meeting. The Board met five times during fiscal 2018. In fiscal 2018,
no director participated in less than 75% of the aggregate number of all of the Board and applicable committee
meetings.
Although the Company does not have a policy regarding director attendance at annual meetings, all
directors attended the Company’s annual meeting in fiscal 2018.
Executive Sessions
Executive sessions of non-management directors are held at least four times a year. Any non-management
director can request that additional executive sessions be scheduled. The Lead Director presides at the executive
sessions of non-management directors.
Board Committees
Our Board has the following standing committees: Audit Committee, Compensation Committee, and
Nominating and Corporate Governance Committee. The charters for each committee are available in the investor
relations section of our website at ir.carters.com or in print by contacting Mr. Duggan at the Company’s address
set forth in the 2019 Notice of Annual Meeting. The Board may also establish other committees to assist in the
discharge of its responsibilities.
The table below identifies the committee members and committee chairperson (as indicated by a “C”) as of
the Record Date.
Director
Amy Woods Brinkley . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas E. Whiddon . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Fiscal 2018 Committee Meetings . . . . . .
11
Compensation
Nominating &
Corporate
Governance
C
✓
✓
6
✓
C
✓
✓
6
Audit
✓
✓
C
✓
✓
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Audit Committee
The members of our Audit Committee are Ms. Brinkley and Messrs. Hipp, Montgoris, Pulver, and
Whiddon. During fiscal 2018, Mr. Pulver served as chairperson until November 2018, when Mr. Montgoris was
appointed chairperson.
During fiscal 2018, the Audit Committee held eight meetings. The Audit Committee is responsible for,
among other things:
•
•
•
•
•
•
•
oversight of the quality and integrity of, and risks related to, the consolidated financial statements,
including the accounting, auditing, and financial reporting practices of the Company;
oversight of the Company’s internal controls over financial reporting;
oversight of the Company’s external audit process;
oversight of the processes, procedures, and capabilities of the Company’s enterprise risk management
program;
appointment of the independent auditor and oversight of their performance, including their
qualifications and independence;
oversight of the Company’s compliance with legal and regulatory requirements, except to the extent
oversight is delegated to other Board committees; and
oversight of the performance of the Company’s internal audit function.
The Audit Committee operates pursuant to a written charter that addresses the requirements of the New
York Stock Exchange’s (“NYSE”) listing standards. The Board has determined that each member of the Audit
Committee is independent and meets the financial literacy requirements, each as set forth in the NYSE’s listing
standards. The Board has also determined that each of Messrs. Montgoris, Pulver, and Whiddon is an “audit
committee financial expert” as defined under SEC rules.
The Audit Committee Report is included in this proxy statement on page 44.
Compensation Committee
The members of our Compensation Committee are Ms. Brinkley and Messrs. Cleverly and Eagle. During
fiscal 2018, Paul Fulton served as chairperson until his retirement in May 2018, when Ms. Brinkley was
appointed chairperson.
During fiscal 2018, the Compensation Committee held six meetings. The Compensation Committee is
responsible for, among other things:
•
•
•
establishing the Company’s philosophy, policies, and strategies relative to executive compensation,
including the mix of base salary, short-term and long-term incentive compensation, within the context
of stated guidelines for compensation relative to peer companies, as determined from time to time by
the Compensation Committee;
evaluating the performance of the Chief Executive Officer and other executive officers relative to
approved performance goals and objectives;
setting the compensation of the Chief Executive Officer and other executive officers based upon the
evaluation of performance, market benchmarks, and other factors;
12
•
•
•
•
•
assisting the Board in developing and evaluating candidates for key executive positions and ensuring
succession plans are in place for the Chief Executive Officer and other executive officers;
evaluating compensation plans, policies, and programs with respect to executive officers, independent
directors, and certain key personnel;
monitoring and evaluating benefit programs for the Company’s executive officers and certain key
personnel;
reviewing and discussing with management, and recommending to the Board for inclusion in the proxy
statement, proposals relating to shareholder advisory votes on executive compensation (the
“say-on-pay” proposal) and on the frequency of the “say-on-pay” proposal (the “say-on-frequency”
proposal); and
reviewing and discussing with management the Company’s Compensation Discussion and Analysis
(“CD&A”) and producing an annual report on executive compensation for inclusion in the proxy
statement, as applicable.
This year’s Compensation Committee Report is included in this proxy statement on page 32.
The CD&A, which begins on page 21, discusses how the Compensation Committee makes compensation-
related decisions regarding our NEOs.
The Compensation Committee operates pursuant to a written charter that addresses the requirements of the
NYSE’s listing standards. The Board has determined that each member of the Compensation Committee is
independent as defined in the NYSE’s listing standards.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee serving during fiscal 2018 has been an officer or
other employee of the Company. None of our executive officers has served as a member of the board of directors
or compensation committee of any entity that has one or more executive officers serving on our Board.
Nominating and Corporate Governance Committee
The members of our Nominating and Corporate Governance Committee are Ms. Buonfantino, and Messrs.
Cleverly, Eagle, and Whiddon. Mr. Cleverly serves as chairperson. Vanessa J. Castagna served on the
Nominating and Corporate Governance Committee during fiscal 2018 and until February 2019, when she retired
from the Board.
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During fiscal 2018, the Nominating and Corporate Governance Committee held six meetings. The
Nominating and Corporate Governance Committee is responsible for, among other things:
•
•
•
identifying and recommending candidates qualified to become Board members and reviewing existing
members for re-election;
recommending directors for appointment to Board committees; and
developing and recommending to the Board a set of corporate governance principles and monitoring
the Company’s compliance with and effectiveness of such principles.
13
The Nominating and Corporate Governance Committee operates pursuant to a written charter that addresses
the requirements of the NYSE’s listing standards. The Board has determined that each member of the
Nominating and Corporate Governance Committee is independent as defined in the NYSE’s listing standards.
Consideration of Director Nominees
The Nominating and Corporate Governance Committee regularly assesses the appropriateness of the size of
the Board. In the event that vacancies occur or are anticipated, the Nominating and Corporate Governance
Committee will consider prospective nominees that come to its attention through current Board members, search
firms, or other sources.
The Board believes that it is appropriate to limit the group of shareholders who can propose nominees due to
time constraints on the Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee will consider persons recommended by shareholders who hold more than 1% of our
common stock for inclusion as nominees for election to the Board if the names of such persons are submitted to
Mr. Duggan at the Company’s address set forth in the 2019 Notice of Annual Meeting. This submission must be
made in writing and in accordance with our by-laws, including mailing the submission in a timely manner and
maintaining share ownership at the time of the applicable annual meeting, and the submission must include the
nominee’s name, address, and qualifications for Board membership.
When evaluating a potential candidate for membership on the Board, including candidates properly
submitted by shareholders, the Nominating and Corporate Governance Committee considers each candidate’s
skills and experience and assesses the needs of the Board and its committees at that point in time. Although the
Nominating and Corporate Governance Committee does not have a formal policy on diversity, it believes that
diversity is an important factor in determining the composition of the Board, and seeks to have Board members
with diverse backgrounds, experiences, and points of view. In connection with its assessment of all prospective
nominees, the Nominating and Corporate Governance Committee will determine whether to interview such
prospective nominees, and if warranted, one or more members of the Nominating and Corporate Governance
Committee, and others as appropriate, will interview such prospective nominees in person or by telephone. Once
this evaluation is completed, if warranted, the Nominating and Corporate Governance Committee selects the
nominees and recommends to the Board that they be nominated for election at the annual meeting.
Shareholder Communication with Directors
A shareholder or other interested party may submit a written communication to the Board, the Lead
Director, or other individual non-management directors. The submission must be delivered to Mr. Duggan at the
Company’s address set forth in the 2019 Notice of Annual Meeting.
The Board, the Lead Director, or other non-management directors may require the submitting shareholder to
furnish such information as may be reasonably required or deemed necessary to sufficiently review and consider
the submission of such shareholder.
Each submission will be forwarded, without editing or alteration, to the Board, the Lead Director, or
individual non-management directors, as appropriate, at, or prior to, the next scheduled meeting of the Board.
The Board, the Lead Director, or other individual non-management directors, as appropriate, will determine, in
their sole discretion, the method by which such submission will be reviewed and considered.
Risk Oversight
The Company’s management is responsible for identifying, assessing, managing, and mitigating the
Company’s strategic, financial, operational, and compliance risks.
14
The Board is responsible for overseeing risk management at the Company and management’s efforts in
these areas. The Board exercises direct oversight of strategic risks to the Company and other risk areas not
delegated to one of its committees.
The Audit Committee is responsible for overseeing the processes, procedures, and capabilities of the
Company’s enterprise risk management program, risks related to its financial statements, financial reporting, and
internal controls, as well as compliance with legal and regulatory requirements.
The Compensation Committee oversees risks associated with the Company’s compensation policies and
practices with respect to both executive compensation and compensation generally, as well as compliance with
legal and regulatory requirements as they relate to compensation. The Compensation Committee also reviews the
Company’s compensation policies and practices with management to confirm that there are no risks arising from
such compensation policies and practices that are reasonably likely to have a material adverse effect on the
Company.
The Nominating and Corporate Governance Committee is responsible for overseeing compliance with legal
and regulatory requirements as such requirements relate to corporate governance, and for overseeing risks related
to the Company’s social compliance program.
The Board and its committees receive updates from senior management on relevant risks and management
efforts in these areas at its Board and committee meetings at least annually and more frequently, as appropriate.
Corporate Governance Principles and Code of Ethics
The Company is committed to conducting its business with the highest level of integrity and maintaining the
highest standards of corporate governance. Our Corporate Governance Principles and Code of Ethics provide the
structure within which our Board and management operate the Company. The Company’s Code of Ethics applies
to all directors and Company employees, including each of the Company’s executive officers. Our Corporate
Governance Principles and Code of Ethics are available in the investor relations section of our website at
ir.carters.com or in print by contacting Mr. Duggan at the Company’s address set forth in the 2019 Notice of
Annual Meeting.
Board and Committee Evaluations
The Board recognizes that a robust and constructive evaluation process is an essential component of good
corporate governance and Board and committee effectiveness. Through this process, directors provide feedback
and assess Board, committee and director performance, including areas where the Board believes it is functioning
effectively and areas where the Board believes it can improve. The Board and the committees may, from time to
time, engage outside third parties to help with this process.
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In fiscal 2018, under the leadership of the Lead Director and the Chairperson of the Nominating and
Corporate Governance Committee, the Nominating and Corporate Governance Committee oversaw our annual
evaluation process, which focused on the Board and each of the committees.
15
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The Board proposes that the following nine director nominees be elected to the Board to serve until the next
annual meeting in 2020, or until his or her earlier resignation, death, or removal. Each nominee is listed below,
along with their age as of the date of the Annual Meeting.
Name
Amy Woods Brinkley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas E. Whiddon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Age
63
51
58
73
52
57
72
77
66
The Board recommends a vote FOR the election of each of the director nominees listed above.
Vote Required
Pursuant to our by-laws and our Corporate Governance Principles, the number of votes properly cast “for” a
director nominee must exceed the aggregate number of votes cast “against” that nominee and shares to which the
holder “abstains” with respect to that nominee for that nominee to be elected. Abstentions and broker non-votes
will be counted towards a quorum, and abstentions will have the practical effect of a vote “against” a director
nominee. Broker non-votes are not considered shares entitled to vote in the election of directors.
Any nominee who does not receive a majority of votes cast “for” his or her election is required to tender
their resignation. The Nominating and Corporate Governance Committee is then required to make a
recommendation to the Board as to whether it should accept or reject such resignation. The Board, taking into
account such recommendation, will decide whether to accept such resignation. The Board’s decision will be
publicly disclosed within ninety (90) days after the results of the election are certified. A director whose
resignation is under consideration shall abstain from participating in any recommendation or decision regarding
his or her resignation. If the resignation is not accepted, the director will continue to serve until the next annual
meeting of shareholders and until such director’s successor is elected and qualified.
16
COMPENSATION OF DIRECTORS
Each of our non-management directors receives an annual retainer, meeting fees, and an annual stock award.
Each of our committee chairpersons and our Lead Director receives an additional annual retainer. With respect to
each director who served on the Board in fiscal 2018, each such director’s annual retainer was comprised of a
$76,000 cash payment and an immediately vested grant of our common stock valued at approximately $130,000.
Each director received meeting fees of $2,500 for each regularly scheduled Board meeting, and $1,000 for each
regularly scheduled or special meeting of our standing Board committees.
In fiscal 2018, the chairperson of our Audit Committee and our Lead Director each received $25,000 cash
retainers, and the chairpersons of our Compensation and Nominating and Corporate Governance Committees
each received $20,000 cash retainers.
We reimburse directors for travel expenses incurred in connection with attending Board and committee
meetings and for other expenses incurred while conducting Company business.
Mr. Casey receives no additional compensation for serving on the Board.
There are no family relationships among any of the directors or our executive officers and none of our
non-management directors performed any services for the Company other than services as directors.
The following table provides information concerning the compensation of our non-management directors
serving during fiscal 2018.
FISCAL 2018 DIRECTOR COMPENSATION TABLE
Name
Amy Woods Brinkley . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . .
Vanessa J. Castagna (c) . . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . .
Paul Fulton (d) . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp (e) . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . .
David Pulver . . . . . . . . . . . . . . . . . . . . .
Thomas E. Whiddon . . . . . . . . . . . . . . .
Fees Earned
or Paid in Cash
($)
(a)
Stock
Awards
($)
(b)
Total
($)
$141,500
$113,500
$114,500
$145,500
$117,500
$ 38,500
$108,500
$115,500
$146,750
$153,750
$130,069
$130,069
$130,069
$130,069
$130,069
$271,569
$243,569
$244,569
$275,569
$247,569
— $ 38,500
$401,209
$245,569
$276,819
$283,819
$292,709
$130,069
$130,069
$130,069
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(a) This column reports the amount of cash compensation earned in fiscal 2018 through annual cash retainers and meeting
fees.
(b) On May 17, 2018, we issued 1,186 shares of common stock to each non-management director with a grant date fair
value of $109.67 per share.
(c) Ms. Castagna retired from the Board in February 2019.
(d) Mr. Fulton retired from the Board immediately before the 2018 annual meeting of shareholders in May 2018.
(e) Mr. Hipp was appointed in February 2018 and received a pro-rated retainer and stock grant upon appointment,
consisting of 2,669 shares of common stock with a grant date fair value of $109.67 per share. 1,186 shares of the grant
consisted of restricted stock that will cliff vest on the third anniversary of the issuance, and the remainder of the grant
consisted of fully vested stock.
For complete beneficial ownership information of our common stock for each director, see heading
“Securities Ownership of Beneficial Owners, Directors, and Executive Officers” on page 41.
17
Utilizing data on non-management director compensation from the Company’s peer group (as described
below under “Compensation Discussion and Analysis—The Retail Survey and Peer Group Analysis”), as well as
considering general industry trends presented by Korn Ferry, an independent compensation consultant, in May
2018, the Compensation Committee determined to maintain the director cash retainer compensation at $76,000
for fiscal 2018.
Under the Company’s minimum ownership guidelines, no director may sell Company stock unless he or she
owns shares of Company stock with a total market value in excess of five times his or her annual cash retainer, or
$380,000, by the end of his or her sixth year of service on the Board. Each of our directors complied with these
ownership guidelines in fiscal 2018.
18
EXECUTIVE OFFICERS’ BIOGRAPHICAL INFORMATION AND EXPERIENCE
The following table sets forth the name, age, and position of each of our executive officers as of the date of
this proxy statement.
Name
Michael D. Casey . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . .
Julie A. D’Emilio . . . . . . . . .
Scott F. Duggan . . . . . . . . . .
William G. Foglesong . . . . . .
Kendra D. Krugman . . . . . . .
Patrick Q. Moore . . . . . . . . . .
Peter R. Smith . . . . . . . . . . . .
Richard F. Westenberger
. . .
Jill A. Wilson . . . . . . . . . . . .
Age
58
56
52
53
49
41
49
58
50
52
Position
Chairman of the Board of Directors & Chief Executive Officer
President
Executive Vice President, Sales
Senior Vice President of Legal and Corporate Affairs, General
Counsel & Secretary
Executive Vice President, Retail & Marketing
Executive Vice President, Merchandising & Design
Executive Vice President, Strategy & Business Development
Executive Vice President, Supply Chain
Executive Vice President & Chief Financial Officer
Senior Vice President, Human Resources & Talent Development
Michael D. Casey joined the Company in 1993 as Vice President of Finance. Mr. Casey was named Senior
Vice President of Finance in 1997, Senior Vice President and Chief Financial Officer in 1998, Executive Vice
President and Chief Financial Officer in 2003, and Chief Executive Officer in 2008. Mr. Casey became a director
in 2008 and was named Chairman of the Board of Directors in 2009. Prior to joining the Company, Mr. Casey
worked for Price Waterhouse LLP, a predecessor firm to PwC, from 1982 to 1993.
Brian J. Lynch joined the Company in 2005 as Vice President of Merchandising. Mr. Lynch was named
Senior Vice President in 2008. In 2009, Mr. Lynch was named Executive Vice President and Brand Leader for
Carter’s. In 2012, Mr. Lynch was named President. Prior to joining the Company, Mr. Lynch was with The Walt
Disney Company from 1995 to 2005 in various merchandising, brand management, and strategy roles in the
Disney Parks & Resorts division. Prior to Disney, Mr. Lynch worked for Champion Products, a division of
Hanesbrands Inc., where he held finance, sales management, and marketing positions.
Julie A. D’Emilio joined the Company in 2006 as Vice President of Sales. Ms. D’Emilio was named Senior
Vice President of Sales in 2013, and then Executive Vice President, Sales in 2016. Prior to joining the Company,
Ms. D’Emilio was with Calvin Klein Jeans, a division of The Warnaco Group, Inc., in various management
positions, including Executive Vice President of Juniors’ and Girls, and Vice President of the Women’s Division.
Ms. D’Emilio began her career with Liz Claiborne Inc. and also worked for London Fog Industries, Inc. and
Jones Apparel Group, a predecessor of The Jones Group, Inc.
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Scott F. Duggan joined the Company in 2019 as Senior Vice President of Legal and Corporate Affairs,
General Counsel & Secretary. Prior to joining the Company, Mr. Duggan was Senior Vice President – General
Counsel, Corporate Secretary, and Compliance Officer at The Fresh Market, Inc. from 2010 until 2019, and from
October 2017 to 2019 he also served as Head of Real Estate. Prior to joining The Fresh Market, Inc., Mr. Duggan
was a partner at Boston-based law firm Goodwin Procter LLP.
William G. Foglesong joined the Company in 2010 as Senior Vice President of Marketing, with
responsibility for marketing and eCommerce, and was named Executive Vice President, Retail & Marketing in
2016. From 2008 to 2010, Mr. Foglesong was the Vice President of Marketing and Direct-To-Consumer at
Spanx, Inc., a leading woman’s apparel company. From 2002 to 2008, Mr. Foglesong worked at The Home
Depot, Inc. where he held various management positions, including General Manager of Home Depot Direct.
Mr. Foglesong started his career with the General Electric Company and gained additional experience at The
Boston Consulting Group where he focused on building internet strategies for his clients.
19
Kendra D. Krugman joined the Company in 2007 as Manager, Merchandising. Ms. Krugman was named
Director Merchandising in 2008, Vice President Sales and Merchandising, Mass Channel in 2012, Senior Vice
President Carter’s Brands and Licensing in 2016, and Executive Vice President, Merchandising & Design in July
2018. Prior to joining the Company, Ms. Krugman held positions at The Gap, Inc. and French Connection Group
PLC.
Patrick Q. Moore joined the Company in 2017 as Executive Vice President, Strategy & Business
Development. From 2013 to 2017, Mr. Moore was Executive Vice President, Chief Strategy Officer with YP
Holdings, a portfolio company of Cerberus Capital Management and one of the largest digital media businesses
in the United States. While at YP, Mr. Moore was responsible for a number of functions including strategy,
corporate development, labor, compliance, real estate, and business development. From 2001 to 2013, Mr. Moore
was with McKinsey & Company, Inc., where he served as a partner from 2006 to 2013, and managed clients
across a variety of industries, including consumer products, retail, media, hospitality, and technology.
Peter R. Smith joined the Company in 2015 as Executive Vice President, Supply Chain. From 2006 to 2015,
Mr. Smith was with V.F. Corporation, serving most recently as Vice President, Supply Chain, EMEA & APAC
based in Switzerland and previously as Senior Vice President, Supply Chain, V.F. Sportswear Coalition based in
New York. Mr. Smith began his career at Phillips-Van Heusen Corporation and also worked for London Fog
Industries, Inc. in various management positions, including Chief Operations Officer and President of London
Fog Retail, Pacific Trail Outerwear and other roles in planning, operations, and business systems.
Richard F. Westenberger joined the Company in 2009 as Executive Vice President & Chief Financial
Officer. Mr. Westenberger’s responsibilities include management of the Company’s finance and information
technology functions. Prior to joining the Company, Mr. Westenberger served as Vice President of Corporate
Finance and Treasurer of Hewitt Associates, Inc. from 2006 to 2008. From 1996 to 2006, Mr. Westenberger held
various senior financial management positions at Sears Holdings Corporation and its predecessor organization,
Sears, Roebuck and Co., including Senior Vice President & Chief Financial Officer of Lands’ End, Inc., Vice
President of Corporate Planning & Analysis, and Vice President of Investor Relations. Prior to Sears,
Mr. Westenberger was with Kraft Foods, Inc. He began his career at Price Waterhouse LLP, a predecessor firm
to PwC, and is a certified public accountant.
Jill A. Wilson joined the Company in 2009 as Vice President of Human Resources. In 2010, Ms. Wilson
was promoted to Senior Vice President, Human Resources & Talent Development. Ms. Wilson joined the
Company after more than 20 years with The May Company and Macy’s, Inc. While at Macy’s, Ms. Wilson held
various human resource positions of increasing responsibility, including Group Vice President of Human
Resources. Ms. Wilson has extensive experience in a broad range of human resource disciplines including global
talent management, organizational development, learning and development, compensation, benefits, talent
acquisition, and mergers.
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COMPENSATION DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis, or CD&A, is intended to provide information regarding the
Company’s executive compensation program and practices. This CD&A covers a variety of topics, including the
Company’s compensation philosophy regarding executive compensation, the role of our Compensation
Committee in setting the compensation of our executive officers, including our NEOs, and our executive
compensation decisions for fiscal 2018.
Our NEOs for fiscal 2018 were:
• Michael D. Casey, Chairman & Chief Executive Officer;
•
•
Richard F. Westenberger, Executive Vice President & Chief Financial Officer;
Brian J. Lynch, President;
• William G. Foglesong, Executive Vice President, Retail & Marketing; and
•
Kevin D. Corning, Former Executive Vice President, International.
Each of our NEOs was employed by the Company in their respective roles for all of fiscal 2018.
Mr. Corning left the Company in February 2019.
Executive Compensation Highlights for Fiscal 2018
The Compensation Committee believes that our executive compensation program is appropriately designed
to attract and retain superior executive talent and also to drive performance. After a review of various factors,
including our financial performance, the Compensation Committee took the following actions, among others,
with respect to fiscal 2018 compensation for our NEOs:
•
•
•
reviewed the peer group used by the Compensation Committee as a source of comparative
compensation data in fiscal 2018, and determined no changes were needed;
paid out annual cash incentive compensation at approximately 38% of target based on the level of
achievement of the Company’s fiscal 2018 goals for performance in net sales, adjusted operating
income, and adjusted EPS (each as defined below); and
approved grants of stock options, and time-based and performance-based restricted shares.
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Compensation Governance
What We Do:
What We Do Not Do
No Guaranteed Annual Salary Increases or
Guaranteed Bonuses
No Re-Pricing of Stock Options Without
Shareholder Approval
No Hedging, Pledging, or Short Sales of
Company Stock
No Special Perquisites Provided to Our
NEOs
No Equity Grants Below 100% Fair Market
Value
Align Pay with Company Performance: A
significant portion of our NEOs’ total direct
compensation is linked to Company
performance in the form of incentive
compensation and long-term equity
compensation tied to performance criteria.
Retain an Independent Compensation
Consultant: The Compensation Committee
retains an independent consultant to advise it on
executive and director compensation matters
and to help analyze comparative compensation
data to confirm that the design and pay levels of
our compensation program are consistent with
market practices.
Utilize Stock Ownership Guidelines: We
have minimum stock ownership guidelines for
our executive officers to encourage them to
maintain a meaningful equity interest in the
Company in order to more closely align their
interests with those of our shareholders in
general.
Utilize Equity Retention Guidelines: Our
equity retention policy for executive officers
requires holding periods for time-based
restricted stock and time-based stock option
grants.
Have Double-Trigger Cash Severance
Arrangements in the Event of a Change of
Control: Our severance agreements with our
NEOs provide for cash severance benefits to be
paid only if there is a qualifying termination in
connection with a change of control.
Compensation Philosophy
The Company is committed to achieving long-term, sustainable growth and increasing shareholder value.
Our compensation philosophy is to set our NEOs’ total direct compensation at levels that will attract, motivate,
and retain superior executive talent in a highly competitive environment. The Company’s compensation program
for our NEOs is designed to support these objectives and encourage strong financial performance on an annual
and long-term basis, without encouraging excessive risks, by linking a significant portion of our NEOs’ total
direct compensation to Company performance in the form of incentive compensation and long-term performance
stock. The principal components of the compensation structure for our NEOs are:
•
•
•
base salary;
annual cash incentive compensation; and
long-term equity incentive compensation.
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Together, the Company refers to these three components as “total direct compensation.”
Additionally, and consistent with its role in risk oversight, the Compensation Committee reviewed the
Company’s compensation policies and practices with management, and determined that there are no risks arising
from such compensation policies and practices that are reasonably likely to have a material adverse effect on the
Company.
Say-on-Pay Results
At the 2018 annual meeting of shareholders, over 94% of the votes cast were in favor of the advisory vote to
approve executive compensation. While this vote was advisory and not binding, the Compensation Committee
carefully considered the result of the say-on-pay vote in the context of our overall compensation philosophy, as
well as our compensation policies and decisions. After reflecting on the say-on-pay vote, our Compensation
Committee decided that no changes to the 2018 compensation philosophy were necessary. At the Annual
Meeting, the Company plans to again hold an annual advisory vote to approve executive compensation (Proposal
Number Two). The Compensation Committee plans to continue to consider the results from this year’s and future
advisory votes on executive compensation.
Role of the Compensation Committee, Independent Consultant and Management
Our Compensation Committee sets the total direct compensation of our NEOs, as well as the financial
performance targets for our NEOs’ annual cash incentive compensation and vesting terms for their equity
awards, including performance-based awards. Our Compensation Committee has engaged Korn Ferry, an
independent compensation consultant, to advise it on executive and director compensation matters. Korn Ferry
also assists the Compensation Committee in gathering and analyzing comparative compensation data both from
among the companies in Korn Ferry’s Retail Industry Executive and Management Total Remuneration Survey
and from our peer group, each as described in more detail below. With the goal of maintaining the effectiveness
of our executive compensation program, and not to alter our compensation philosophy, our Compensation
Committee reviews the reasonableness of compensation for our executive officers, including our NEOs, and
compares it with compensation data from Korn Ferry’s Retail Industry Executive and Management Total
Remuneration Survey, as described below, and our peer group.
Korn Ferry serves at the discretion of the Compensation Committee and regularly attends executive sessions
with the Compensation Committee. At the direction of the Compensation Committee, our Chief Executive
Officer works with Korn Ferry to review comparative compensation data and makes recommendations for base
salary, annual cash incentive compensation, and long-term equity incentive compensation for our NEOs, other
than himself. Compensation for our Chief Executive Officer is set by the Compensation Committee, without any
involvement by the Chief Executive Officer, based on recommendations made by Korn Ferry.
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The Compensation Committee has assessed the independence of Korn Ferry pursuant to the NYSE’s and the
SEC’s rules, and has determined that Korn Ferry is independent and the work provided by Korn Ferry did not
raise a conflict of interest.
Factors Used in Determining Executive Compensation
In setting compensation of all NEOs, our Compensation Committee takes into account multiple objective
and subjective factors, including:
•
•
the nature and scope of each executive’s responsibilities;
comparative compensation data for executives in similar positions at companies in Korn Ferry’s Retail
Survey and in our peer group, as described below;
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•
•
•
•
•
each executive’s experience, performance, and contribution to the Company;
the Company’s performance;
prior equity awards and potential future earnings from equity awards;
retention needs; and
any other factors the Compensation Committee deems relevant.
The Retail Survey and Peer Group Analysis
To assess the market competitiveness of our NEOs’ compensation, the committee and management review
data provided by Korn Ferry from two sources: Korn Ferry’s Retail Industry Total Remuneration Survey and
data from our peer group.
The Compensation Committee, at the advice of Korn Ferry, uses a subset of Korn Ferry’s Retail Industry
Total Remuneration Survey for executive compensation market assessment. For fiscal 2018, this subset included
37 companies (“Retail Survey” as listed in Appendix A). The Compensation Committee believes that these
companies are engaged in businesses more similar to the Company’s business than the other companies in Korn
Ferry’s survey because they are largely apparel and related products retailers or department stores who primarily
sell apparel and related products.
In addition, our Compensation Committee has established a peer group, which is generally comprised of
companies in the retail or wholesale industries that primarily conduct business in apparel or related accessories,
sell products under multiple brands through retail and outlet stores, and have net sales generally between one-half
and two times the Company’s net sales. For the Company’s fiscal 2018 analysis, our peer group was comprised
of the following fifteen companies:
Abercrombie & Fitch Co.
American Eagle Outfitters, Inc.
Ascena Retail Group, Inc.
Chico’s FAS, Inc.
The Children’s Place, Inc.
Columbia Sportswear Company
DSW Inc. (a)
Guess?, Inc.
Hanesbrands Inc.
lululemon athletica inc.
Tapestry, Inc.
Ulta Beauty, Inc.
Under Armour, Inc.
Urban Outfitters, Inc.
William-Sonoma, Inc.
(a) DSW Inc. changed its name to Designer Brands Inc. effective March 19, 2019.
In August 2018, our Compensation Committee conducted with Korn Ferry its annual review of our peer
group and determined, based on the criteria established for inclusion in the peer group, not to alter the
composition of the peer group for fiscal 2019.
Total Direct Compensation
In setting a total direct compensation target for each NEO, our Compensation Committee considers both the
objective and subjective factors set forth above. The Compensation Committee also reviews total direct
compensation, and its individual components, at the 25th, 50th, and 75th percentile levels paid to executives in
similar positions at the companies in our peer group and, as needed, the Retail Survey, in order to understand
where the compensation it sets falls relative to market practices. These levels were selected because the
Compensation Committee reviews this peer data as a reference point in determining whether the total
compensation opportunity is likely to provide sufficient motivation and retention as well as whether it properly
reflects the NEO’s role and scope of responsibilities relative to the companies in our peer group and, as needed,
24
the Retail Survey. The Compensation Committee chose the actual amount of each element of compensation and
the total compensation opportunity of each executive officer based, in part, on its review of data for the
companies in our peer group and, as needed, the Retail Survey and, and in part, on the factors discussed above
under the heading “Factors Used in Determining Executive Compensation” and below in respect of actual
compensation decisions for fiscal 2018.
Throughout fiscal 2018, our Compensation Committee reviewed compensation data from our peer group
and, as needed, the Retail Survey, and compared that data to the compensation of our NEOs.
Base Salary
When setting base salaries for our NEOs, our Compensation Committee considers the objective and
subjective factors set forth above and also reviews base salaries at the 25th, 50th, and 75th percentile levels paid
to executives in similar positions at the companies in our peer group and the Retail Survey, as appropriate.
Utilizing base salary data for the Company’s peer group and base salary data from the Retail Survey, as well
as making adjustments in light of the objective and subjective factors discussed above, the Compensation
Committee determined to increase base salaries for fiscal 2018 for each of our NEOs as set out below, to better
align with market competitive levels.
Previous base salary (annual) . . . . . . . . . . . . . . . .
Base salary after increase (annual) . . . . . . . . . . . .
$1,020,000
$1,050,000
$595,000
$615,000
$730,000
$755,000
$550,000
$570,000
$535,000
$550,000
Michael
Casey
Richard
Westenberger
Brian
Lynch
William
Foglesong
Kevin
Corning
Annual Cash Incentive Compensation
The Company makes annual cash incentive compensation (through our Incentive Compensation Plan) a
significant component of our NEOs’ targeted total direct compensation in order to motivate our executives to
meet and exceed the Company’s annual operating plans. For each NEO, our Compensation Committee approves
target annual cash incentive compensation as a percentage of such NEO’s base salary. In establishing these
annual cash incentive compensation targets, the Compensation Committee considers our NEOs’ potential total
direct compensation in light of the Company’s compensation philosophy and comparative compensation data.
Our NEOs may also receive special bonuses in recognition of special circumstances or for superior performance.
In February 2018, our Compensation Committee set the following fiscal 2018 annual cash incentive
compensation targets for our NEOs: 125% of base salary for Mr. Casey, 100% for Mr. Lynch, 75% for Messrs.
Corning, Foglesong, and Westenberger.
The NEOs can earn their annual cash incentive compensation based upon the Company’s achievement of
financial performance targets pre-determined by the Compensation Committee. In accordance with our Incentive
Compensation Plan, for fiscal 2018, the Compensation Committee used three financial performance metrics to
determine the amount, if any, of annual cash incentive compensation to be paid under our Incentive
Compensation Plan: net sales (weighted at 33%); operating income, as adjusted, if applicable, in the same
manner as for presentation to the financial markets (weighted at 33%); and diluted earnings per share (“EPS”), as
adjusted, if applicable, in the same manner as for presentation to the financial markets (weighted at 34%). (Please
see additional information in our quarterly earnings releases for how adjusted operating income and adjusted EPS
are determined for the purposes of determining our NEOs’ compensation.)
Our Compensation Committee selected net sales, operating income (as it may be adjusted), and diluted EPS
(as it may be adjusted) as performance metrics because it believes these metrics are key measures that are aligned
with the interests of our shareholders and provide a means to measure the quality of our earnings.
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Our Compensation Committee has the discretion not to award or reduce annual cash incentive
compensation, even if the Company achieves its financial performance targets, and to take into account personal
performance in determining the percentage of each NEO’s annual cash incentive compensation to be paid, if any.
For example, our Compensation Committee has discretion to reduce future incentive compensation awards based
on financial restatements or misconduct. In addition, in accordance with the requirements of the Sarbanes-Oxley
Act of 2002, Messrs. Casey and Westenberger are subject to the adjustment, cancellation, or recovery of
incentive awards or payments made to them in the event of a financial restatement, and all of our NEOs are
subject to the clawback policy described below.
Our NEOs could have earned from 0% to 200% of their target annual cash incentive compensation in fiscal
2018 based upon the Company’s achievement of the following targets, weighted at the following percentages:
Net Sales
($ in billions)
(33%)
Operating
Income
($ in millions)
(33%)
Adjusted
Diluted
EPS
(34%)
25% of Target Annual Cash Incentive Compensation (Threshold) . . . . . . . .
100% of Target Annual Cash Incentive Compensation (Target) . . . . . . . . . .
. . . . . .
200% of Target Annual Cash Incentive Compensation (Maximum)
Actual 2018 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.451
$3.587
$3.655
$3.462
$400.0
$445.0
$480.0
$407.3
$6.09
$6.82
$7.41
$6.29
Based on the Company’s fiscal 2018 performance, our NEOs were awarded approximately 38% of their
cash incentive compensation targets for fiscal 2018. Actual payouts for the NEOs are shown in the Summary
Compensation Table.
Long-Term Equity Incentive Compensation
Our Equity Incentive Plan allows for various types of equity awards, including stock options, restricted
stock, restricted stock units, stock appreciation rights, and deferred stock. Awards under our Equity Incentive
Plan are granted to recruit, motivate, and retain employees and in connection with promotions or increased
responsibility. Historically, our Compensation Committee has awarded a combination of time-based stock
options, time and performance-based restricted stock, and time-based restricted stock units, although it may
choose to use other forms of equity awards in the future.
All awards under our Equity Incentive Plan must be approved by our Compensation Committee. Our
Compensation Committee determines the type, timing, and amount of equity awards granted to each of our NEOs
after considering their previous equity awards, base salary, and target annual cash incentive compensation in
light of the Company’s compensation philosophy. Our Compensation Committee also considers the comparative
compensation data in our peer group and the Retail Survey, and our desire to retain and motivate our NEOs and
to align their goals with the long-term goals of our shareholders. Our Compensation Committee’s practice is to
approve grants of stock options, restricted stock, and restricted stock units at regularly scheduled meetings. Our
Compensation Committee may also make equity grants at special meetings or by unanimous written consent. Our
Compensation Committee could select a date subsequent to a regularly scheduled meeting on which to grant
equity awards. Our Compensation Committee sets the exercise prices of equity awards at the closing price of our
common stock on the NYSE on the date of grant.
In considering the value of equity awards, we calculate the value of stock option awards by using the Black-
Scholes option pricing valuation method and the value of time-based and performance-based restricted stock
awards using the closing price of our common stock on the date of grant.
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In February 2018, based on criteria described above, our Compensation Committee approved annual stock
option, restricted stock, and performance-based restricted stock grants for each NEO. The following table details
the number of shares underlying the grants to each of our NEOs. A more detailed description of such grants can
be seen below in the table “Fiscal 2018 Grants of Plan-Based Awards” and its footnotes.
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-Based Restricted Stock . . . . . . . . . . . . . . . . . . .
49,268
11,436
22,872
5,048
5,336
2,352
Michael
Casey
Richard
Westenberger
Brian
Lynch
9,844
2,288
4,576
William
Foglesong
Kevin
Corning
5,048
3,256
2,352
5,048
1,176
2,352
Each NEO’s performance-based restricted stock granted in February 2018 is eligible to vest in fiscal 2021 in
varying percentages (between 25% and 150%) if the Company achieves certain three-year growth targets for
fiscal 2020 EPS (as adjusted for items judged to be non-recurring or unusual in nature). Once vested, the
performance-based restricted stock granted to Mr. Casey may not be sold for an additional one-year period
(except to satisfy tax obligations resulting from vesting of such shares).
All of the time-based stock option and time-based restricted stock awards granted to our NEOs in fiscal
2018 are subject to the equity retention policy described below, contingent on the NEO’s continued employment
with the Company, and vest in four equal annual installments on the anniversary of each grant date.
Stock Ownership Guidelines and Equity Retention Policy
Our Compensation Committee regularly reviews the equity ownership of our NEOs compared to the
Company’s minimum ownership guidelines. Under the Company’s minimum ownership guidelines, no NEO
may sell shares of Company stock (other than to cover the tax obligations resulting from the vesting of Company
restricted stock or from exercising vested stock options) unless they own shares of Company stock with a total
market value in excess of a specified multiple of his or her base salary and continues to maintain such level of
ownership after such sale. For fiscal 2018, the ownership multiples for our NEOs were as follows:
Multiple of
Base Salary
Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7x
4x
3x
During fiscal 2018 each of our NEOs was in compliance with his applicable ownership requirement.
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Our equity retention policy for NEOs requires that, prior to any sale, any time-based restricted stock granted
to an NEO be held for four years following the date of grant, except for any withholding to cover tax obligations
resulting from the vesting of such shares. The policy also requires that shares underlying time-based options
granted be held for at least one year from the date of vesting.
401(k) Plan
The Company’s 401(k) matching program provides Company matching of employee contributions,
including contributions by NEOs, at the discretion of the Company, based on the Company’s performance. In
February 2019, the Company announced that employee contributions made to the Company’s 401(k) plan in
fiscal 2018 would be matched by the Company up to 4% of the employee’s annual base salary for all eligible
employees, up to the maximum amount permitted by the Internal Revenue Service.
27
Accounting and Tax Considerations
Accounting, tax, and related financial implications to the Company and our NEOs are considered during the
analysis of our compensation and benefits program and individual elements of each. Overall, the Compensation
Committee seeks to balance attainment of our compensation objectives with the need to maximize current tax
deductibility of compensation that may impact earnings and other measures of importance to shareholders.
In general, base salary, annual cash incentive bonus payments, and the costs related to benefits and
perquisites are recognized as compensation expense at the time they are earned or provided. Share-based
compensation expense is recognized over the vesting period in our consolidated statements of operations for
stock options, restricted stock, and performance shares. However, under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), we may not deduct compensation of more than $1 million paid to the
Company’s “covered employees,” which includes (a) any individual who at any time during the taxable year is
either our principal executive officer or principal financial officer, or an employee whose total compensation for
the tax year is required to be reported to our shareholders because he or she is among the three highest
compensated officers for the tax year (other than the principal executive officer or principal financial officer),
and (b) any person who was a covered employee at any time after December 31, 2016. Prior to January 1, 2018,
certain grants may have qualified as “performance-based compensation” and, as such, would be exempt from the
$1 million limitation on deductible compensation. Such performance-based compensation exception was
eliminated by the Tax Cuts and Jobs Act with respect to tax years beginning January 1, 2018; however, under a
transition rule, compensation payable pursuant to a written binding contract that was in effect on November 2,
2017 and which is not materially modified after such date may still qualify for the performance-based
compensation exception. To the extent applicable to our existing contracts and awards, the Compensation
Committee may avail itself of this transition rule. However, because of uncertainties as to the application and
interpretation of the transition rule, no assurances can be given at this time that our existing contracts and awards,
even if in place on November 2, 2017, will meet the requirements of the transition rule. While the Compensation
Committee is mindful of the benefit to our performance of full deductibility of compensation, the Compensation
Committee believes that it should not be constrained by the requirements of Section 162(m) of the Code where
those requirements would impair flexibility in compensating our executive officers in a manner that can best
promote our corporate objectives and support our compensation philosophy. The Compensation Committee
intends to continue to compensate our executive officers in a manner consistent with the best interests of the
Company and our shareholders.
Clawback and Hedging Policies
The Board has adopted a policy for the recovery of cash and equity performance-based compensation from
executives (these are generally referred to as “recoupment” or “clawback” policies). The policy provides that the
Board may require an executive to reimburse or forfeit a performance-based award or repay performance-based
compensation if the Company is required to prepare an accounting restatement as a result of misconduct, if such
executive knowingly caused or failed to prevent such misconduct.
Further, hedging and pledging of Company stock is prohibited under the Company’s policies to ensure that
the interests of the holders of Company stock are fully aligned with those of shareholders in general. During
fiscal 2018, none of our NEOs entered into hedging arrangement or pledged any shares of Company stock.
Severance Agreements with NEOs
Each of our current NEOs has a severance agreement with the Company. In the event that an NEO is
terminated by the Company for “cause,” retires, becomes disabled, or dies, the executive or his estate will be
provided his base salary and medical and other benefits through the termination of his employment.
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If an NEO is terminated without “cause,” or an NEO terminates for “good reason” (with “cause” and “good
reason” defined in each executive’s respective agreement and summarized below) the Company will be obligated
to pay such executive’s base salary for 24 months in the case of Mr. Casey, for 18 months in the case of
Mr. Lynch, and for 12 months in the cases of Messrs. Corning, Foglesong, and Westenberger. In each case, base
salary will be paid in bi-weekly installments. The Company is also obligated to pay each NEO a pro-rated annual
cash incentive compensation amount that would have been earned by each such executive if he had been
employed at the end of the year in which his employment was terminated. The determination of whether an
annual cash incentive compensation is payable to the NEO will not take into account any individual performance
goals and shall be based solely on the extent to which Company performance goals have been met. Additionally,
the Company is obligated to pay the medical, dental, and life insurance benefits for 24 months in the case of
Mr. Casey, for 18 months in the case of Mr. Lynch, and for 12 months in the case of Messrs. Corning, Foglesong,
and Westenberger.
In the event that within two years following a “change of control” (with “change of control” defined in each
executive’s agreement) the Company terminates the NEO’s employment, other than for “cause” or such
executive terminates his employment for “good reason,” the Company shall pay such NEO’s base salary,
medical, dental, and life insurance benefits for 36 months in the case of Mr. Casey, 30 months in the case of
Mr. Lynch, and 24 months in the case of Messrs. Corning, Foglesong, and Westenberger. In the event of a
“change of control” of the Company, all unvested stock options and all unvested shares of restricted stock held
by the NEO will fully vest.
Severance payments made to the NEOs are subject to the requirements of Section 409A Code.
Under the agreements with each of our NEOs, “cause” is generally deemed to exist when such NEO has:
(a) been convicted of a felony or entered a plea of guilty or no contest to a felony; (b) committed fraud or other
act involving dishonesty for personal gain which is materially injurious to the Company; (c) materially breached
his obligations of confidentiality, intellectual property assignment, non-competition, non-solicitation, or
non-disparagement against the Company after a cure period, provided such breach by its nature was curable;
(d) willfully engaged in gross misconduct which is injurious to the Company; or (e) after a cure period, willfully
refused to substantially perform his duties or is grossly negligent in performance of such duties.
Under the agreements with our NEOs, “good reason” is generally deemed to exist when there is: (a) a
material reduction in the executive’s title, duties, or responsibilities; (b) a material change in the geographic
location at which the executive must perform services; or (c) a material breach of the executive’s agreement by
the Company.
Potential Payments Upon Termination or Change of Control
Termination
As described in more detail above under the heading “Severance Agreements with NEOs,” we have entered
into certain agreements and maintain certain plans that may require us in the future to make certain payments and
provide certain benefits in the event of a termination of employment.
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For purposes of the table below, a hypothetical termination without “cause” or for “good reason” is assumed
to have occurred as of December 29, 2018, the last day of fiscal 2018. The table below indicates the payment and
provision of other benefits that would be owed to each of our NEOs as the result of such a termination. There can
be no assurance that a termination of employment of any of our NEOs would produce the same or similar results
as those set forth below on any other date. The terms “without cause” and “good reason” are defined in the
agreements with our executives and summarized above under the heading “Severance Agreements with NEOs.”
Michael
Casey
Richard
Westenberger
Brian
Lynch
William
Foglesong
Kevin
Corning
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Incentive Compensation (a)
. . . . . . . . . . .
Health and Other Benefits . . . . . . . . . . . . . . . . .
$2,100,000
497,600
20,257
$615,000
174,900
10,576
$1,132,500
286,300
15,236
$570,000
162,100
419
$550,000
156,400
10,503
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,617,857
$800,476
$1,434,036
$732,519
$716,903
(a) Cash incentive compensation calculations are based on cash incentive compensation targets achieved in fiscal 2018
described in more detail under the heading “Annual Cash Incentive Compensation” above.
Change of Control and Termination Following a Change of Control
In the event of a change of control, as that term is defined under the Company’s Equity Incentive Plan and
individual awards, all unvested stock options and all unvested shares of restricted stock will fully vest, and all
unvested shares of performance stock will vest at their respective “target” amounts. In addition, as described in
more detail above under the heading “Severance Agreements with NEOs,” we have entered into certain
agreements that may require us to make certain payments and provide certain benefits to our NEOs in the event
of their termination in relation to a change of control (with “change of control” defined in each executive’s
agreement).
For purposes of the table below, we have assumed that all unvested stock options, and all unvested shares of
restricted stock and performance stock, have fully vested immediately prior to a change of control on
December 29, 2018, the last day of fiscal 2018, and that a termination without “cause” occurred immediately
following a change of control on December 29, 2018. The estimated benefit amount of unvested options was
calculated by multiplying the number of in-the-money unvested options held by the applicable NEO by the
difference between the closing price of our common stock on December 28, 2018 (which was the last trading day
before the end of fiscal 2018), as reported by the NYSE, which was $81.51, and the exercise price of the option.
The estimated benefit amount of unvested restricted stock was calculated by multiplying the number of restricted
shares held by the applicable NEO by the closing price of our common stock on December 28, 2018 (which was
the last trading day before the end of fiscal 2018), as reported by the NYSE, which was $81.51.
There can be no assurance that a change of control would produce the same or similar results as those set
forth below on any other date or at any other price. These amounts do not include vested stock options, vested
shares of restricted stock, or vested shares of performance stock. For a list of earned vested stock options, see the
“Outstanding Equity Awards at Fiscal 2018 Year-End” table beginning on page 36.
Michael
Casey
Richard
Westenberger
Brian
Lynch
William
Foglesong
Kevin
Corning
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Incentive Compensation (a)
. . . . . . .
Health and Other Benefits . . . . . . . . . . . . .
Option Value . . . . . . . . . . . . . . . . . . . . . . .
Stock Value . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,150,000
497,600
30,385
—
9,560,389
$1,230,000
174,900
21,151
—
1,641,041
$1,887,500
286,300
25,393
—
2,460,787
$1,140,000
162,100
837
—
1,081,475
$1,100,000
156,400
21,006
—
1,171,543
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,238,374
$3,067,092
$4,659,980
$2,384,412
$2,448,949
(a) Cash incentive compensation calculations are based on cash incentive compensation targets achieved in fiscal 2018
described in more detail under the heading “Annual Cash Incentive Compensation” above.
30
Perquisites and Other Benefits
Our NEOs do not receive any perquisites or other benefits on an annual basis that are not otherwise
available to all employees. The cost of providing these benefits and perquisites to the NEOs is included in the
amounts shown in the “All Other Compensation” column of the Summary Compensation Table and detailed in
the footnotes to such table.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board has reviewed and discussed with Company management the
Compensation Discussion and Analysis included in this proxy statement. Based on such review and discussions,
the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be
included in this proxy statement for filing with the SEC.
Submitted by the Compensation Committee
Ms. Amy Woods Brinkley, Chairperson
Mr. A. Bruce Cleverly
Mr. Jevin S. Eagle
32
FISCAL 2018 SUMMARY COMPENSATION TABLE
The table below provides information concerning the compensation of our NEOs.
In the “Salary” column, we disclose the base salary paid to each of our NEOs during fiscal 2018, 2017, and
2016.
In the “Stock Awards” and “Option Awards” columns, we disclose the total fair value of the grants made in
fiscal 2018, 2017, and 2016, without a reduction for assumed forfeitures. For restricted stock, the fair value is
calculated using the closing price on the NYSE of our stock on the date of grant. For time-based and
performance-based stock options, the fair value is calculated based on assumptions summarized in Note 10 to our
audited consolidated financial statements, which are included in our fiscal 2018 Annual Report.
In the “Non-Equity Incentive Plan Compensation” column, we disclose the dollar value of all compensation
earned in fiscal 2018, 2017, and 2016 pursuant to the Company’s Amended and Restated Incentive
Compensation Plan, including all annual cash incentive compensation.
In the “All Other Compensation” column, we disclose the dollar value of all other compensation that could
not properly be reported in other columns of the Fiscal 2018 Summary Compensation Table, including
perquisites, amounts reimbursed for the payment of taxes, and other payments paid by the Company for the
benefit of our NEOs.
Name and Principal Position
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chairman of the Board of Directors and
Chief Executive Officer
Richard F. Westenberger . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President &
Chief Financial Officer
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
President
William G. Foglesong . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President, Retail and
Marketing
Kevin D. Corning . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President, International
Fiscal
Year
Salary
($)(a)
Stock
Awards
($)
(b)
Option
Awards
($)
(c)
Non-Equity
Incentive
Plan
Compensation
($)
All Other
Compensation
($)
(d)
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
$1,040,769
$1,014,692
$ 980,769
$4,125,537
$4,117,885
$3,749,698
$1,373,592
$1,382,605
$ 948,207
$ 608,846
$ 591,135
$ 570,385
$ 924,482
$ 412,493
$1,053,469
$ 140,738
$ 140,264
$ 111,238
$ 747,308
$ 726,654
$ 703,846
$ 825,396
$ 830,016
$1,807,942
$ 274,451
$ 278,926
$ 221,604
$ 563,846
$ 536,731
$ 472,500
$ 674,362
$ 412,493
$ 377,146
$ 140,738
$ 140,264
55,406
$
$ 545,385
$ 532,442
$ 515,385
$ 424,242
$ 412,493
$ 763,357
$ 140,738
$ 140,264
$ 111,238
$ 497,600
$ 930,500
$1,113,800
$ 174,900
$ 325,700
$ 388,200
$ 286,300
$ 532,800
$ 639,000
$ 162,100
$ 301,100
$ 337,500
$ 156,400
$ 292,900
$ 351,000
$222,538
$210,564
$184,779
$ 47,728
$ 48,846
$ 48,291
$ 65,831
$ 78,060
$ 76,012
$ 35,296
$ 34,570
$ 31,698
$ 37,285
$ 49,294
$ 48,469
Total
($)
$7,260,036
$7,656,246
$6,977,253
$1,896,695
$1,516,438
$2,171,583
$2,199,285
$2,446,456
$3,448,404
$1,576,343
$1,425,158
$1,274,249
$1,304,050
$1,427,393
$1,789,449
(a) Base salary for each NEO was based on a 364-day fiscal year for fiscal 2018, 2017, and 2016.
(b) The amounts disclosed in this column represent the total grant date fair value for the following grants:
•
•
The time-based restricted stock awards vest in four equal, annual installments beginning one year from the date of the grant.
Vesting of the performance-based stock awards granted in fiscal 2016, 2017, and 2018 is contingent upon meeting specific performance targets for
fiscal 2018, 2019, and 2020, respectively, and service vesting through 2019, 2020, and 2021, respectively. For Mr. Casey, once vested, the performance-
based restricted shares granted may not be sold for an additional one-year period (except to satisfy tax obligations resulting from vesting of such shares).
P
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Name
Grant Date
Time-Based
Restricted
Shares
Performance-
Based
Restricted
Shares
Grant
Date Fair
Value per
Share
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
William G. Foglesong . . . . .
Kevin D. Corning . . . . . . . . .
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
11,436
16,372
13,800
5,336
1,640
8,220
2,288
3,300
13,132
3,256
1,640
2,460
1,176
1,640
5,020
22,872
32,744
27,560
2,352
3,280
3,400
4,576
6,600
6,810
2,352
3,280
1,700
2,352
3,280
3,400
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
(c)
The amounts disclosed in this column represent the total grant date fair value for the following grants. These time-based stock options vest in four equal,
annual installments beginning one year from the date of the grant. Information concerning how the Company uses the Black-Scholes model to determine
the fair value of stock options can be found in Note 10 to the Company’s consolidated financial statements included in Item 8 of our Annual Report.
Name
Grant Date
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . . .
Brian J. Lynch . . . . . . . . . . . .
William G. Foglesong . . . . . .
Kevin D. Corning . . . . . . . . .
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
2/21/2018
2/14/2017
2/16/2016
Time-Based
Stock
Options
Granted
Black-Scholes
Fair Value
49,268
69,000
44,500
5,048
7,000
5,220
9,844
13,920
10,400
5,048
7,000
2,600
5,048
7,000
5,220
$27.88
$20.04
$21.31
$27.88
$20.04
$21.31
$27.88
$20.04
$21.31
$27.88
$20.04
$21.31
$27.88
$20.04
$21.31
Option
Exercise
Price
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
$120.25
$ 83.84
$ 90.66
(d)
The amounts shown as “All Other Compensation” for fiscal 2018 consist of the following:
Name
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger . . . . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . .
William G. Foglesong . . . . . . . . . . . . . . . . . . . . .
Kevin D. Corning . . . . . . . . . . . . . . . . . . . . . . . .
401 (k)
Company
Match
$11,000
$11,000
$11,000
$11,000
$11,000
Dividends
Paid on
Unvested
Restricted
Stock
$211,124
$ 36,239
$ 54,342
$ 23,882
$ 25,871
Other
(i)
$414
$489
$489
$414
$414
Total
$222,538
$ 47,728
$ 65,831
$ 35,296
$ 37,285
(i)
These amounts include imputed income from health insurance contributions, imputed income from bring-your-own technology to work programs, and benefits from healthcare
programs, each of which are available to all employees.
34
FISCAL 2018 GRANTS OF PLAN-BASED AWARDS
The following table provides information concerning each grant of plan-based awards made to an NEO in
fiscal 2018. This includes incentive compensation awards granted under our Incentive Compensation Plan and
stock option and restricted stock awards granted under our Equity Incentive Plan. The threshold, target, and
maximum columns reflect the range of estimated payouts under these plans for fiscal 2018. The exercise price
disclosed is equal to the closing market price of our common stock on the date of the grant. The last column
reports the aggregate grant date fair value of all awards made in fiscal 2018 as if they were fully vested on the
grant date.
Name
Award
Type
Grant
Date
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (a)
Estimated Future Payouts Under
Equity Incentive Plan Awards
Exercise
or Base
Price of
Option
Awards
($/Sh) (e)
Grant
Date Fair
Value of
Stock and
Option
Name
Awards
Michael D. Casey . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Options (d)
— $328,125
—
—
—
2/21/2018
2/21/2018
2/21/2018
$1,312,500
—
—
—
$2,625,000
—
—
—
Richard F. Westenberger
. . Cash Incentive
Compensation
Shares (b)
Shares (c)
Options (d)
— $115,313
—
—
—
2/21/2018
2/21/2018
2/21/2018
$ 461,250
—
—
—
$ 922,500
—
—
—
Brian J. Lynch . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Options (d)
William G. Foglesong . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Options (d)
Kevin D. Corning . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Options (d)
— $188,750
—
—
—
2/21/2018
2/21/2018
2/21/2018
$ 755,000
—
—
—
$1,510,000
—
—
—
— $106,875
—
—
—
2/21/2018
2/21/2018
2/21/2018
$ 427,500
—
—
—
$ 855,000
—
—
—
— $103,125
—
—
—
2/21/2018
2/21/2018
2/21/2018
$ 412,500
—
—
—
$ 825,000
—
—
—
—
—
5,718
—
—
—
588
—
—
—
1,144
—
—
—
588
—
—
—
588
—
—
11,436
22,872
49,268
—
11,436
34,308
49,268
—
—
— $1,375,179
— $2,750,358
$120.25 $1,373,592
—
5,336
2,352
5,048
—
2,288
4,576
9,844
—
3,256
2,352
5,048
—
1,176
2,352
5,048
—
5,336
3,528
5,048
—
2,288
6,864
9,844
—
3,256
3,528
5,048
—
1,176
3,528
5,048
—
—
— $ 641,654
— $ 282,828
$120.25 $ 140,738
—
—
— $ 275,132
— $ 550,264
$120.25 $ 274,451
—
—
— $ 391,534
— $ 282,828
$120.25 $ 140,738
—
—
— $ 141,414
— $ 282,828
$120.25 $ 140,738
(a)
(b)
(c)
(d)
(e)
The amounts shown under the “Threshold” column represent 25% of the target cash incentive compensation, assuming threshold-level performance is
achieved under the financial performance measures. The amounts shown under the “Target” column represent 100% of the target cash incentive
compensation, assuming target-level performance is achieved under the financial performance measures. The amounts shown under the “Maximum”
column represent 200% of the target cash incentive compensation, assuming maximum-level performance is achieved under the financial performance
measures.
Shares of time-based restricted stock were granted pursuant to the Company’s Equity Incentive Plan. These restricted shares vest ratably in four equal,
annual installments beginning one year from the date of the grant.
Shares of performance-based restricted stock were granted pursuant to the Company’s Equity Incentive Plan. These restricted shares vest upon meeting
specific performance targets for fiscal 2020 and service vesting through fiscal 2021. Once vested, the performance-based restricted shares for Mr. Casey
may not be sold for an additional one-year period (except to satisfy tax obligations resulting from vesting of such shares). The amounts shown under the
“Threshold” column represent 25% of the target grant award, assuming threshold-level performance is achieved under the performance vesting criteria.
The amounts shown under the “Target” column represent 100% of the target grant award, assuming target-level performance is achieved under the
performance vesting criteria. The amounts shown under the “Maximum” column represent 150% of the target grant award, assuming maximum-level
performance is achieved under the performance vesting criteria. The dollar amounts under the “Grant Date Fair Value of Stock and Option Awards” are
calculated based on the number of awards reported under the “Target” column.
Time-based stock options were granted pursuant to the Company’s Equity Incentive Plan. These stock options vest ratably in four equal, annual
installments beginning one year from the date of the grant. Information concerning how the Company uses the Black-Scholes model to determine the fair
value of stock options can be found in Note 10 to the Company’s consolidated financial statements included in Item 8 of the Company’s Annual Report on
Form 10-K for fiscal 2018.
The stock options awarded have an exercise price based on the closing price of the Company’s common stock as traded on the NYSE on the date of grant.
35
P
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OUTSTANDING EQUITY AWARDS AT FISCAL 2018 YEAR-END
The following table provides information regarding unexercised stock options, stock that has not yet vested,
and equity incentive plan awards for each NEO outstanding as of the end of fiscal 2018. Each outstanding award
is represented by a separate row that indicates the number of securities underlying the award.
Name
Michael D. Casey . .
Richard F.
Westenberger
. . .
Brian J. Lynch . . . . .
William G.
Foglesong . . . . . .
Kevin D. Corning . .
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
(Exercisable)
Number of
Securities
Underlying
Unexercised
Options
(#) (a)
(Unexercisable)
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
—
17,250
22,250
21,000
30,000
50,000
70,000
80,000
80,000
—
1,750
2,610
2,550
3,800
8,000
8,000
3,850
—
3,480
5,200
5,250
7,500
18,000
8,000
3,000
—
1,750
1,300
1,320
2,000
3,400
4,000
5,500
—
1,750
2,610
2,550
3,800
20,000
49,268
51,750
22,250
7,000
—
—
—
—
—
5,048
5,250
2,610
850
—
—
—
—
9,844
10,440
5,200
1,750
—
—
—
—
5,048
5,250
1,300
440
—
—
—
—
5,048
5,250
2610
850
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36
Stock Awards
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or
Other Rights
That Have
Not Vested
(#) (b)
Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
($) (c)
117,291
$9,560,389
20,133
$1,641,041
30,190
$2,460,787
13,268
$1,081,475
14,373
$1,171,543
Option
Exercise
Price
($)
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$ 42.61
$ 28.44
$ 28.04
Option
Expiration
Date
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
2/22/2022
2/24/2021
2/16/2020
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$ 42.61
$ 28.44
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$ 42.61
$ 28.44
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$ 42.61
$ 28.44
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
2/22/2022
2/24/2021
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
2/22/2022
2/24/2021
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
2/22/2022
2/24/2021
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
(a) Unexercisable options relate to the awards listed in the table below. These time-based stock options vest in four equal, annual
installments beginning one year from the date of the grant.
Name
Grant Date
Time-Based
Stock
Options
Granted
Black-Scholes
Fair Value
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
William G. Foglesong . . . . .
Kevin D. Corning . . . . . . . . .
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
49,268
69,000
44,500
28,000
5,048
7,000
5,220
3,400
9,844
13,920
10,400
7,000
5,048
7,000
2,600
1,760
5,048
7,000
5,220
3,400
$27.88
$20.04
$21.31
$24.55
$27.88
$20.04
$21.31
$24.55
$27.88
$20.04
$21.31
$24.55
$27.88
$20.04
$21.31
$24.55
$27.88
$20.04
$21.31
$24.55
Option
Exercise
Price
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
(b)
Equity Incentive Plan awards relate to the following grants:
•
•
The time-based restricted stock awards vest in four equal, annual installments beginning one year from the date of the grant.
Vesting of the performance-based stock awards granted in fiscal 2016, 2017, and 2018 is contingent upon meeting specific
performance targets in fiscal 2018, 2019, and 2020, respectively, and service vesting through fiscal 2019, 2020, and 2021,
respectively. For Mr. Casey, once vested, the performance-based restricted shares granted to him may not be sold for an additional
one-year period (except to satisfy tax obligations resulting from vesting of such shares).
Name
Grant Date
Time-Based
Restricted
Shares
Performance-
Based
Restricted
Shares
Grant
Date Fair
Value per
Share
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
William G. Foglesong . . . . .
Kevin D. Corning . . . . . . . . .
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
2/21/2018
2/14/2017
2/16/2016
2/18/2015
11,436
16,372
13,800
14,000
5,336
1,640
8,220
1,700
2,288
3,300
13,132
3,500
3,256
1,640
2,460
880
1,176
1,640
5,020
1,700
22,872
32,744
27,560
28,000
2,352
3,280
3,400
3,400
4,576
6,600
6,810
7,000
2,352
3,280
1,700
1,760
2,352
3,280
3,400
3,400
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
$120.25
$ 83.84
$ 90.66
$ 82.40
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(c) Amount based on the closing market price per share of the Company’s common stock as traded on the NYSE on December 28, 2018,
the last trading day of fiscal 2018, of $81.51.
37
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2018
The following table provides information concerning our NEOs’ exercises of stock options and vesting of
restricted stock during fiscal 2018. The table reports, on an aggregate basis, the number of securities acquired
upon exercise of stock options, the dollar value realized upon exercise of stock options, the number of shares of
restricted stock that have vested, and the dollar value realized upon the vesting of restricted stock.
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
(#)
100,000
—
26,500
6,000
—
Value Realized
on Exercise
($) (a)
$7,519,948
—
$2,375,057
$ 569,137
—
Number of
Shares
Acquired
on Vesting
(#)
43,857
6,894
13,186
3,322
6,094
Value Realized
on Vesting
($) (b)
$5,190,883
$ 820,090
$1,566,503
$ 394,720
$ 723,290
Name
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
William G. Foglesong . . . . .
Kevin D. Corning . . . . . . . . .
(a) Aggregate dollar amount was calculated by multiplying the number of shares acquired by the difference between the
market price of the underlying securities at the time of exercise and the exercise price of the stock options.
(b) Aggregate dollar amount was calculated by multiplying the number of shares acquired on vesting by the closing market
price of the Company’s common stock as traded on the NYSE on the date of vesting.
NONQUALIFIED DEFERRED COMPENSATION
Eligible employees, including our NEOs, may elect annually to defer a portion of their base salary and
annual cash incentive compensation under The William Carter Company Deferred Compensation Plan (the
“Deferred Compensation Plan”). Under this plan, participants can defer up to 75% of their salary and/or 90% of
their cash bonus. At the option of the participant, these amounts may be deferred to a specific date at least two
years from the last day of the year in which deferrals are credited into the participant’s account. Interest on
deferred amounts is credited to the participant’s account based upon the earnings and losses of one or more of the
investments selected by the participant from the various investment alternatives available under the Deferred
Compensation Plan.
At the time of deferral, a participant must indicate whether he or she wishes to receive the amount deferred
in either a lump sum or in substantially equal annual installments over a period of up to five years for “Specified
Date” accounts or up to ten years for “Retirement” accounts. If a participant who is an employee of the Company
separates from service prior to the elected commencement date for distributions and has not attained age 62 or
age 55 and completed ten years of service, then the deferred amounts will be distributed as a lump sum,
regardless of the method of distribution originally elected by the participant. If the participant in question has
attained age 62 or age 55 with ten years of service and has previously elected to do so on a timely basis, then the
participant may receive the amounts in substantially equal annual installments over a period of up to ten years.
There is a six-month delay in the commencement of distributions for all participants, if triggered by the
participant’s termination or retirement. Changes to deferral elections with respect to previously deferred amounts
are permitted only under the limited terms and conditions specified in the Code and early withdrawals from
deferred accounts are permitted only in extreme cases, such as unforeseen financial hardship resulting from an
illness or accident of the participant that is demonstrated to the Company’s Retirement Committee.
Name
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger . . . . . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William G. Foglesong . . . . . . . . . . . . . . . . . . . . . .
Kevin D. Corning . . . . . . . . . . . . . . . . . . . . . . . . .
Employee
Contributions
(a)
—
$ 13,089
$279,400
$550,532
$146,450
Company
Contributions
—
—
—
—
—
Aggregate
Earnings
(b)
—
$
8,402
$ 25,844
$166,203
$127,518
Withdrawals or
Distributions
—
—
—
—
—
Aggregate
Balance
(c)
—
$ 140,309
$ 752,244
$2,962,668
$2,321,604
(a) All of the amounts reported in this column for Messrs. Westenberger, Lynch, Foglesong, and Corning are also included
within the amount reported for that officer in the 2018 Summary Compensation Table.
38
(b) None of the amounts reported in this column are reported in the All Other Compensation column of the 2018 Summary
Compensation Table because the Company does not pay guaranteed or preferential earnings on deferred compensation.
(c) Amounts reported in this column for each NEO include amounts previously reported in the Company’s Summary
Compensation Table in previous years when earned if that NEO’s compensation was required to be disclosed in a
previous year.
PAY RATIO DISCLOSURE
In August 2015, pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the SEC adopted a rule requiring annual disclosure of the ratio of our median employee’s (the “Median
Employee”) annual total compensation to the total annual compensation of the principal executive officer
(“PEO”). The Company’s PEO is Mr. Casey.
We identified a Median Employee in fiscal 2017 using the methodology set out below, and we are using the
same Median Employee for this year’s disclosure, as there has been no change in our employee population or
employee compensation arrangements that we believe would significantly impact the pay ratio disclosure.
Our Median Employee is a part-time employee at one of our U.S. retail locations whose annual total
compensation for fiscal 2018 (as calculated pursuant to Item 402(c)(2)(x) of Regulation S-K) was $10,096. The
annual total compensation for fiscal 2018 for our PEO was $7,260,923. The resulting ratio of our PEO’s pay to
the pay of our Median Employee for fiscal 2018 was 719 to 1.
Methodology to Identify Our Median Employee
In order to identify our Median Employee in 2017, we began with a list of all of our employees, world-wide,
who were employed by Carter’s or one of its wholly-owned subsidiaries on October 2, 2017. Of these employees,
approximately 34% were full-time employees, 53% were part-time employees, and 13% were seasonal or
temporary employees. Approximately 80% of our employees were employed in our retail stores in North
America, and approximately 82% of those retail employees were part-time.
We then calculated each employee’s compensation for 2017. When making this calculation, we:
•
•
•
•
consistently used each employee’s total salary for the 2017 calendar year as stated on the gross
compensation line on their Form W-2 (or international equivalent);
annualized salaries for those full-time and part-time employees that were not employed for the full
calendar year of 2017 (but we did not annualize seasonal or temporary employee data);
excluded benefits, such as health care contributions; and
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for compensation paid in currencies other than U.S. dollars, applied an exchange rate into U.S. dollars
that was based on rates published by the Wall Street Journal on October 2, 2017.
39
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS, AND CERTAIN CONTROL PERSONS
The Company has a written policy that requires all transactions with related persons involving more than
$10,000 be reviewed by our Chief Financial Officer and General Counsel (or their designees) with our Audit
Committee and approved by our Chief Financial Officer and General Counsel (or their designees) or our Audit
Committee.
The Company considers the following to be related parties: any director or executive officer of the
Company; any nominee for election as a director; any security holder who is known to the Company to own more
than five percent of any class of the Company’s voting securities; and any member of the immediate family of
any of the parties listed above including such party’s spouse, parents, children, siblings, mothers and
fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law.
There were no such transactions during fiscal 2018.
40
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS, AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of Carter’s common stock owned by each of the
following parties as of March 25, 2019, or as of such other date as indicated: (a) each person known by Carter’s
to own beneficially more than five percent of the outstanding common stock; (b) our NEOs; (c) each director;
and (d) all directors and executive officers as a group. Unless otherwise indicated below, the holder’s address is
3438 Peachtree Road NE, Suite 1800, Atlanta, Georgia 30326.
Name of Beneficial Owner
Shares
Percent
Wellington Management Group LLP (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock, Inc. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group, Inc. (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Victory Capital Management Inc. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Janus Henderson Group plc (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael D. Casey (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian J. Lynch (6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William G. Foglesong (6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amy Woods Brinkley (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver (6) (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thomas E. Whiddon (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (18 persons) (6) . . . . . . . . . . . . . . . . . . . . .
4,973,131
4,073,274
4,052,316
2,656,147
2,638,256
829,326
124,307
91,179
54,486
16,178
5,272
6,086
6,297
2,669
31,488
73,517
54,035
1,464,515
10.9%
9.0%
8.9%
5.8%
5.8%
1.8%
*
*
*
*
*
*
*
*
*
*
*
3.2%
*
Indicates less than 1% of our common stock.
(1) This information is based on Schedule 13G, filed with the SEC on January 10, 2019. Wellington Management Group
LLP has shared voting power covering 3,842,085 shares and shared dispositive power covering 4,973,131 shares of our
common stock; Wellington Group Holdings LLP has shared voting power covering 3,842,085 shares and shared
dispositive power covering 4,973,131 shares of our common stock; Wellington Investment Advisors Holdings LLP has
shared voting power covering 3,842,085 shares and shared dispositive power covering 4,973,131 shares of our common
stock; and Wellington Management Company LLP has shared voting power covering 3,486,608 shares and shared
dispositive power covering 4,382,568 shares of our common stock. The address for each entity is c/o Wellington
Management Company LLP, 280 Congress Street, Boston, MA 02210.
(2) This information is based on Schedule 13G/A, filed with the SEC on February 4, 2019. BlackRock, Inc. has sole voting
power covering 3,888,318 shares and sole dispositive power covering 4,073,274 shares of our common stock. The
address for BlackRock, Inc. is 40 East 52nd Street, New York, NY 10022.
(3) This information is based on Schedule 13G/A, filed with the SEC on February 11, 2019. The Vanguard Group, Inc. has
sole voting power covering 25,030 shares and sole dispositive power covering 4,025,721 shares of our common stock.
The Vanguard Group, Inc. has shared voting power covering 6,134 shares of our common stock and shared dispositive
power covering 26,595 shares of our common stock. The address for The Vanguard Group, Inc. is 100 Vanguard
Boulevard, Malvern, PA 19355.
(4) This information is based on Schedule 13G, filed with the SEC on February 1, 2019. Victory Capital Management Inc.
has sole voting power covering 2,544,797 shares and sole dispositive power covering 2,656,147 shares of our common
stock. The address for Victory Capital Management Inc. is 4900 Tiedeman Rd. 4th Floor, Brooklyn, OH 44144.
(5) This information is based on Schedule 13G, filed with the SEC on February 12, 2019. Janus Henderson Group plc has
shared voting power and shared dispositive power covering 2,638,256 shares of our common stock. The address for
Janus Henderson Group plc is 201 Bishopsgate, EC2M 3AE, United Kingdom.
41
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(6) This amount includes the (a) number of shares subject to exercisable stock options, including stock options that will
become exercisable during the 60 days after March 25, 2019, and (b) number of shares of restricted common stock and
unvested performance stock. See the detail for each NEO and all executive officers as a group below. Ms. Buonfantino
holds 1,276 shares of restricted stock and Mr. Hipp holds 1,186 shares of restricted stock, and are the only independent
directors who hold restricted stock.
Name
Exercisable
Stock
Options
Restricted
Common
Stock
Unvested
Performance
Stock
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William G. Foglesong . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All executive officers as a group . . . . . . . . . . . . . . . . . . . . .
418,192
29,542
60,721
23,372
614,484
51,161
11,381
12,841
7,113
110,340
86,564
10,136
17,368
8,868
153,696
(7) Mr. Pulver holds 8,000 shares of common stock indirectly through Cornerstone Capital, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that the Company’s executive
officers and directors, and persons who beneficially own more than ten percent (10%) of the Company’s common
stock, file initial reports of ownership and changes in ownership with the SEC and the NYSE. Based on a review
of the copies of such forms furnished to the Company with respect to fiscal 2018, the Company believes that all
forms were filed in a timely manner during fiscal 2018.
42
PROPOSAL NUMBER TWO
ADVISORY VOTE ON APPROVAL OF EXECUTIVE COMPENSATION
The Compensation Discussion and Analysis section of this proxy statement beginning on page 21 describes
the Company’s executive compensation program and the compensation decisions that the Compensation
Committee and Board of Directors made in fiscal 2018 with respect to the compensation of the Company’s
NEOs.
The Company is committed to achieving long-term, sustainable growth and increasing shareholder value.
The Company’s compensation program for its NEOs is designed to support these objectives and encourage
strong financial performance on an annual and long-term basis by linking a significant portion of the NEOs’ total
direct compensation to Company performance in the form of incentive compensation.
The Board of Directors is asking shareholders to cast a non-binding, advisory vote FOR the following
resolution:
“RESOLVED, that the compensation paid to the Company’s NEOs, as disclosed pursuant to Item 402
of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and
narrative discussion, is hereby APPROVED.”
This proposal is commonly referred to as the “say-on-pay” vote and is required pursuant to Section 14A of
the Exchange Act. This vote is not intended to address any specific item of compensation, but rather the overall
compensation of our NEOs and the policies and practices described in this proxy statement. Although the vote
we are asking you to cast is non-binding, the Compensation Committee and the Board value the views of our
shareholders and intend to consider the outcome of the vote when determining future compensation arrangements
for our NEOs.
The Board recommends a vote FOR the approval of compensation of the Company’s NEOs as disclosed in
this proxy statement.
Vote Required
Because this Proposal Number Two asks for a non-binding, advisory vote, there is no required vote that
would constitute approval. We value the opinions expressed by our shareholders in this advisory vote, and our
Compensation Committee will consider the outcome of the vote when designing our compensation programs and
making future compensation decisions for our NEOs. Abstentions and broker non-votes, if any, will not have any
impact on this advisory vote.
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43
AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company’s accounting, auditing, and financial reporting process on
behalf of the Board. The Audit Committee’s charter is available in the investor relations section of our website at
ir.carters.com. Management has the primary responsibility for establishing and maintaining adequate internal
financial controls, for preparing the financial statements, and for the public reporting process. PwC, the
Company’s independent registered public accounting firm, is responsible for expressing opinions on the
conformity of the Company’s audited consolidated financial statements with accounting principles generally
accepted in the United States of America and on the effectiveness of the Company’s internal control over
financial reporting.
The Audit Committee has reviewed and discussed with management and PwC the audited consolidated
financial statements for the fiscal year ended December 29, 2018 and PwC’s evaluation of the effectiveness of
the Company’s internal control over financial reporting. The Audit Committee has discussed with PwC the
matters that are required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA,
Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board
in Rule 3200T. The Audit Committee has received the written disclosures and the letter from PwC required by
applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications
with the Audit Committee concerning independence, and has discussed with PwC the firm’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board
that the audited consolidated financial statements for the fiscal year ended December 29, 2018 be included in our
Annual Report on Form 10-K for fiscal 2018 for filing with the SEC.
Submitted by the Audit Committee
Mr. William J. Montgoris, Chairperson
Ms. Amy Woods Brinkley
Mr. Mark P. Hipp
Mr. David Pulver
Mr. Thomas E. Whiddon
The Audit Committee Report does not constitute soliciting material, and shall not be deemed to be filed or
incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Exchange
Act, except to the extent that we specifically incorporate the Audit Committee Report by reference therein.
44
PROPOSAL NUMBER THREE
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board has appointed PwC to serve as the Company’s independent registered
public accounting firm for fiscal 2019. The Board is submitting the appointment of PwC as the Company’s
independent registered public accounting firm for shareholder ratification and recommends that shareholders
ratify this appointment. The Board recommends that shareholders ratify this appointment at the Annual Meeting.
Shareholder ratification of the appointment of PwC is not required by law or otherwise. The Board is submitting
this matter to shareholders for ratification because the Board believes it to be a good corporate governance
practice. If the shareholders do not ratify the appointment, the Audit Committee may reconsider whether or not to
retain PwC. Even if the appointment is ratified, the Audit Committee may appoint a different independent
registered public accounting firm at any time during the year if, in its discretion, it determines that such a change
would be in the Company’s best interest and that of the Company’s shareholders. A representative of PwC is
expected to attend the Annual Meeting, and he or she will have the opportunity to make a statement and will be
available to respond to appropriate questions. For additional information regarding the Company’s relationship
with PwC, please refer to the Audit Committee Report above.
The Audit Committee has also adopted policies and procedures for pre-approving all non-audit work
performed by PwC. The Audit Committee has pre-approved the use, as needed, of PwC for specific types of
services that fall within categories of non-audit services, including various tax services. The Audit Committee
receives regular updates as to the fees associated with the services that are subject to pre-approval. Services that
do not fall within a pre-approved category require specific consideration and pre-approval by the Audit
Committee. All services rendered by PwC in the table below were pre-approved by the Audit Committee.
The aggregate fees that the Company incurred for professional services rendered by PwC for fiscal years
2018 and 2017 were as follows:
2018
2017
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,332,270
50,000
—
4,500
$2,267,236
50,000
—
3,600
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,386,770
$2,320,836
•
•
•
Audit Fees for fiscal years 2018 and 2017 were for professional services rendered for the integrated
audit of the consolidated financial statements and internal control over financial reporting of the
Company, other auditing procedures related to the adoption of new accounting pronouncements,
review of other significant transactions, and related out-of-pocket expenses.
P
r
o
x
y
Audit-Related Fees for fiscal years 2018 and 2017 included procedures related to the pending adoption
of a new accounting pronouncement.
All Other Fees for fiscal years 2018 and 2017 consisted of software license fees.
The Board recommends a vote FOR the ratification of the appointment of PricewaterhouseCoopers LLP
as the Company’s independent registered public accounting firm for fiscal 2019.
Vote Required
The approval of Proposal Number Four requires the affirmative vote of a majority of the votes properly cast
at our Annual Meeting. Abstentions will not affect the outcome of this proposal. A broker or other nominee will
generally have discretionary authority to vote on this proposal because it is considered a routine matter, and,
therefore, we do not expect broker non-votes with respect to this proposal.
45
OTHER MATTERS
As of the date of this proxy statement, we know of no business that will be presented for consideration at the
Annual Meeting, other than the items referred to above. If any other matter is properly brought before the Annual
Meeting for action by shareholders, proxies in the enclosed form returned to the Company will be voted in
accordance with the recommendation of the Board or, in the absence of such a recommendation, in accordance
with the judgment of the proxy holder.
46
APPENDIX A
2018 RETAIL SURVEY PARTICIPANT LIST (“RETAIL SURVEY”)
Abercrombie & Fitch Co.
Academy Sports + Outdoors
American Eagle Outfitters, Inc.
Ascena Retail Group, Inc.
The Bon-Ton Stores, Inc.
Chico’s FAS, Inc.
The Children’s Place, Inc.
Deckers Outdoor Corporation
Destination Maternity Corporation
Dick’s Sporting Goods, Inc.
DSW Inc. (a)
Express, Inc.
The Finish Line, Inc.
Foot Locker, Inc.
Fossil Group, Inc.
The Gap, Inc.
J. C. Penney Company, Inc.
J.Crew Group, Inc.
Kate Spade & Company
L Brands, Inc.
L.L. Bean, Inc.
Luxottica Group S.p.A.
The Michaels Companies, Inc.
New York & Company, Inc.
The Neiman Marcus Group LTD LLC
Oxford Industries, Inc.
Payless ShoeSource Inc.
Perry Ellis International, Inc.
PVH Corp.
Ralph Lauren Corporation
Ross Stores, Inc.
Stage Stores, Inc.
Tailored Brands, Inc.
The TJX Companies, Inc.
Urban Outfitters, Inc.
Vera Bradley, Inc.
Williams-Sonoma, Inc.
(a) DSW Inc. changed its name to Designer Brands Inc. effective March 19, 2019.
P
r
o
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y
A-1
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RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS
In addition to presenting results prepared in accordance with generally accepted accounting principles (or
“GAAP”), the Company has provided adjusted, non-GAAP financial measurements that present gross margin,
SG&A, operating income, net income, and net income per diluted share excluding the following items:
(dollars in millions, except earnings per share)
As reported (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer bankruptcy charges, net (a) (b) . . . . . . . . . . . . . . . .
China business model change (a) (c) . . . . . . . . . . . . . . . . . . . .
Store restructuring costs (a) (d) . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended December 29, 2018
Gross
Margin
$1.497.5
—
3.9
—
SG&A
$1,145.0
(10.9)
(1.4)
0.4
Operating
Income
Net
Income
Diluted
EPS
$391.4
10.9
5.3
(0.4)
$282.1 $ 6.00
0.18
0.11
(0.01)
8.3
5.3
(0.3)
As adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,501.4
$1,133.1
$407.3
$295.4 $ 6.29
(dollars in millions, except earnings per share)
As reported (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special employee compensation provisions (a) (e) . . . . . . . . .
Store restructuring costs (a) (f) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Direct sourcing initiative (a) (g)
Acquisition costs (a) (h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax reform (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended December 30, 2017
Gross
Margin
$1,483.4
—
—
—
1.2
—
SG&A
$1,106.9
(21.2)
(2.7)
(0.3)
0.2
—
Operating
Income
Net
Income
Diluted
EPS
$419.6
21.2
2.7
0.3
1.0
—
$302.8 $ 6.24
0.31
0.03
—
—
(0.83)
15.1
1.5
0.2
0.2
(40.0)
As adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,484.6
$1,082.9
$444.8
$279.8 $ 5.77
(dollars in millions, except earnings per share)
As reported (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs (a) (h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of tradenames (a) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Direct sourcing initiative (a) (g)
Fiscal year ended December 31, 2016
Gross
Margin
$1,378.5
—
—
—
SG&A
$ 995.4
(2.4)
(1.7)
(0.7)
Operating
Income
Net
Income
Diluted
EPS
$425.9
2.4
1.7
0.7
$257.7 $ 5.08
0.03
0.02
0.01
1.5
1.1
0.5
As adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,378.5
$ 990.6
$430.7
$260.8 $ 5.14
(a) The difference between the effects on Operating income and Net income represents the income taxes related to the
adjustment item (calculated using the applicable tax rate of the underlying jurisdiction).
(b) Related to the Toys “R” Us bankruptcy.
(c) Costs associated with transitioning retail and wholesale operations to a full licensing model in China.
(d) Insurance recovery associated with unusual storm-related store closures.
(e) Special employee compensation provided as a result of the significant benefit related to the enactment of the Tax
Cuts and Jobs Act of 2017.
(f) Store restructuring costs and related tax credits.
(g) Costs associated with the Company’s direct sourcing initiative, which include employee severance and relocation.
(h) Non-recurring costs related to the Skip Hop and Mexico acquisitions.
(i) Reflects the net benefit of the Tax Cuts and Jobs Act of 2017.
Fiscal 2017 and 2016 reflect the retrospective adoption of Accounting Standards Codification No. 606, Revenue
from Contracts with Customers.
The adjusted, non-GAAP financial information is presented for informational purposes only and is not
necessarily indicative of the Company’s future condition or results of operations. These adjustments, which the
Company does not believe to be indicative of on-going business trends, are excluded from the above calculations.
The Company believes these adjustments provide a meaningful comparison of the Company’s results and afford
investors a view of what management considers to be the Company’s core performance. The adjusted, non-
GAAP financial measurements included in this Annual Report should not be considered as alternative to gross
margin, SG&A, operating income, net income, or earnings per share, or to any other measurement of
performance derived from GAAP.
Note: Amounts may not be additive due to rounding.
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16543_2018_Annual_Report_FNL6.indd 8
4/4/19 12:24 AM
ANNUAL MEETING
The 2019 Annual Meeting of Shareholders will be held at 8:00 a.m.
on May 16, 2019. The meeting will be held at our offices located at:
3438 Peachtree Road NE
Atlanta, Georgia 30326
COMMON STOCK
Symbol: CRI
Exchange: New York Stock Exchange
TRANSFER AGENT
American Stock Transfer & Trust Company, LLC
c/o Shareholder Services
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
www.astfinancial.com
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
1075 Peachtree Street NE
Suite 2600
Atlanta, Georgia 30309
LEGAL COUNSEL
Paul Hastings LLP
1170 Peachtree Street NE
Suite 100
Atlanta, Georgia 30309
INVESTOR REL ATIONS
For further information on Carter’s, Inc., or for additional copies of this
Annual Report, Proxy Statement, Form 10-K, or other financial information,
please visit the investor relations section of the Company’s website at
www.carters.com. You may also contact Carter’s Investor Relations at
investor@carters.com or (678) 791-7615.
Trademarks that are referred to in this Annual Report, including Carter’s,
OshKosh, OshKosh B’gosh, Baby B’gosh, Skip Hop, Child of Mine, Just One
You, Simple Joys, Precious Firsts, Precious Baby, Little Collections, Little
Planet, Carter’s little baby basics, Carter’s KID, Rewarding Moments, and
Count on Carter’s are trademarks owned by subsidiaries of Carter’s, Inc.
All market share data provided in this Annual Report is based on
information provided by NPD Group, Inc. as of February 24, 2019.
References to specific market share are expressed as a percentage
of total retail sales of a particular market.
LEADERSHIP TEAM
Michael D. Casey
Chairman of the Board of Directors
& Chief Executive Officer
William G. Foglesong
Executive Vice President,
Retail & Marketing
Brian J. Lynch
President
Julie A. D’Emilio
Executive Vice President, Sales
Scott F. Duggan
Senior Vice President,
General Counsel & Secretary
Kendra D. Krugman
Executive Vice President,
Merchandising & Design
Patrick Q. Moore
Executive Vice President,
Strategy & Business Development
Peter R. Smith
Executive Vice President,
Supply Chain
Richard F. Westenberger
Executive Vice President
& Chief Financial Officer
Jill A. Wilson
Senior Vice President,
Human Resources &
Talent Development
BOARD OF DIRECTORS
Amy Woods Brinkley 1,2 (Chair)
Former Chief Risk Officer &
Former President,
Consumer Products Division,
Bank of America Corporation
Giuseppina Buonfantino 3
Chief Marketing Officer,
Kimberly-Clark Corporation
Michael D. Casey
Chairman of the Board of Directors
& Chief Executive Officer
A. Bruce Cleverly 2,3 (Chair)
Former President,
Global Oral Care Division,
The Procter & Gamble Company
William J. Montgoris 1 (Chair)
Former Chief Operating Officer
& Former Chief Financial Officer,
The Bear Stearns Companies, Inc.
Jevin S. Eagle 2,3
Former Chief Executive Officer,
DavidsTea Inc.
Former Executive Vice President,
Merchandising and Marketing,
Staples, Inc.
Mark P. Hipp 1
Former Vice President & General
Manager, Hewlett Packard
Enterprise Company
David Pulver* 1
President,
Cornerstone Capital, Inc.
Former Chairman &
Co-Chief Executive Officer,
The Children’s Place, Inc.
Thomas E. Whiddon 1,3
Former Executive Vice President,
Logistics & Technology and
Former Chief Financial Officer,
Lowe’s Companies, Inc.
*Lead Independent Director
Board Committees:
1 Audit
2 Compensation
3 Nominating and Corporate Governance
Carter’s, Inc. | 3438 Peachtree Road NE, Suite 1800 | Atlanta, GA 30326 | 678.791.1000 | carters.com | oshkosh.com | skiphop.com