Carter’s, Inc. 2020 Annual Report
Carter’s, Inc. 2018 Annual Report
March 30, 2021
Dear Fellow Shareholders,
2020 began as a year of great optimism. In February 2020, we reported our 31st consecutive year of sales
growth and a record level of cash flow for fiscal year 2019. With mid-single digit growth in sales through
February 2020, the new year was off to a strong start and expected to be another good year of growth for us.
By mid-March, a global pandemic and national emergency had been declared, and the lives of people
throughout the world were disrupted. In the months that followed, we worked to keep our employees and our
store customers safe from the virus. We temporarily closed all of our stores for several weeks, reduced spending,
negotiated lower product costs, and improved liquidity. We significantly reduced our exposure to excess
inventories caused by temporary store closures, and by curtailing inventory commitments, we were able to
improve price realization and gross profit margins last year.
When the pandemic hit, we accelerated the execution of new capabilities to support the same-day pickup of
eCommerce orders in our stores, curbside pickup and the direct shipment of eCommerce orders from our stores.
We developed new ways to partner remotely with our wholesale customers, leveraged our investments in digital
product imagery, and secured higher bookings for our beautiful product offerings in 2021. We also engaged more
deeply and effectively with consumers through social media, building a virtual community of families with
young children.
During the pandemic, we added over two million new eCommerce customers in the United States. With the
support of our wholesale customers, the online sales of our brands exceeded $1 billion in 2020. Through
exceptional working capital management, together with the support of our landlords, suppliers and lenders, we
achieved a record level of operating cash flow of $590 million and ended 2020 with a strong balance sheet,
including $1.8 billion of liquidity.
Our Vision and Focus
Carter’s is the largest branded marketer of young children’s apparel in North America. Our brands are sold
in over 20,000 store locations, on the largest eCommerce platforms and through international wholesale
relationships in over 90 countries. We believe no other company in the world can match our market presence and
success in branded childrenswear.
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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 young children’s apparel, extending the reach of our
brands, and improving profitability. Our growth plan is built on four key strategies:
• Lead in eCommerce
eCommerce is our fastest growing and highest margin business. Our Carter’s brands have the largest share
of the eCommerce children’s apparel market in the United States. In 2020, our carters.com online
experience was rated as one of the top user experiences among the largest U.S. and European eCommerce
websites. We also have unparalleled relationships with the leading eCommerce retailers of young children’s
apparel, including Amazon, Target, Walmart, Kohl’s and Macy’s.
• Win in Baby
Carter’s is the number one brand in baby apparel, with over four times the share of our nearest competitor in
the United States. It has been the best-selling brand in young children’s apparel for multiple generations of
consumers.
It is possible that we may see fewer births near term due to the pandemic. We have seen births decline
almost every year since the Great Recession began in 2007. And since 2007, our sales and earnings have
more than doubled. With the promise of vaccines more broadly available this year, unprecedented
government stimulus helping families with young children, historically low interest rates, a strong housing
market and an improving economy, we view the risk of fewer births as a potential short-term challenge, but
not a longer-term obstacle to our growth.
• Age Up
We have the largest share of the baby and toddler apparel markets in the United States and Canada. The
largest growth in our sales before the pandemic, both in percentage and absolute dollars, was driven by our
product offerings focused on five to ten-year-old children. With the continued success of our Age Up
initiative and the likely reopening of schools this year, we expect that our Age Up strategy will be a good
source of growth for us in the years ahead.
• Expand Globally
We plan to extend the reach of our brands globally and profitably. International sales contributed about 12%
of our consolidated sales in 2020 and are expected to grow to 15% of our sales by 2025. Over the next five
years, over 60% of our international sales growth is forecasted to be driven by our multichannel operations
in Canada and Mexico.
Our brands are also sold globally through Amazon, Walmart, and Costco. We expect good growth from
these multinational retailers and other retailers who are extending the reach of our brands to families with
young children through over 1,000 retail locations in over 90 countries outside of North America.
Growth Objectives
We believe our global, multi-channel business model will enable mid-single digit annual growth in sales, on
average, over the next five years. If we achieve this objective, our net sales would increase by nearly
$700 million to approximately $3.7 billion by 2025, with all business segments contributing to our growth.
We plan to grow annual earnings per share by more than 10%, on average, through 2025. We are executing
a productivity improvement plan that is focused on fewer, better and higher margin stores, improved price
realization, stronger product costing capabilities and greater organizational efficiencies.
Our projections reflect approximately $1.7 billion in cumulative cash flow from operations over the next
five years. We plan to evaluate new opportunities that may provide inorganic sources of growth and attractive
returns on investment. Absent better alternatives to allocate capital, we plan to reduce our debt levels and resume
returning excess capital to shareholders through share repurchases and dividends.
Fundamental Strengths
Over the years, a long-term shareholder would often say that Carter’s success has been driven by the
strength of our iconic brands and our balance sheet. While we believe that is true, we also believe that the
fundamental strengths of our business include our talented employees who demonstrated extraordinary resilience
last year, supporting their families and our Company through the pandemic.
In many cases, we have multiple generations of families who have worked for Carter’s in good years and
tougher years. 2020 was one of those tougher years. And though many things changed in our lives last year, one
thing remains the same—beautiful babies are born every day, and the apparel brand consumers choose for their
new baby, more so than any other brand, is Carter’s.
With the support of our employees, customers and business partners, we believe Carter’s will emerge
stronger from the pandemic, is well positioned to grow and gain market share, and our best years are ahead of us.
Virtual Meeting
To ensure the safety of our shareholders and employees, our Annual Meeting will be conducted virtually
this year. We believe that our virtual Annual Meeting will enable increased shareholder participation, and lower
the cost to our shareholders, the Company, and the environment. The attached Notice of the 2021 Annual
Meeting of Shareholders and Proxy Statement describes the formal business to be conducted at the meeting.
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
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2021 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the 2021 Annual Meeting of Shareholders of Carter’s, Inc. (the “Annual
Meeting”) will be held at 10:00 a.m. Eastern Time on May 19, 2021.
The Annual Meeting will be a completely “virtual meeting” of stockholders. This reflects our continued
concerns about the COVID-19 pandemic. We believe that the virtual Annual Meeting will enable increased
shareholder participation from locations around the world, and lower the cost to our shareholders, the Company,
and the environment.
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 2021; and
4) Any other business that may properly come before the meeting.
To attend and participate in the Annual Meeting as a shareholder go to
www.virtualshareholdermeeting.com/CRI2021 and, when prompted, enter the 16-digit control number included
in your proxy materials. Once you are admitted to the meeting as a shareholder, you may vote during the Annual
Meeting and also submit questions related to the proposals by following the instructions available on the virtual
meeting website during the meeting. We encourage you to log into this website and access the virtual meeting
before the start of the meeting.
Shareholders of record at the close of business on March 22, 2021 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.
Important notice regarding the availability of proxy materials for the
2021 Annual Meeting of Shareholders of Carter’s, Inc. to be held on May 19, 2021:
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.
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By order of the Board of Directors,
Scott F. Duggan
Senior Vice President of Legal and Corporate Affairs, General Counsel & Secretary
Atlanta, Georgia
March 30, 2021
PROXY STATEMENT
TABLE OF CONTENTS
General Information about the Proxy Materials and the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors and Corporate Governance Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal Number One – Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers’ Biographical Information and Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Report
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal 2020 Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards at Fiscal 2020 Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option Exercises and Stock Vested in Fiscal 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pay Ratio Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions with Related Persons, Promoters, and Certain Control Persons . . . . . . . . . . . . . . . . . . . . . . . . .
Securities Ownership of Certain Beneficial Owners, Directors, and Executive Officers . . . . . . . . . . . . . . . .
Proposal Number Two – Advisory Vote on Approval of Executive Compensation . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Committee Report
Proposal Number Three – Ratification of Independent Registered Public Accounting Firm . . . . . . . . . . . . .
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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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 2021 Annual Meeting of Shareholders on May 19, 2021 10:00 a.m. Eastern Time (the
“Annual Meeting”). This proxy statement and accompanying proxy card are being mailed on or about April 6, 2021
to shareholders of record as of March 22, 2021, 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 44);
3.
The ratification of the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Company’s
independent registered public accounting firm for fiscal 2021 (see page 46); 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
43,950,307 shares of common stock issued and outstanding.
To attend and participate in the Annual Meeting as a shareholder go to
www.virtualshareholdermeeting.com/CRI2021 and, when prompted, enter the 16-digit control number included
in your proxy materials. Once you are admitted to the meeting as a shareholder, you may vote during the Annual
Meeting and also submit questions related to the proposals by following the instructions available on the virtual
meeting website during the meeting. We encourage you to log into this website and access the virtual meeting
before the start of the meeting.
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How will the virtual meeting work?
We have designed the format of the Annual Meeting to ensure that our shareholders are afforded the same
rights and opportunities to participate as they would at an in-person meeting.
During the Annual Meeting, we will hold a question and answer session during which we intend to answer
questions submitted during the meeting that are pertinent to the Company, as time permits, and in accordance
with our Rules and Procedures for Conduct of the Annual Meeting. On the day of and during the Annual
Meeting, you can view our Rules and Procedures for Conduct of the Annual Meeting and submit any questions
on www.virtualshareholdermeeting.com/CRI2021. Answers to any questions not addressed during the meeting
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will be posted following the meeting on the investor relations page of our website. Questions and answers will be
grouped by topic, and substantially similar questions will be answered only once. To promote fairness, efficiently
use the Company’s resources, and ensure all shareholder questions are able to be addressed, we will respond to
no more than three questions from any single shareholder.
Prior to and during the Annual Meeting, we will have support available to assist shareholders with any
technical difficulties they may have accessing or hearing the virtual meeting. Technical support will be available
if you encounter any difficulty accessing, or during, the virtual meeting.
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.
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 (virtually) 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 (virtually) 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 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.
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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.
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 2021, and what vote is needed to approve this
proposal?
In voting on the ratification of PwC (Proposal Number Three), shareholders may:
1.
2.
3.
vote to ratify PwC’s appointment;
vote against ratifying PwC’s appointment; or
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).
How do I vote?
If you are a shareholder of record on the Record Date, 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 (virtually) 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 (virtually).
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 2021 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.
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
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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 2021
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 2020 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 2021
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
2022 annual meeting of shareholders by submitting their proposals in writing to Mr. Duggan at the Company’s
address set forth in the 2021 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.
Securities Exchange Act of 1934 (the “Exchange Act”), then the proposal must be submitted and received on or
before December 8, 2021. If we hold our 2022 annual meeting of shareholders more than 30 days before or after
May 19, 2022 (the one-year anniversary date of the 2021 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.
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 of shareholders. Such proposals or nominations must
be submitted and received no earlier than January 19, 2021, and no later than February 18, 2022 for our annual
meeting of shareholders to be held in 2022. If we hold our 2022 annual meeting of shareholders more than 30
days before or after May 19, 2022 (the one-year anniversary date of the 2021 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, and
the 10th day following the day on which public disclosure of the meeting date is made.
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 2022 (which will end on December 31, 2022) and
Fiscal 2021 (which will end on January 1, 2022) will each have 52 weeks. Fiscal 2020 (which ended on
January 2, 2021) had 53 weeks, and fiscal 2019 (which ended on December 28, 2019) and fiscal 2018 (which
ended on December 29, 2018) each 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 2021 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 the nine directors set forth below at the Annual Meeting.
Following the Annual Meeting, the Board size will be reduced to nine directors. Thomas E. Whiddon left
the Board earlier this year, and Amy Woods Brinkley and Richard Noll are not seeking re-election in light of
other obligations. The Company is grateful to each of them for all that they have made possible for our Company.
Going forward, the Board plans to focus on candidates with diverse backgrounds, including diversity of gender
and race. Please see “—Retirement Policy” below for additional information regarding planned Board transition
and “—Consideration of Director Nominees” for more information on the Nominating and Corporate
Governance Committee’s philosophy and commitment to including in each search candidates who reflect diverse
backgrounds.
The Board believes that each director nominated for election 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, technology, global sourcing, sustainability, 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.
Hali Borenstein became a director in December 2019. Ms. Borenstein is the Chief Executive Officer of
Reformation LLC, a women’s lifestyle brand focused on fashion and sustainability, a position she has held since
June 2020. From December 2017 until June 2020, Ms. Borenstein was President of Reformation LLC, and from
2014 to 2017 Ms. Borenstein held various merchandising and design roles of increasing responsibility at
Reformation LLC. Prior to joining Reformation LLC, Ms. Borenstein was a senior merchandiser at Gymboree
Group, Inc., and began her career at Bain & Company.
Director Qualifications: Ms. Borenstein brings to the Board valuable perspective and insight in eCommerce
and retail businesses, as well as expertise in apparel marketing and merchandising.
Giuseppina Buonfantino became a director in June 2016. Ms. Buonfantino is the Vice President of
Consumer Packaged Goods (CPG) Industry Solutions, Google Cloud, a position she has held since January 2021.
From February 2020 until January 2021, Ms. Buonfantino served as Chief Digital and Marketing Officer at
Amway Corporation. From May 2018 until November 2019, Ms. Buonfantino served as the Chief Marketing
Officer for Kimberly-Clark Corporation, and from May 2011 until May 2018, Ms. Buonfantino held various
other positions at Kimberly-Clark of increasing responsibility, most recently as President, North America, Baby
and Child Care. Prior to that, from 1993 until 2011, Ms. Buonfantino held various positions at Johnson &
Johnson, most recently as Vice President, 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 The 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 The 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 January 2013, Mr. Hipp has been the co-Chief
Executive Officer of H2IDD, an advisory firm focused on public and private mergers and acquisitions. 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 currently serves on the board of
directors of Eye Care Partners, Digital Rooms LLC, Purchasing Power LLC, and sticky.io.
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 is a trustee of the Hackensack Meridian School of Medicine and a
trustee emeritus of Colby College and St. John’s University. Mr. Montgoris was previously a director of
OfficeMax Incorporated, where he served from 2007 to 2013, and of Stage Stores, Inc., where he served from
2004 to 2020 and was chairman of the board from 2010.
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 the former 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.
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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 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.
Gretchen W. Schar became a director in July 2019. From 2011 until June 2018, Ms. Schar served as
Executive Vice President and Chief Financial and Administrative Officer of Arbonne International LLC, a beauty
and nutritional products company, and from 2008 until 2011 served as Executive Vice President and Chief
Financial Officer of philosophy, inc., an international prestige beauty brand. Prior to that, Ms. Schar spent over
30 years at The Procter & Gamble Company in finance and general management roles of increasing
responsibility. Since 2002, Ms. Schar has served on the board of directors of Cincinnati Financial Corporation,
and previously served as a director of Beam Inc. from 2012 until 2015.
Director Qualifications: Ms. Schar brings to the Board broad experience in a number of areas, including
accounting, auditing and financial reporting, investor relations, capital management, human resources,
information technology, and strategic and business planning.
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 25 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:
•
•
•
•
•
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;
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;
8
•
•
•
•
•
•
•
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 New York Stock Exchange (“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 (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.
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.
In fiscal 2020, under the leadership of the Lead Director and the Chairperson of the Nominating and
Corporate Governance Committee, the Nominating and Corporate Governance Committee oversaw the Board’s
annual evaluation process, which focused on the Board and each of the committees, as well as individual
peer-to-peer assessments including individual interviews with each director.
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Retirement Policy
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.
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(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
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 held four regularly scheduled quarterly meetings
during fiscal 2020. The Board also held an additional 13 special meetings in fiscal 2020, primarily to oversee the
Company’s response to and progress during the COVID-19 pandemic.
In fiscal 2020, 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 2020.
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 2021 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
Audit
Compensation
Hali Borenstein . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amy Woods Brinkley . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Noll
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gretchen W. Schar . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Fiscal 2020 Committee Meetings . . . . . .
✓
C
✓
6
C
✓
✓
✓
10
Nominating &
Corporate
Governance
✓
C
✓
✓
5
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Audit Committee
During fiscal 2020, the members of the Audit Committee were Ms. Schar and Messrs. Hipp, Montgoris, and
Whiddon (who resigned from the Board in January 2021). Mr. Montgoris serves as chairperson. During fiscal
2020, the Audit Committee held six 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, reporting and disclosure practices of the Company;
the Company’s internal control over financial reporting;
the Company’s audit process;
the Company’s enterprise risk management program;
the independent auditor, including sole responsibility for its selection and retention and oversight of its
performance, qualifications and independence;
the Company’s compliance with legal and regulatory requirements, except to the extent delegated to
other Board committees; and
the performance of the Company’s internal audit function.
The Audit Committee operates pursuant to a written charter that addresses the requirements of the NYSE
listing standards. The Board has determined that each member of the Audit Committee during fiscal 2020 was,
and as currently structured 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 Ms. Schar and Mr. Montgoris is an “audit
committee financial expert” as defined under SEC rules.
The Audit Committee Report is included in this proxy statement on page 45.
Compensation Committee
During fiscal 2020, the members of the Compensation Committee were Mses. Brinkley and Buonfantino,
and Messrs. Eagle and Noll. Ms. Brinkley serves as chairperson. During fiscal 2020, the Compensation
Committee held ten meetings. In addition to the four regularly scheduled meetings, additional meetings were
held to select the Committee’s new compensation consultant and to oversee compensation decisions during the
pandemic. Following the Annual Meeting, and assuming the election of the nine director nominees included in
this Proxy Statement, the members of the Compensation Committee will be Mses. Buonfantino and Schar, and
Mr. Eagle, with Mr. Eagle serving as chairperson.
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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;
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;
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•
•
•
•
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 33.
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 during
fiscal 2020 was, and as currently structured 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 2020 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
During fiscal 2020, the members of the Nominating and Corporate Governance Committee were
Ms. Borenstein, and Messrs. Cleverly, Eagle, and Pulver. Mr. Cleverly serves as chairperson. During fiscal 2020,
the Nominating and Corporate Governance Committee held five 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.
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 during fiscal 2020 was, and as currently structured is,
independent as defined in the NYSE’s listing standards.
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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 2021 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. Consistent with
this philosophy, the Nominating and Corporate Governance Committee is committed to including in each search
candidates who reflect diverse backgrounds, including diversity of gender and race, 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 2021 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.
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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.
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.
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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,
internal controls, and IT security, 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, and has confirmed that no such risks exist.
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 lobbying and other political activities, and environmental, social, and governance (“ESG”)
efforts, including its 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.
Information Security Oversight
The Audit Committee provides oversight of the Company’s information security initiatives. Management
reports to the Audit Committee on information security matters, generally on a quarterly basis.
Our information security initiatives are led internally by our Senior Vice President, Chief Information
Officer, and includes a comprehensive information security training and compliance program. An external firm
assists the Company in the independent evaluation of its information security maturity.
ESG Oversight
We believe a strong team and governance are essential to demonstrating accountability and driving our
desired results when it comes to important ESG matters, including climate change, product quality and safety,
workers’ rights, product design and innovation, supply chain management, and employee engagement.
The Nominating and Corporate Governance Committee provides oversight of the Company’s ESG
initiatives. Management reports to the Nominating and Corporate Governance Committee on ESG matters on a
quarterly basis.
Our ESG initiatives are led internally by our Senior Vice President, Corporate Social Responsibility, who
reports directly to our Chairman and Chief Executive Officer.
Our ESG initiatives are managed in part by a team of subject matter experts who are part of our broader
Supply Chain team that is led by our Executive Vice President of Supply Chain. The team is further supported by
the Company’s ESG Council, which includes employees from across the Company’s business.
More information about our ESG efforts can be found at https://www.carters.com/esg (the contents of which
are not incorporated by reference into this proxy statement).
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 2021 Notice of
Annual Meeting.
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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 2022, 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. For more information about each of the director
nominees, including individual biographies and a discussion of the Board appointments made in fiscal 2020,
please see “Board of Directors and Corporate Governance Information—Board of Directors.”
Name
Hali Borenstein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver
Gretchen W. Schar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Age
36
53
60
76
54
59
74
79
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.
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COMPENSATION OF DIRECTORS
When they are initially appointed to the Board, each of our non-management directors receives a one-time
restricted stock grant, equal to the value of the annual retainer, that cliff-vests after three years. Thereafter, each
of our non-management directors receives an annual cash retainer and an annual stock award, and each of our
committee chairpersons and our Lead Director receives an additional annual retainer. Non-management directors
also receive fees for each meeting they attend.
In light of the COVID-19 pandemic and the challenges faced by the Company (as described further below
under “Compensation Discussion and Analysis—Response to the COVID-19 Pandemic and Executive
Compensation Highlights for Fiscal 2020”), in fiscal 2020 the Board, at the recommendation of the
Compensation Committee, temporarily reduced all cash compensation for non-management directors by 50%
during the period beginning with the regularly scheduled Board meeting in May 2020 through the end of August
2020.
As a result, for fiscal 2020, each director’s annual retainer was comprised of a $70,000 cash payment
(instead of the scheduled $80,000 payment) and an immediately vested grant of our common stock valued at
approximately $145,000. In addition, our Lead Director received a $30,625 cash retainer (instead of the
scheduled $35,000 retainer), the chairperson of our Audit Committee received a $21,875 cash retainer (instead of
the scheduled $25,000 retainer), and the chairpersons of our Compensation and Nominating and Corporate
Governance Committees each received $17,500 cash retainers (instead of the scheduled $20,000 retainer). Each
director received meeting fees of $2,500 (or $1,250) for each regularly scheduled Board meeting, and $1,000 (or
$500) for each special meeting of the Board and regularly scheduled or special meeting of the standing Board
committees.
We reimburse directors for travel expenses incurred in connection with attending Board and committee
meetings and for other expenses incurred while conducting Company business. During fiscal 2020, all meetings
other than the regularly scheduled meetings in February were held telephonically or virtually.
Mr. Casey receives no additional compensation for serving on the Board.
The following table provides information concerning the compensation of our non-management directors
serving during fiscal 2020.
FISCAL 2020 DIRECTOR COMPENSATION TABLE
Name
Hali Borenstein . . . . . . . . . . . . . . . . . . .
Amy Woods Brinkley . . . . . . . . . . . . . .
Giuseppina Buonfantino . . . . . . . . . . . .
A. Bruce Cleverly . . . . . . . . . . . . . . . . .
Jevin S. Eagle . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris . . . . . . . . . . . . . .
Richard A. Noll . . . . . . . . . . . . . . . . . . .
David Pulver . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Gretchen W. Schar
. . . . . . . . . . . .
Thomas E. Whiddon (c)
Fees Earned
or Paid in Cash
($)
(a)
$ 91,000
$112,000
$ 94,500
$108,500
$ 99,000
$ 91,500
$113,375
$ 94,000
$121,625
$ 91,500
$ 91,500
Stock
Awards
($)
(b)
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
$145,009
Total
($)
$236,009
$257,009
$239,509
$253,509
$244,009
$236,509
$258,384
$239,009
$266,634
$236,509
$236,509
(a) This column reports the amount of cash compensation earned in fiscal 2020 through annual cash retainers and meeting
fees.
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(b) On May 14, 2020, we issued 1,942 shares of common stock to each non-management director who was a member of the
Board on that date with a grant date fair value of $74.67 per share.
(c) Mr. Whiddon resigned from the Board in January 2021.
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 42.
In November 2020, the Board approved a deferred compensation program for non-management directors,
under which beginning in 2021 directors may opt to defer cash retainer payments and stock grants in the form of
deferred stock units until the fifth anniversary of the grant date or until the director leaves the Board.
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
$400,000, 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 2020.
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.
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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 . . . . . . . . . .
Jeffrey M. Jenkins . . . . . . . . .
Kendra D. Krugman . . . . . . .
Patrick Q. Moore . . . . . . . . . .
Benjamin L. Pivar . . . . . . . . .
Antonio D. Robinson . . . . . .
Peter R. Smith . . . . . . . . . . . .
. . .
Richard F. Westenberger
Jill A. Wilson . . . . . . . . . . . .
Age
60
58
54
55
43
43
51
54
49
60
52
54
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, Global Marketing
Executive Vice President, Merchandising & Design
Executive Vice President, North America Retail
Senior Vice President & Chief Information Officer
Senior Vice President, Corporate Social Responsibility
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, 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.
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.
Jeffrey M. Jenkins joined the Company in 2019 as Executive Vice President, Global Marketing. From July
2017 to July 2019, Mr. Jenkins was with CKE Restaurants Holdings, Inc., the parent company of the Carl’s Jr.
and Hardee’s fast food restaurant brands, serving most recently as Global Chief Digital Officer and previously as
Chief Marketing Officer. From June 2015 to July 2017, Mr. Jenkins was with Whole Foods Market, Inc. as Vice
President, Digital Marketing & Channel Activation and Vice President, Digital Strategy & Marketing. From 2008
to June 2015, Mr. Jenkins was with Yum! Brands, Inc. in marketing roles of increasing responsibility.
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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. Mr. Moore was named Executive Vice President, Strategy & Global Business Development in
February 2019 and Executive Vice President, North America Retail in December 2019. 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.
Benjamin L. Pivar joined the Company in 2015 as Vice President Information Technology (IT) Supply
Chain. Mr. Pivar was named Vice President Retail IT in 2017, Vice President & Chief Information Officer in
2018, and Senior Vice President & Chief Information Officer in 2019. Prior to joining the Company, Mr. Pivar
spent 12 years at Capgemini, most recently as Senior Vice President, North America Retail Lead.
Antonio D. Robinson joined the Company in 2010 as Vice President, Associate General Counsel.
Mr. Robinson was named Vice President, Deputy General Counsel & Chief Compliance Officer in 2019, and
Senior Vice President, Corporate Social Responsibility in 2020. Prior to joining the Company, Mr. Robinson was
a shareholder at the Atlanta office of Littler Mendelson P.C.
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.
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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 2020.
Our NEOs for fiscal 2020 were:
• Michael D. Casey, Chairman & Chief Executive Officer;
•
•
•
•
Richard F. Westenberger, Executive Vice President & Chief Financial Officer;
Brian J. Lynch, President;
Patrick Q. Moore, Executive Vice President, North America Retail; and
Peter R. Smith, Executive Vice President, Supply Chain.
Each of our NEOs was employed by the Company in their respective roles for all of fiscal 2020.
Response to the COVID-19 Pandemic and Executive Compensation Highlights for Fiscal 2020
During fiscal 2020, the global pandemic caused by the spread of the novel strain of coronavirus
(“COVID-19”) negatively affected the global economy, disrupted global supply chains, and created significant
disruption in a wide range of markets, including a disruption in consumer demand for baby and children’s
clothing and accessories.
In fiscal 2020, the COVID-19 pandemic had a significant adverse effect on our business, financial
condition, and results of operations. For instance:
• We saw lower sales both in our domestic and international retail and wholesale channels, and some of
our wholesale customers unilaterally extended their payment terms with us.
•
•
•
During March and April 2020, for the safety of customers and employees and due to local regulations,
we suspended retail store operations in North America, which had a material effect on the results of
operations in our U.S. Retail and International segments. Stores began reopening in the second quarter
of fiscal 2020. During December 2020, we closed a number of our stores again in Canada and Mexico
for the safety of our employees and customers, and to comply with local regulations.
As consumer preferences shifted to our eCommerce channel, we announced our plan to close
approximately 25% of our current stores, when leases come up for renewal or where there is a kick-out
provision in the lease. Over 100 of these closures are planned to occur by the end of fiscal 2021.
To improve near-term liquidity in light of the uncertainty and disruption related to COVID-19:
•
•
in March 2020, we drew $639.0 million under our secured revolving credit facility;
on May 4, 2020, through our wholly owned subsidiary, The William Carter Company (“TWCC”),
we successfully amended our revolving credit facility to provide for, among other things, a waiver
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of financial covenants through the balance of fiscal year 2020, revised covenant requirements
through the third quarter of fiscal year 2021, and the ability to raise additional unsecured
financing; and
•
•
on May 11, 2020, we completed the sale of $500 million principal amount of senior notes at par
issued by TWCC, bearing interest at a rate of 5.500% per annum, and maturing on May 15, 2025.
during the second and third quarters of fiscal 2020, we used the net proceeds from the notes, along
with cash on hand, to repay all of our borrowings under our secured revolving credit facility.
•
To create additional financial flexibility, we reduced costs, inventory commitments, and capital
expenditures, during a portion of fiscal 2020. For example:
• We furloughed all of our U.S. and Canada store associates and certain office-based employees
during a portion of the time when our stores were closed. In addition, in the first and fourth
quarters of fiscal 2020, the Company announced several organizational restructuring initiatives
which included a reorganization of staffing models across multiple functions to drive labor
savings and increase efficiencies, the consolidation of certain functions into our corporate
headquarters in Atlanta, Georgia, and over 100 planned store closures by the end of fiscal 2021.
• We implemented temporary delayed merit increases and implemented tiered salary reductions for
our NEOs and other employees, implemented temporary fee reductions for our Board of Directors,
and reduced other compensation-related expenses. During the third quarter of fiscal 2020, we
reinstated merit increases and salaries (including for our NEOs), and Board of Directors’ fees.
More information about these salary reductions is provided below under “—2020 Total Direct
Compensation—2020 Base Salary.”
•
During the second quarter of fiscal 2020, we suspended rent payments under the leases for our
temporarily closed stores in North America. We resumed making the required rent payments
under these leases in the third quarter of fiscal 2020.
• With respect to return of capital initiatives, in the first half of fiscal 2020, we announced that we
suspended our share repurchase program and our quarterly cash dividend.
• We also executed substantial reductions in expenses, store occupancy costs, and overall costs,
including reduced inventory purchases. During the third quarter of fiscal 2020, we resumed
spending on certain strategic investments in information technology, eCommerce, marketing, and
omni-channel retail store initiatives.
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•
Our manufacturing supply chain, which is primarily in Asia, was disrupted due to delays in textile mill
and factory openings, delays in workers being able to return to work, and the spread of the pandemic
from China to other parts of the world. In addition, ocean and air freight carriers’ global operations
have been disrupted due to the global shift in demand, leading to delays in shipments and increased
costs from Asia to North America and elsewhere.
Please see our annual report on Form 10-K for fiscal 2020 for more information about the financial and
other impacts that the pandemic had on the Company in fiscal 2020.
In February 2021, the Compensation Committee determined that, as a result of these significant impacts to
the business, the Company did not achieve its minimum fiscal 2020 performance targets for compensation
purposes. Specifically, the Compensation Committee had set targets based on the Company’s fiscal 2020
performance in February 2018 (in the case of the shares of performance-based restricted stock that were issued in
fiscal 2018) and February 2020 (in the case of the shares of performance-based restricted stock that were issued
21
in fiscal 2020 and the 2020 annual cash incentive compensation plan), in each case well before the potential
effects of the pandemic on the business and the global economy were appreciated or known. The Compensation
Committee determined that, based on the Company’s fiscal 2020 performance, the Company did not meet these
targets, and the annual cash incentive compensation for fiscal 2020 under our Incentive Compensation Plan
would be paid out at 0% of target, and the shares of performance-based restricted stock that were issued in 2018
and 2020 would vest at 0% of target.
However, the Compensation Committee noted that despite the challenges and disruptions discussed above
the Company significantly exceeded the forecasts that were prepared by management in the early days of the
pandemic, including those prepared in the context of the Company’s financing activities described above.
Additionally, fiscal 2020 was a year of significant achievement across numerous areas of the business. For
example, the Company was able to accelerate its omni-channel initiatives to continue to deliver product to
customers during the pandemic, and to improve on its gross and operating margins throughout the second half of
fiscal 2020, with strong inventory management, continued progress in improving price realization, a better
promotional strategy, and its ability to decrease costs in response to decreased sales.
In recognition of the Company’s performance and achievements during the pandemic, and in light of the
Compensation Committee’s overall compensation philosophy that, in part, seeks to attract and retain superior
executive talent and to drive performance, the Compensation Committee determined to pay out a discretionary
annual cash incentive compensation for fiscal 2020 equal to 25% of target with respect to our NEOs for fiscal
2020.
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.
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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.
Compensation Structure and Determination
The principal components of the compensation structure for our NEOs are:
•
•
•
base salary;
annual cash incentive compensation; and
long-term equity incentive compensation.
Together, the Company refers to these three components as “total direct compensation.”
General
In setting a total direct compensation target for each NEO, our Compensation Committee considers both the
objective and subjective factors set forth below. 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, a broader retail survey, in order to
understand where the compensation it sets falls relative to market practices. These levels are 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, a
broader retail survey. The Compensation Committee chooses 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, a broader retail survey.
In setting compensation of all NEOs, our Compensation Committee considered multiple objective and
subjective factors, including:
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•
•
•
•
•
•
the nature and scope of each executive’s responsibilities;
comparative compensation data for executives in similar positions at companies in our peer group and,
as needed, a broader retail survey;
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.
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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 a broader retail survey, as appropriate.
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.
Our Compensation Committee has the discretion to reduce or not to award 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.
Long-Term Equity Incentive Compensation
Our Equity Incentive Plan allows for various types of equity awards, including stock options, restricted
stock (both time and performance-based), 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 (as needed) a broader 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 equity grants at regularly scheduled meetings, but
may also make equity grants at special meetings or by unanimous written consent, and could select a date
subsequent to a regularly scheduled meeting on which to grant equity awards. The exercise prices of equity
awards are set 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 time-based and performance-based
restricted stock awards using the closing price of our common stock on the date of grant.
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.
24
For fiscal 2020, our Compensation Committee engaged Korn Ferry (through February 2020) and Meridian
Compensation Partners, LLC (since March 2020), each an independent compensation consultant, to advise it on
executive and director compensation matters.
The compensation consultant informs the committee on market trends, as well as regulatory issues and
developments and how they may impact the Company’s executive compensation program. The compensation
consultant also, among other things:
•
•
•
participates in the design of the executive compensation program to help the Compensation Committee
evaluate, among other things, the linkage between pay and performance;
reviews market data and advises the Compensation Committee regarding the compensation of the
Company’s executive officers; and
reviews and advises the Compensation Committee regarding director compensation.
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 paid to executives in similar
positions at the companies in our peer group and, as needed, a broader retail survey.
The compensation consultant serves at the discretion of the Compensation Committee and regularly
attended executive sessions with the Compensation Committee. At the direction of the Compensation
Committee, our Chief Executive Officer worked with the compensation consultant to review comparative
compensation data and made 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 the compensation consultant.
The Compensation Committee has assessed the independence of both Korn Ferry and Meridian
Compensation Partners, LLC pursuant to the NYSE’s and the SEC’s rules and has determined that they are each
independent, and the work provided by each of them did not raise a conflict of interest.
Peer Group Analysis and Retail Survey
To assess the market competitiveness of our NEOs’ compensation, the committee and management review
data provided by the compensation consultant from two sources: data from our peer group and a broader retail
survey.
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Our Compensation Committee has established a peer group, which is generally comprised of companies in
the retail or wholesale industries which 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. In setting fiscal 2020 compensation, our peer group was comprised of the
following fifteen companies:
Abercrombie & Fitch Co.
American Eagle Outfitters, Inc.
Chico’s FAS, Inc.
The Children’s Place, Inc.
Columbia Sportswear Company
Designer Brands Inc.
Guess?, Inc.
Hanesbrands Inc.
25
lululemon athletica inc.
Levi Strauss & Co.
Tapestry, Inc.
Ulta Beauty, Inc.
Under Armour, Inc.
Urban Outfitters, Inc.
William-Sonoma, Inc.
In October 2020, our Compensation Committee conducted, with the assistance of the compensation
consultant, its annual review of our peer group and determined, based on the criteria established for inclusion in
the peer group, to remove Chico’s FAS, Inc., Designer Brands Inc., lululemon athletica inc., and Ulta Beauty,
Inc., and add G-III Apparel Group, Ltd., Gildan Activewear Inc., Kontoor Brands, Inc., and Skechers U.S.A., Inc.
to the peer group for fiscal 2021.
In addition, the Compensation Committee, at the advice of its compensation consultant, uses select
information from a broader retail survey – that includes apparel and related products retailers or department
stores who primarily sell apparel and related products – for executive compensation market assessment in order
to supplement compensation data provided by the peer group analysis for roles outside of the Chief Executive
Officer, Chief Financial Officer, and President that may not be adequately represented in the data that is available
from our peer group.
Say-on-Pay Results
At the 2020 annual meeting of shareholders, approximately 98.7% 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 2019 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.
2020 Total Direct Compensation
Throughout fiscal 2020, our Compensation Committee reviewed compensation data from our peer group
and, as needed, a broader retail survey, and compared that data to the compensation of our NEOs. In addition, for
fiscal 2020, the Compensation Committee took into account the Company’s performance in light of the
COVID-19 pandemic, as discussed above under “—Response to the COVID-19 Pandemic and Executive
Compensation Highlights for Fiscal 2020.”
2020 Base Salary
In February 2020, the Compensation Committee determined to increase the base salaries for fiscal 2020 for
each of our NEOs, except for Mr. Casey, whose base salary remained the same relative to fiscal 2019, and
Mr. Moore, whose base salary was increased to $575,000 when he was named Executive Vice President, North
America Retail in December 2019. These increases were based on each NEOs performance during fiscal 2019.
The base salary for each NEO for fiscal 2020 is set out below.
Base salary (2019 annual)
Base salary (2020 annual)
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
$1,050,000
$1,050,000
$615,000
$635,000
$755,000
$780,000
$575,000
$575,000
$520,000
$535,000
Michael
Casey
Richard
Westenberger
Brian
Lynch
Patrick
Moore
Peter
Smith
Due to the COVID-19 pandemic (as discussed above under “—Response to the COVID-19 Pandemic and
Executive Compensation Highlights for Fiscal 2020”), the increases for fiscal 2020 did not become effective
until August 22, 2020, and the base salaries for each of the NEOs, as well as all other employees of Carter’s,
were temporarily reduced from April 26, 2020 to August 22, 2020. Mr. Casey’s base salary was temporarily
reduced by 50%, and the other NEO’s salaries were temporarily reduced by 10%. The total salary for each NEO
in fiscal 2020 is shown in the Summary Compensation Table in the “Salary” column.
26
2020 Annual Cash Incentive Compensation and Bonus
In February 2020, our Compensation Committee set the following fiscal 2020 annual cash incentive
compensation targets for our NEOs: 125% of base salary for Mr. Casey, 100% for Mr. Lynch, and 75% for
Messrs. Moore, Smith, and Westenberger. In accordance with our Incentive Compensation Plan, for fiscal 2020,
the Compensation Committee used two 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 50%) and
operating income, as adjusted, if applicable, in the same manner as for presentation to the financial markets
(weighted at 50%). (Please see additional information in our quarterly earnings releases for how adjusted
operating income is determined for the purposes of determining our NEOs’ compensation.) Our Compensation
Committee selected net sales and operating income (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. Our NEOs could have earned from 0% to 200% of their target
annual cash incentive compensation in fiscal 2020 based upon the Company’s achievement of net sales and
adjusted operating income.
In February 2021, the Compensation Committee determined that, due to the effects of the pandemic (as
discussed above under “—Response to the COVID-19 Pandemic and Executive Compensation Highlights for
Fiscal 2020”) the Company did not achieve either of the minimum (Threshold) targets, which were set at
$3,476 million for net sales and $401 million for adjusted operating income. As a result, our NEOs were awarded
0% of their cash incentive compensation targets for fiscal 2020.
However, in recognition of the Company’s performance and achievements during the pandemic (as
discussed above under “—Response to the COVID-19 Pandemic and Executive Compensation Highlights for
Fiscal 2020”), and in light of the Compensation Committee’s overall compensation philosophy that, in part, seeks
to attract and retain superior executive talent and to drive performance, in February 2021 the Compensation
Committee decided to pay out a discretionary annual cash incentive compensation for fiscal 2020 at 25% of
target with respect to our NEOs for fiscal 2020. Payouts for the NEOs are shown in the Summary Compensation
Table in the “Bonus” column.
2020 Long-Term Equity Incentive Compensation
In February 2020, our Compensation Committee approved annual time-based restricted stock and
performance-based restricted stock grants for each NEO.
All of the time-based restricted stock awards granted to our NEOs in fiscal 2020 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.
All of the performance-based restricted stock granted in February 2020 were eligible to vest in varying
percentages (between 25% and 150%) if the Company achieves certain one-year growth targets for fiscal 2020
net sales and operating income (as adjusted for items judged to be non-recurring or unusual in nature), and
subject to an additional two-year holding period.
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 2020 Grants of Plan-Based Awards” and its
footnotes.
Time-Based Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-Based Restricted Stock . . . . . . . . . . . . . . . . . . . . . .
27,188
27,188
4,988
4,988
Michael
Casey
Richard
Westenberger
Brian
Lynch
5,892
5,892
Patrick
Moore
Peter
Smith
2,608
2,608
2,608
2,608
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In addition, in February 2020, the Compensation Committee certified the performance criteria for the
performance-based restricted stock that was granted in February 2017 and vested based on the Company’s fiscal
2019 adjusted EPS. Like in 2019, the Compensation Committee exercised negative discretion (as allowed
pursuant to the Company’s equity plan) to further adjust fiscal 2019 adjusted EPS to exclude the effects of the
2017 federal tax reform as that effect was not contemplated by the Compensation Committee when setting the
adjusted EPS targets. The threshold, target, and maximum metrics are set out below:
Fiscal 2019 Adj.
EPS
25% of Target 2017 Performance-Based Restricted Stock (Threshold) . . . . . . . . . . . . . . . . . . . . . .
100% of Target 2017 Performance-Based Restricted Stock (Target) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
150% of Target 2017 Performance-Based Restricted Stock (Maximum)
. . . . . . . . .
Fiscal 2019 Adjusted Performance (as reduced through negative discretion)
$5.75
$7.08
$7.95
$5.80
Based on the Company’s fiscal 2019 performance, our NEOs were awarded approximately 28% of the
performance-based restricted stock that was granted in February 2017.
2021 Total Direct Compensation
In February 2021, the Compensation Committee set the 2021 total direct compensation for the Company’s
executive officers. In doing so, the Compensation Committee took into account all of the factors discussed
above, as well as the on-going effects of the COVID-19 pandemic, including the resulting uncertainty to the
business’s potential performance in fiscal 2021.
For the executive officers’ 2021 annual cash incentive compensation, the Compensation Committee used
two 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 25%) and operating income, as adjusted, if
applicable, in the same manner as for presentation to the financial markets (weighted at 75%). The Compensation
Committee determined that this mix was appropriate to incentivize the Company’s management to grow
profitable sales and operating income.
For the executive officers’ 2021 long-term equity incentive compensation, the Compensation Committee
awarded grants under our Equity Incentive Plan. These grants were in the form of restricted stock that vests in
equal parts over four years and, in the case of our executive officers other than Mr. Casey, restricted stock that
cliff vests after three years. The Compensation Committee determined that this mix was consistent with the
Company’s compensation philosophy and appropriate given the uncertainty in the Company’s business in fiscal
2021 as a result of the pandemic. The Compensation Committee expects to re-visit the discussion of
performance-based equity for executive officers for the fiscal 2022 grants.
Also, in February 2021, the Compensation Committee certified the performance criteria for the
performance-based restricted stock that was granted in February 2018 and February 2020 and vested based on the
Company’s fiscal 2020 performance. As discussed above under “—Response to the COVID-19 Pandemic and
Executive Compensation Highlights for Fiscal 2020,” the Compensation Committee determined that these grants
vested at 0% of target based on the Company’s fiscal 2020 performance.
More information relating to the 2021 total direct compensation for the Company’s NEOs will be provided
in next year’s proxy statement.
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
28
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 2020, the ownership multiples for our NEOs were as follows:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chief Executive Officer
President
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7x
4x
3x
During fiscal 2020 each of our NEOs was in compliance with his applicable ownership requirement.
Multiple of
Base Salary
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 2020, the Company announced that employee contributions made to the Company’s 401(k) plan in
fiscal 2020 would be matched by the Company 100% up to 4% of the employee’s eligible compensation for all
eligible employees, up to the maximum amount permitted by the Internal Revenue Service.
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 and restricted stock (both time and performance-based). 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
29
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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 2020, none of our NEOs entered into hedging arrangement or pledged any shares of Company stock.
Severance Agreements with NEOs
Each of our 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.
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. Moore, Smith, 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 Company’s contribution to 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. Moore, Smith, 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, and the
Company’s contribution to the 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. Moore, Smith, 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.
30
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.
For purposes of the table below, a hypothetical termination without “cause” or for “good reason” is assumed
to have occurred as of January 2, 2021, the last day of fiscal 2020. 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
Patrick
Moore
Peter
Smith
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Incentive Compensation (a) . . . . . . . . . . .
Health and Other Benefits . . . . . . . . . . . . . . . . .
$2,100,000
—
22,924
$635,000
$1,170,000
$575,000
$535,000
—
11,466
—
10,386
—
11,466
—
11,466
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,122,924
$646,466
$1,180,386
$586,466
$546,466
(a) Cash incentive compensation calculations are based on cash incentive compensation targets achieved in fiscal 2020
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).
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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 January 2,
2021, the last day of fiscal 2020, and that a termination without “cause” occurred immediately following a
change of control on January 2, 2021. 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 31, 2020 (which was the last trading day before the end of
fiscal 2020), as reported by the NYSE, which was $94.07, 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 31, 2020 (which was the last trading
day before the end of fiscal 2020), as reported by the NYSE, which was $94.07.
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 2020 Year-End” table beginning on page 37.
31
Michael
Casey
Richard
Westenberger
Brian
Lynch
Patrick
Moore
Peter
Smith
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Incentive Compensation (a)
. . . . . . .
Health and Other Benefits . . . . . . . . . . . . .
Option Value . . . . . . . . . . . . . . . . . . . . . . .
Stock Value . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,150,000
—
34,385
176,468
13,284,377
$1,270,000
$1,950,000
$1,150,000
$1,070,000
—
22,932
17,903
2,190,702
—
17,309
35,600
2,743,552
—
22,932
31,141
1,780,557
—
22,932
17,903
1,338,522
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,645,230
$3,501,536
$4,746,461
$2,984,630
$2,449,356
(a) Cash incentive compensation calculations are based on cash incentive compensation targets achieved in fiscal 2020
described in more detail under the heading “Annual Cash Incentive Compensation” above.
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.
32
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
Ms. Giuseppina Buonfantino
Mr. Jevin S. Eagle
Mr. Richard A. Noll
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FISCAL 2020 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 2020, 2019, and
2018.
In the “Stock Awards” and “Option Awards” columns, we disclose the total fair value of the grants made in
fiscal 2020, 2019, and 2018, 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 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 2020 Annual Report.
In the “Non-Equity Incentive Plan Compensation” column, we disclose the dollar value of all compensation
earned in fiscal 2020, 2019, and 2018 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 2020 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
Patrick Q. Moore . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President,
North America Retail
Peter R. Smith . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Vice President, Supply Chain
Fiscal
Year
Salary
($)
(a)
Bonus
($)
(b)
Stock
Awards
($)
(c)
Option
Awards
($)
(d)
Non-Equity
Incentive
Plan
Compensation
($)
All Other
Compensation
($)
(e)
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
$ 868,269
$1,050,000
$1,040,769
$328,200
$6,000,392
$ — $5,500,698
$ — $4,125,537
$
—
—
$
$1,373,592
$ 600,635
$ 615,000
$ 608,846
$119,100
$1,100,852
$ — $ 800,541
$ — $ 924,482
—
$
$
—
$ 140,738
$ 737,519
$ 755,000
$ 747,308
$195,000
$1,300,364
$ — $1,100,566
$ — $ 825,396
—
$
$
—
$ 274,451
$ 564,327
$ 515,000
$ 510,385
$107,900
$ 575,586
$ — $1,150,428
$ — $ 424,242
—
$
—
$
$ 140,738
$ 508,152
$ 520,000
$ 515,385
$100,400
$ 575,586
$ — $ 575,167
$ — $ 424,242
—
—
$
$
$ 140,738
$ —
$790,000
$497,600
$ —
$278,000
$174,900
$ —
$455,000
$286,300
$ —
$260,000
$146,500
$ —
$235,000
$147,900
$100,257
$287,214
$222,538
$ 27,259
$ 55,375
$ 48,626
$ 31,959
$ 72,057
$ 65,831
$ 25,928
$ 37,903
$ 22,811
$ 23,793
$ 45,833
$ 42,118
Total
($)
$7,297,118
$7,627,912
$7,260,036
$1,847,845
$1,748,916
$1,897,592
$2,264,842
$2,382,623
$2,199,285
$1,273,741
$1,963,331
$1,244,675
$1,207,931
$1,375,999
$1,270,383
(a) Base salary for each NEO was based on a 371-day fiscal year for fiscal 2020, and a 364-day fiscal year for fiscal 2019 and 2018.
(b) Reflects the discretionary bonus that was awarded in fiscal 2021 based on fiscal 2020 performance in light of the challenges faced by the Company due to the
on-going pandemic.
(c) 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 restricted stock awards granted in fiscal 2018, 2019, and 2020 is contingent upon meeting specific performance
targets for fiscal 2020, 2021, and 2020, respectively, and vest in 2021, 2022, and 2023, respectively.
34
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 . . . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . . . .
Peter R. Smith . . . . . . . . . . . . .
2/12/2020
2/13/2019
2/21/2018
2/12/2020
2/13/2019
2/21/2018
2/12/2020
2/13/2019
2/21/2018
2/12/2020
11/20/2019
2/13/2019
2/21/2018
2/12/2020
2/13/2019
2/21/2018
27,188
30,948
11,436
4,988
4,504
5,336
5,892
6,192
2,288
2,608
5,744
3,236
1,176
2,608
3,236
1,176
27,188
30,948
32,744
4,988
4,504
2,352
5,892
6,192
4,576
2,608
—
3,236
2,352
2,608
3,236
2,352
$110.35
$ 88.87
$120.25
$110.35
$ 88.87
$120.25
$110.35
$ 88.87
$120.25
$110.35
$100.15
$ 88.87
$120.25
$110.35
$ 88.87
$120.25
(d)
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
Time-Based
Stock
Options
Granted
Black-Scholes
Fair Value
Michael D. Casey . . . . . . . . . . .
2/21/2018
49,268
Richard F. Westenberger
2/21/2018
Brian J. Lynch . . . . . . . . . . . . .
2/21/2018
Patrick Q. Moore
2/21/2018
Peter R. Smith . . . . . . . . . . . . . .
2/21/2018
5,048
9,844
5,048
5,048
$27.88
$27.88
$27.88
$27.88
$27.88
Option
Exercise
Price
$120.25
$120.25
$120.25
$120.25
$120.25
(e)
The amounts shown as “All Other Compensation” for fiscal 2020 consist of the following:
Name
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger
. . . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . . . . . . . . . . . . . . . . .
Peter R. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . .
401 (k)
Company
Match
$11,400
$11,400
$11,400
$11,400
$11,400
Dividends
Paid on
Unvested
Restricted
Stock
$84,731
$13,973
$17,499
$12,699
$ 8,537
Other
(i)
$4,126
$1,886
$3,060
$1,829
$3,855
Total
$100,257
$ 27,259
$ 31,959
$ 25,928
$ 23,793
P
r
o
x
y
(i)
These amounts include imputed income from health and life 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. The amounts for fiscal 2019 and fiscal 2018 have been updated in this
proxy statement to include these amounts, and therefore may not be comparable to previous proxy statements.
35
FISCAL 2020 GRANTS OF PLAN-BASED AWARDS
The following table provides information concerning each grant of plan-based awards made to an NEO in
fiscal 2020. This includes incentive compensation awards granted under our Incentive Compensation Plan 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 2020. The last column reports the aggregate
grant date fair value of all awards made in fiscal 2020 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
Grant
Date Fair
Value of
Stock and
Option
Name
Awards
Michael D. Casey . . . . . . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Richard F. Westenberger . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Brian J. Lynch . . . . . . . . . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Patrick Q. Moore . . . . . . . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
Peter R. Smith . . . . . . . . . . . . . . . . . . . Cash Incentive
Compensation
Shares (b)
Shares (c)
— $328,125
—
—
2/12/2020
2/12/2020
$1,312,500
—
—
$2,625,000
—
—
— $119,063
—
—
2/12/2020
2/12/2020
$ 476,250
—
—
$ 952,500
—
—
— $195,000
—
—
2/12/2020
2/12/2020
$ 780,000
—
—
$1,560,000
—
—
— $107,813
—
—
2/12/2020
2/12/2020
$ 431,250
—
—
$ 862,500
—
—
— $100,313
—
—
2/12/2020
2/12/2020
$ 401,250
—
—
$ 802,500
—
—
—
—
6,797
—
—
1,247
—
—
1,473
—
—
652
—
—
652
—
27,188
27,188
—
27,188
40,782
—
$3,000,196
$3,000,196
—
4,988
4,988
—
5,892
5,892
—
2,608
2,608
—
2,608
2,608
—
4,988
7,482
—
5,892
8,838
—
2,608
3,912
—
2,608
3,912
—
$ 550,426
$ 550,426
—
$ 650,182
$ 650,182
—
$ 287,793
$ 287,793
—
$ 287,793
$ 287,793
(a)
(b)
(c)
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 2022. 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.
36
OUTSTANDING EQUITY AWARDS AT FISCAL 2020 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 2020. Each outstanding award
is represented by a separate row that indicates the number of securities underlying the award.
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
(#)
24,634
51,750
44,500
28,000
30,000
50,000
70,000
2,524
5,250
5,220
3,400
3,800
6,000
4,922
10,440
10,400
7,000
7,500
4,500
2,524
11,175
2,524
5,250
5,220
8,200
24,634
17,250
—
—
—
—
—
2,524
1,750
—
—
—
—
4,922
3,480
—
—
—
—
2,524
3,725
2,524
1,750
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Option
Exercise
Price
($)
Option
Expiration
Date
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$ 42.61
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
2/22/2022
$120.25
$ 83.84
$ 90.66
$ 82.40
$ 68.49
$ 59.27
$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
2/21/2028
2/14/2027
2/16/2026
2/18/2025
2/18/2024
2/20/2023
$120.25
$ 85.71
2/21/2028
8/16/2027
2/21/2028
$120.25
2/14/2027
$ 83.84
$ 90.66
2/16/2026
$ 86.88 11/11/2025
Name
Michael D. Casey . . . .
Richard F.
Westenberger . . . . .
Brian J. Lynch . . . . . .
Patrick Q. Moore . . . .
Peter R. Smith . . . . . .
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)
141,218
$13,284,377
23,288
$ 2,190,702
29,165
$ 2,743,552
18,928
$ 1,780,557
14,229
$ 1,338,522
P
r
o
x
y
(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.
37
Name
Grant Date
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . .
Peter R. Smith . . . . . . . . . . .
2/21/2018
2/14/2017
2/21/2018
2/14/2017
2/21/2018
2/14/2017
2/21/2018
8/16/2017
2/21/2018
2/14/2017
Time-Based
Stock
Options
Granted
Black-Scholes
Fair Value
49,268
69,000
5,048
7,000
9,844
13,920
5,048
14,900
5,048
7,000
$27.88
$20.04
$27.88
$20.04
$27.88
$20.04
$27.88
$18.50
$27.88
$20.04
Option
Exercise
Price
$120.25
$ 83.84
$120.25
$ 83.84
$120.25
$ 83.84
$120.25
$ 85.71
$120.25
$ 83.84
(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 restricted stock awards granted in fiscal 2018, 2019, and 2020 is contingent upon meeting
specific performance targets for fiscal 2020, 2021, and 2020, respectively, and vest in 2021, 2022, and 2023, respectively.
Name
Michael D. Casey . . . . . . . . .
Richard F. Westenberger . . .
Brian J. Lynch . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . .
Peter R. Smith . . . . . . . . . . .
Grant Date
2/12/2020
2/13/2019
2/21/2018
2/14/2017
2/12/2020
2/13/2019
2/21/2018
2/14/2017
2/12/2020
2/13/2019
2/21/2018
2/14/2017
2/12/2020
11/20/2019
2/13/2019
2/21/2018
8/16/2017
2/12/2020
2/13/2019
2/21/2018
2/14/2017
Time-Based
Restricted
Shares
Performance-
Based
Restricted
Shares
Grant
Date Fair
Value per
Share
27,188
30,948
11,436
16,372
4,988
4,504
5,336
1,640
5,892
6,192
2,288
3,300
2,608
5,744
3,236
1,176
3,204
2,608
3,236
1,176
1,640
27,188
30,948
22,872
32,744
4,988
4,504
2,352
3,280
5,892
6,192
4,576
6,600
2,608
—
3,236
2,352
—
2,608
3,236
2,352
3,280
$110.35
$ 88.87
$120.25
$ 83.84
$110.35
$ 88.87
$120.25
$ 83.84
$110.35
$ 88.87
$120.25
$ 83.84
$110.35
$100.15
$ 88.87
$120.25
$ 85.71
$110.35
$ 88.87
$120.25
$ 83.84
(c) Amount based on the closing market price per share of the Company’s common stock as traded on the NYSE on December 31, 2020, the
last trading day of fiscal 2020, of $94.07.
38
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2020
The following table provides information concerning our NEOs’ exercises of stock options and vesting of
restricted stock during fiscal 2020. The table reports, on an aggregate basis, the number of securities acquired
upon exercise of stock options, the dollar value realized upon exercise of stock options, the number of shares of
restricted stock that have vested, and the dollar value realized upon the vesting of restricted stock.
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
(#)
80,000
—
24,500
—
—
Value Realized
on Exercise
($) (a)
$4,567,747
—
$1,019,059
—
—
Number of
Shares
Acquired
on Vesting
(#)
27,319
5,845
8,078
3,340
3,688
Value Realized
on Vesting
($) (b)
$2,885,016
$ 632,113
$ 865,158
$ 314,153
$ 393,917
Name
Michael D. Casey . . . . .
Richard F. Westenberger
Brian J. Lynch . . . . . . . .
Patrick Q. Moore . . . . . .
Peter R. Smith . . . . . . . .
(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.
P
r
o
x
y
39
Name
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger . . . . . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . . . . . . . . . . . . . . . . . . .
Peter R. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee
Contributions
(a)
—
$
$
7,587
$234,750
$
—
$183,294
Company
Contributions
$—
$—
$—
$—
$—
Aggregate
Earnings
(b)
$
—
$ 28,300
$123,448
$
—
$174,583
Withdrawals or
Distributions
$—
$—
$—
$—
$—
Aggregate
Balance
(c)
$
—
$ 229,412
$1,434,832
$
—
$1,391,580
(a) All of the amounts reported in this column for Messrs. Westenberger, Lynch, and Smith are also included within the
amount reported for that officer in the 2020 Summary Compensation Table.
(b) None of the amounts reported in this column are reported in the All Other Compensation column of the 2020 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 2020 using the methodology set out below.
Our Median Employee is a part-time employee at one of our U.S. retail locations whose annual total
compensation for fiscal 2020 (as calculated pursuant to Item 402(c)(2)(x) of Regulation S-K) was $5,963. The
annual total compensation for fiscal 2020 for our PEO was $7,297,118. The resulting ratio of our PEO’s pay to
the pay of our Median Employee for fiscal 2020 was 1,223:1. The increase in the ratio as compared to 2019
(which was 700:1) is primarily attributable to a decrease in the Median Employee’s compensation caused by
furloughs, store closures, and reduced store hours in 2020 due to the COVID-19 pandemic.
Methodology to Identify Our Median Employee
In order to identify our Median Employee, 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, 2020. Of these employees,
approximately 23% were full-time employees, 52% were part-time employees, and 25% were seasonal or
temporary employees. Approximately 76% of our employees were employed in our retail stores in North
America, and approximately 89% of those retail employees were part-time.
We then calculated each employee’s compensation for 2020. When making this calculation, we:
•
•
•
•
consistently used each employee’s total salary for the 2020 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 2020 (but we did not annualize seasonal or temporary employee data);
excluded benefits, such as health care contributions; and
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 xe.com on October 2, 2020.
40
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
$120,000 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 2020.
P
r
o
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y
41
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 22, 2021, 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JPMorgan Chase & Co. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group, Inc. (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock, Inc. (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Caisse de dépôt et placement du Québec (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael D. Casey (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brian J. Lynch (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patrick Q. Moore (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peter R. Smith (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hali Borenstein (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amy Woods Brinkley (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Giuseppina Buonfantino (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Bruce Cleverly (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jevin S. Eagle (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark P. Hipp (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William J. Montgoris (6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Richard A. Noll (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Pulver (6) (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gretchen W. Schar (6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and executive officers as a group (22 persons) (6) . . . . . . . . . . . . . . . . . . . . . . .
4,991,446
4,565,407
3,849,581
3,563,626
2,849,643
784,624
131,713
109,020
47,250
51,848
4,105
16,822
8,802
9,616
9,827
6,199
35,018
4,881
77,047
4,881
1,527,022
11.4%
10.4%
8.8%
8.1%
6.5%
1.8%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
3.5%
*
Indicates less than 1% of our common stock.
(1) This information is based on Schedule 13G/A, filed with the SEC on February 4, 2021. Wellington Management Group
LLP has shared voting power covering 4,494,635 shares and shared dispositive power covering 4,991,446 shares of our
common stock; Wellington Group Holdings LLP has shared voting power covering 4,494,635 shares and shared
dispositive power covering 4,991,446 shares of our common stock; Wellington Investment Advisors Holdings LLP has
shared voting power covering 4,494,635 shares and shared dispositive power covering 4,991,446 shares of our common
stock; and Wellington Management Company LLP has shared voting power covering 4,214,762 shares and shared
dispositive power covering 4,645,913 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 March 8, 2021. JPMorgan Chase & Co. has sole
voting power covering 4,326,872 shares and sole dispositive power covering 4,565,393 shares of our common stock.
JPMorgan Chase & Co. has shared voting power covering 11,593 shares of our common stock and shared dispositive
power covering 14 shares of our common stock. The address for JPMorgan Chase & Co. is 383 Madison Avenue New
York, NY 10179.
(3) This information is based on Schedule 13G/A, filed with the SEC on February 10, 2021. The Vanguard Group, Inc. has
sole dispositive power covering 3,784,839 shares of our common stock. The Vanguard Group, Inc. has shared voting
power covering 29,884 shares of our common stock and shared dispositive power covering 64,742 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/A, filed with the SEC on January 29, 2021. BlackRock, Inc. has sole voting
power covering 3,407,692 shares and sole dispositive power covering 3,563,626 shares of our common stock. The
address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
42
(5) This information is based on Schedule 13G/A, filed with the SEC on February 16, 2021. Caisse de dépôt et placement
du Québec has sole voting power covering 2,849,643 shares and sole dispositive power covering 2,849,643 shares of our
common stock. The address for Caisse de dépôt et placement du Québec is 1000, Place Jean-Paul-Riopelle, Montréal
(QC) H2Z 2B3, Canada.
(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 22, 2021, and (b) shares of unvested restricted stock and unvested
performance stock. See the detail for each NEO and all executive officers as a group below. Mr. Hipp holds 1,186 shares
of restricted stock, Mr. Noll holds 1,603 shares of restricted stock, Ms. Schar holds 1,603 shares of restricted stock, and
Ms. Borenstein holds 1,442 shares of restricted stock, and are the only independent directors who hold restricted stock.
Name
Michael D. Casey . . . . . . . . . . . . . . . . . . . . . .
Richard F. Westenberger . . . . . . . . . . . . . . . .
Brian J. Lynch . . . . . . . . . . . . . . . . . . . . . . . .
Patrick Q. Moore . . . . . . . . . . . . . . . . . . . . . .
Peter R. Smith . . . . . . . . . . . . . . . . . . . . . . . .
All executive officers as a group . . . . . . . . . .
Owned &
Vested
Common
Stock
320,205
45,543
40,211
4,008
8,802
449,396
Exercisable
Stock
Options
Restricted
Common
Stock
Unvested
Performance
Stock
328,451
29,206
50,703
14,961
24,206
520,299
105,020
29,767
34,607
25,045
15,604
298,128
30,948
4,504
6,192
3,236
3,236
56,446
(7) Mr. Pulver holds 8,000 shares of common stock indirectly through Cornerstone Capital, Inc. and 40,082 shares of
common stock indirectly through the Carol Pulver 2020 Trust. Mr. Pulver disclaims beneficial ownership of the shares
of common stock held indirectly through the Carol Pulver 2020 Trust.
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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 2020 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 in the Company’s
2020 proxy statement 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.
44
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 January 2, 2021 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 January 2, 2021 be included in our
Annual Report on Form 10-K for fiscal 2020 for filing with the SEC.
Submitted by the Audit Committee
Mr. William J. Montgoris, Chairperson
Mr. Mark P. Hipp
Ms. Gretchen W. Schar
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.
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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 2021. 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
2020 and 2019 were as follows:
2020
2019
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,485,000
—
6,000
4,500
$2,058,000
105,000
—
4,500
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,495,000
$2,167,500
•
•
•
•
Audit Fees for fiscal years 2020 and 2019 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.
Audit-Related Fees for fiscal year 2019 included procedures related to the pending adoption of a new
accounting pronouncement.
Tax Fees for fiscal year 2020 were for assistance with transfer pricing matters.
All Other Fees for fiscal years 2020 and 2019 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 2021.
Vote Required
The approval of Proposal Number Three 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.
46
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.
*
*
*
The following performance graph and return to stockholders information shown below are provided
pursuant to Item 201(e) of Regulation S-K promulgated under the Exchange Act. The graph and information are
not deemed to be “filed” under the Exchange Act or otherwise subject to liabilities thereunder, nor are they to be
deemed to be incorporated by reference in any filing under the Securities Act or Exchange Act unless we
specifically incorporate them by reference.
This year we have included a comparison to the S&P Composite 1500 Apparel, Accessories & Luxury
Goods Index, which we believe includes companies that are more comparable to Carter’s than those companies
that are included in the S&P Apparel Retail Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Carter's, Inc., the S&P 500 Index,
the S&P Midcap 400 Index, the S&P Apparel Retail Index,
and S&P Composite 1500 Apparel, Accessories & Luxury Goods
$250
$200
$150
$100
$50
$0
12/15
P
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3/16
6/16
9/16
12/16
3/17
6/17
9/17
12/17
3/18
6/18
9/18
12/18
3/19
6/19
9/19
12/19
3/20
6/20
9/20
12/20
Carter's, Inc.
S&P 500
S&P Midcap 400
S&P Apparel Retail
S&P Composite 1500 Apparel, Accessories & Luxury Goods
*$100 invested on 12/31/15 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2021 Standard & Poor’s, a division of S&P Global. All rights reserved.
47
[THIS PAGE INTENTIONALLY LEFT BLANK]
Form 10-K
F
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0
-
K
2020 Annual Report
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 JANUARY 2, 2021
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
Trading Symbol(s)
Name of Each Exchange on Which
Registered
Common stock, par value $0.01 per share
CRI
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files). Yes È No ‘
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 the 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 ‘
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 has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. È
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the
registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock
on June 27, 2020 as reported on the New York Stock Exchange was $2,804,873,786. As of February 19, 2021, there were 44,053,137 shares
of the registrant’s common stock outstanding.
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 20, 2021, 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 January 2, 2021.
CARTER’S, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 2, 2021
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Item 3
Item 4
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
1
2
10
23
23
23
23
24
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 7
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part I
Part II
Part III
Part IV
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
49
50
110
110
111
111
111
111
111
112
112
113
113
115
116
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the federal
securities laws relating to our future performance. 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 our current expectations and assumptions 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”). NPD data is based
upon Consumer Panel TrackSM (consumer-reported sales) calibrated with selected retailers’ point of sale data for
children’s apparel in the United States (“U.S.”) and represents the twelve-month period through the end of
December 2020.
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. Some NPD market share data is presented based on age
segments. The baby and young children’s apparel market in which we compete includes apparel products for
ages zero to 10, and is divided into the zero to two-year-old baby market, the three- to four-year-old toddler
market, and the five- to 10-year-old kids market. Note that Carter’s defines its product offerings by sizes: baby
(sizes newborn to 24 months), toddlers (sizes 2T to 5T), and kids (sizes 4-14). In addition, other NPD market
share data is presented based on NPD’s definition of the baby and playclothes categories, which are different
from Carter’s definitions of these categories.
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.
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 on Form 10-K, including Carter’s,
OshKosh, OshKosh B’gosh, Baby B’gosh, Skip Hop, Child of Mine, Just One You, Simple Joys, 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.
The Company’s fiscal year ends on the Saturday in December or January nearest December 31. Every five or six
years, our fiscal year includes an additional, or 53rd, week of results. Fiscal 2020 ended on January 2, 2021, fiscal
2019 ended on December 28, 2019, and fiscal 2018 ended on December 29, 2018. Fiscal 2020 contained 53
calendar weeks, and fiscal 2019 and fiscal 2018 both contained 52 calendar weeks.
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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.
Established in 1865, our Carter’s brand is recognized and trusted by consumers for high-quality apparel and
accessories for children in sizes newborn to 14.
Established in 1895, OshKosh is a well-known brand, trusted by consumers for high-quality apparel and
accessories for children in sizes newborn to 14, with a focus on playclothes for toddlers and young children.
Established in 2003, the Skip Hop brand re-thinks, re-energizes, and re-imagines durable necessities to create
higher value, superior quality, and top-performing products for parents, babies, and toddlers. We acquired the
Skip Hop brand in February 2017.
Our mission is to serve the needs of all families with young children, with a vision to be the world’s favorite
brands in young children’s apparel and products. We believe our brands provide a complementary product
offering and aesthetic, are each uniquely positioned in the marketplace, and offer strong value to families with
young children. The baby and young children’s apparel market ages zero to 10 in the U.S. is approximately
$24 billion. In that market, our Carter’s brands, including our exclusive brands, have the #1 position with
approximately 12% market share and our OshKosh brand has approximately 1% market share.
Our multi-channel, global business model, which includes retail stores, eCommerce, and wholesale sales
channels, as well as omni-channel capabilities in the United States, enables us to reach a broad range of
consumers around the world. At the end of fiscal 2020, our channels included 1,101 retail stores, approximately
19,800 wholesale locations, and eCommerce websites in North America, as well as our international wholesale
accounts and licensees who operate in over 90 countries.
During fiscal 2020, the global pandemic, caused by the spread of the novel strain of coronavirus (“COVID-19”),
negatively affected the global economy, disrupted global supply chains, and created significant disruption of the
financial and retail markets, including a disruption in consumer demand for baby and children’s clothing and
accessories. For more information on the effects of the pandemic on the Company, and our response to the
pandemic, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Our three business segments 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 stores and eCommerce websites. 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 and eCommerce websites in Canada and Mexico, and sales to our international
wholesale customers 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.
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 focuses on:
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providing the best value and experience in apparel and related products for young children;
extending the reach of our brands; and
improving profitability.
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Our Brands
Carter’s & OshKosh B’gosh
Our Carter’s and OshKosh product offerings include apparel and accessories for babies (sizes newborn to 24
months), toddlers (sizes 2T to 5T), and kids (sizes 4-14).
For our Carter’s brand, our focus is on essential, high-volume apparel products for babies and young children,
including bodysuits, pants, dresses, multi-piece knit sets, blankets, layette essentials, bibs, booties, sleep and
play, rompers, and jumpers. We attribute our leading market position to our strong value proposition, brand
strength, unique colors, distinctive prints, and commitment to quality, as well as our broad wholesale distribution
channel that includes successful and long-standing relationships with leading national retailers. Our marketing
programs are targeted toward first-time parents, experienced parents, and gift-givers. Our Carter’s little baby
basics product line, the largest component of our baby business, provides families with essential products and
accessories, including value-focused multi-piece sets. We also have three exclusive Carter’s brands: our Child of
Mine brand, which we sell at Walmart, our Just One You brand, which we sell at Target, and our Simple Joys
brand, which we sell on Amazon. In February 2021, we re-launched our Little Planet brand, which focuses on
clothing that is more sustainable and eco-friendly.
Carter’s is the leading brand in the zero to 10-year-old market in the United States, with particular strength in the
zero to two-year-old segment. In fiscal 2020, our multi-channel business model enabled our Carter’s brands to
maintain leading market share of approximately 12% in the zero to 10-year-old market, which represented
approximately double the market share of the next largest brand. In addition, our Carter’s brands maintained the
leading market position with approximately 23% in the zero to two-year-old baby market, which represented
approximately four times the market share of the next largest brand, and maintained its leading market position
with approximately 12% in the three to four-year-old toddler market, which represented nearly double the market
share of the next largest brand.
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The focus of the OshKosh brand is high-quality playclothes, including denim apparel products with multiple
wash treatments and coordinating garments, overalls, woven bottoms, knit tops, and bodysuits for everyday use.
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. In fiscal 2020, our
OshKosh brand’s market share was approximately 1% of the zero to 10-year-old apparel market in the United
States.
For both our Carter’s and OshKosh brands, we employ cross-functional product teams to focus on the
development of the brands and products. The teams include members from merchandising, art, design, sourcing,
product development, marketing and planning, and follow a disciplined approach to fabric usage, color selection,
and assortment productivity. We believe this disciplined approach to product development, which includes
consumer research, results in a compelling product offering to consumers, reduces our exposure to short-term
trends, and supports efficient operations.
We believe that we continuously strengthen our brand image with the consumer by differentiating our products
through fabric and material improvements, new artistic applications, new packaging and presentation strategies,
and marketing. We also attempt to differentiate our products and presentation through in-store fixturing,
branding, signage, photography, and advertising, both in our stores and on our websites, as well as with our
major wholesale customers.
Licensed Products
We license our Carter’s, OshKosh, Child of Mine, Just One You, Simple Joys, and Carter’s little baby basics
brands to partners to expand our product offerings to include footwear, outerwear, accessories (such as hair
accessories and jewelry), toys, paper goods, home décor, cribs and baby furniture, and bedding. As of the end of
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fiscal 2020, we had eight licensees 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 also partner with other brand owners to further expand our product offerings, including apparel with
collegiate and professional sport teams’ logos.
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, bath time, and home gear.
We believe Skip Hop is 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 both an
in-house design and a creative team, each of which is dedicated to meeting that goal. We carry 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 segment includes sales of our products through our U.S. retail stores and eCommerce sites,
including through our omni-channel capabilities to allow our customers to buy on-line and pick-up in store (or
curbside), buy-online and ship-to-store, and in-store buy on-line services.
Our U.S. retail stores are generally located in high-traffic strip shopping centers and malls in or near major cities
or in outlet centers that are near densely-populated areas. We believe our brand strength and our product
assortment have made our retail stores a destination for consumers seeking young children’s apparel and
accessories.
Each of our stores carry an assortment of Carter’s, OshKosh, and/or Skip Hop branded products, as well as other
products, depending on the store and location. Our stores average approximately 5,000 square feet per location,
ranging from on average approximately 4,300 square feet per location for our formerly single-branded stores to
approximately 7,400 square feet for our stores that consist of adjacent and connected Carter’s and OshKosh
stores. As of the end of fiscal 2020, in the United States we operated 864 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 U.S. eCommerce websites, which were re-launched in fiscal 2019, at
www.carters.com, www.oshkoshbgosh.com, www.oshkosh.com, and www.skiphop.com, and our mobile
application, which was re-launched in fiscal 2020.
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We focus on the customer experience through store and eCommerce website design, visual aesthetics, clear
product presentation, and experienced customer service. Our eCommerce websites also feature product
recommendations and on-line-only offerings. We strive to create a seamless omni-channel experience between
our retail stores and our eCommerce websites, as more fully described below under “Our Customer and
Marketing Strategy.”
U.S. Wholesale
Our U.S. Wholesale segment includes sales of our products to our U.S. wholesale customers.
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 exclusive brand at
Walmart, our Just One You exclusive brand at Target, and our Simple Joys exclusive brand on Amazon.
Our OshKosh brand wholesale customers in the United States include major retailers, such as, in alphabetical
order, Amazon, Kohl’s, and Target.
Our Skip Hop brand wholesale customers in the United States include major retailers, such as, in alphabetical
order, Amazon, buybuy BABY, and Target.
We collaborate with our wholesale customers to provide a consistent and high-level of service, and to drive
growth through eCommerce, replenishment, product mix, and brand presentation initiatives. 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 and eCommerce sites in
Canada and Mexico. As of the end of fiscal 2020, in Canada we operated 193 co-branded Carter’s and OshKosh
retail stores and an eCommerce site at www.cartersoshkosh.ca, and in Mexico we operated 44 retail stores and an
eCommerce site at www.carter.com.mx.
Our International segment includes sales of our products to wholesale accounts outside of the United States, such
as, in alphabetical order, Amazon, Costco, and Walmart.
In addition, we license our Carter’s and OshKosh brands to international customers that sell our products through
branded retail and online stores, as well as to wholesale customers, within their licensed territories. Our
International segment includes sales of our products to these licensees, and royalty income based on sales made
by certain licensees. As of the end of fiscal 2020, we had approximately 38 international licensees who operated
in over 90 countries.
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 our brands as a seamless shopping experience in the channel of their
choice. In fiscal 2019, we launched capabilities to allow our customers to buy on-line and pick-up in store,
complementing our existing buy-on-line, ship-to-store and in-store buy on-line services. In fiscal 2020, we
continued to enhance and expand our omni-channel capabilities, including curbside pick-up at our retail stores.
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 2020, our U.S. retail sales were predominantly made to customers who are members of Rewarding
Moments.
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In fiscal 2019, we launched a new Carter’s credit card program in the United States. The Carter’s credit card
complements and enhances our existing Rewarding Moments loyalty program and provides new benefits for our
customers, including free shipping on every eCommerce order, double Rewarding Moments points, and exclusive
cardholder-only events.
Our investments in marketing, our loyalty program, and new consumer-facing technologies are focused on
acquiring new customers, developing stronger relationships with our existing customers, and extending their
connections 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 raw materials or manufacturing facilities. We source all of our garments and other products
from a global network of third-party suppliers, primarily located in Asia. We source the remainder of our
products primarily through Central America. During fiscal 2020, approximately 76% of our product was sourced
from Cambodia, Vietnam, China, and Bangladesh, and approximately 78% of the fabric that is used in the
manufacture of our products is sourced from China, with the remainder primarily from Bangladesh, Thailand,
and Taiwan.
Our sourcing operations are based in Hong Kong in order to facilitate better service and manage the volume of
manufacturing in Asia. Our Hong Kong office acts as an agent for substantially all of our sourcing 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 sourcing operations in Cambodia, Vietnam, China, 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, and
we conduct assessments of our manufacturers and supply chain, as discussed under “—Corporate Social
Responsibility” below. 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 maintain quality control, monitor compliance
with our manufacturing specifications and social responsibility standards and to ensure timely delivery. We also
inspect finished products at the manufacturing facilities.
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
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 Social 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 utilized by
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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, outlines our standards for supplier behavior in creating a fair and safe workplace, and 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. In addition, our social
responsibility policy establishes our expectations for our global suppliers and guides our oversight. This policy is
derived from the policies, standards, and conventions of the International Labor Organization, and includes a
commitment to the Universal Declaration of Human Rights.
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 0.5 million square-foot facility in Stockbridge. We also outsource
distribution activities to third party logistics providers located 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.
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Internationally, we operate directly or outsource our distribution activities to third party logistics providers in
Canada, China, Mexico, and Vietnam to support shipment to the United States, as well as our international
wholesale accounts, international licensees, international eCommerce operations, and Canadian and Mexican
retail store networks.
Governmental Regulation
We are subject to laws, regulations and standards set by various governmental authorities around the world,
including in the United States, Canada, and Mexico, including:
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those imposed by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Securities and Exchange Commission (“SEC”), and the New York
Stock Exchange (“NYSE”);
the U.S. Foreign Corrupt Practices Act, and similar world-wide anti-bribery laws;
health care, employment and labor laws;
product and consumer safety laws, including those imposed by the U.S. Consumer Product Safety
Commission and the Americans with Disabilities Act of 1990;
data privacy laws, including the E.U. General Data Protection Act and the California Consumer
Privacy Act;
trade, transportation and logistics related laws, including tariffs and orders issued by Customs and
Border Protection; and
applicable environmental laws.
A substantial portion of our products is imported into the United States, Canada, and Mexico. These products are
subject to various customs laws, which may impose tariffs, as well as quota restrictions. In addition, each of the
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countries in which our products are sold has laws and regulations covering imports. The United States and other
countries in which our products are sold may impose, from time to time, new duties, tariffs, surcharges, or other
import controls or restrictions, or adjust presently prevailing duty or tariff rates or levels. We, therefore, actively
monitor import restrictions and developments and seek to minimize our potential exposure to import related risks
through shifts of production among countries, including consideration of countries with tariff preference and free
trade agreements, manufacturers, and geographical diversification of our sources of supply.
Additionally, we are 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 eCommerce 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, quality, 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 (in alphabetical order): Gap, Old Navy, and The
Children’s Place (specialty apparel); Cat & Jack and Garanimals (private label); and Disney, Nike, and Under
Armour (national brands). 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
and value of product offerings, longevity in the marketplace, distribution footprint, and operational expertise,
position us well against these competitors.
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 consumer trends, customer 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.
Human Capital Resources
As of the end of fiscal 2020, we had approximately 18,000 employees globally. Of these, approximately 14,000
of our employees worked in our retail stores across North America, 2,200 employees worked in our distribution
centers, and 1,800 employees worked in our various corporate offices around the world. Approximately 15,200
employees worked in the United States, 2,100 employees worked in Canada, 300 employees worked in Mexico,
and 400 employees worked in other countries, including Hong Kong. As of the end of fiscal 2020, approximately
150 employees were unionized employees, all of whom were in Mexico. We believe we have good labor
relationships with our employees.
Talent and Development
Everything we do is guided by our core values:
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Act with Integrity
Exceed Expectations
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Inspire Innovation
Succeed Together
Invest in People
We believe that to succeed as a business and to positively impact families and our communities, we must first
create and maintain an inclusive, supportive workplace culture that fosters high employee engagement. We
believe deeply in developing our employees and offer numerous formal training opportunities as well as ongoing
informal on-the-job learning, including:
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mentoring, reverse mentoring, and executive development programs that nurture emerging talent and
facilitate cross-generational knowledge sharing, benefitting employees at all stages of their careers;
development days, when employees step away from their day-to-day responsibilities for curated
professional growth opportunities;
online courses and formal development programs designed to enhance personal leadership skills,
business acumen, and people management skills, as well as specialized development resources for our
retail store, distribution center and office employees; and
each year, we award 20 scholarships to Carter’s employees and children of employees to attend an
accredited college or university.
Diversity and Inclusion
Additionally, we are committed to ensuring that our workforce reflects our diverse world through a range of
efforts to broaden diversity and ensure fairness across our global enterprise. Our Diversity & Inclusion (“D&I”)
efforts are driven by cross-functional teams charged with guiding and implementing the organization’s D&I
efforts. These teams oversee our efforts to establish and improve inclusive policies in four key areas of our
management processes: leadership, strategies and processes, programs and benefits, and policies and compliance.
We continually measure and monitor diversity metrics including pay equity, retention, new hires, internal
promotions and identified successors, and our D&I education equips employees with the tools and support
needed to further enhance a workplace culture of inclusion.
Health and Safety
We maintain a safety culture with the goal of eliminating workplace incidents, risks and hazards. We have
created and implemented processes to help eliminate safety events by reducing their frequency and severity. We
also review and monitor our performance closely. In response to the ongoing COVID-19 pandemic, we have
implemented and continue to implement safety measures in all our facilities to protect our customers and
employees, including ensuring social distancing, frequent cleaning, and masks for all in our retail stores, and
maintaining safe working distances and conditions at our distribution centers.
Available Information
Our primary internet address is www.carters.com. On our investor relations website (ir.carters.com), 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
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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 SEC. 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.
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.
Risks Related to Global and Macroeconomic Conditions
The ongoing COVID-19 pandemic and other global crises have had and may in the future have a significant
adverse effect on our business, financial condition, and results of operations.
Global crises, including political instability or other global events that result in the disruption of trade or our sales
operations, have had and may in the future have a significant adverse effect on our business, financial condition,
and results of operations.
For example, in December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) began in Wuhan,
China. In March 2020, the World Health Organization declared COVID-19 a pandemic and former President
Trump declared a national emergency. Federal, state and local governments and private entities mandated and
continue to mandate various restrictions as new waves of the pandemic and new strains of the virus spread across
the globe, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and
quarantining of people who may have been exposed to the virus. The response to the COVID-19 pandemic has
negatively affected the global economy, disrupted global supply chains, and created significant disruption of the
financial and retail markets, including a disruption in consumer demand for baby and children’s clothing and
accessories. As a result, the COVID-19 pandemic has had, and will likely continue to have, a significant adverse
effect on our business, financial condition, and results of operations. The extent to which COVID-19 impacts our
business, results of operations, and financial condition will depend on future developments, which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the severity of
COVID-19 and the efficacy, scope and duration of actions to limit the spread of COVID-19 or treat its impact,
among others.
Similarly, we are also subject to general political and economic risks in connection with our global operations,
including political instability, terrorist attacks, and changes in diplomatic and trade relationships, any of which
may have a significant adverse effect on our business, financial condition, 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’s apparel and accessories, specifically brand
name apparel products, is affected by the overall level of consumer spending. Overall spending in the market is
affected by a number of global and macroeconomic factors, such as 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, weather, and overall levels of consumer confidence. Additionally, birth rate fluctuations, which
in turn affect the number of customers that are acquired and retained, can have a material impact on consumer
spending and our business. For instance, in recent years we have seen a reduction in the birth rate in the United
States, and a reduction in the size of the market for young children’s apparel and accessories. 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.
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Risks Related to Our Brands and Product Value
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 create products that 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 sell out-of-season or excess merchandise, and our profitability and results
of operations could be adversely affected.
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 trademarks, 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.
The value of our brands, and our sales, could be diminished if we are associated with negative publicity,
including through actions by our employees, and our vendors, independent manufacturers, and licensees, over
whom we have limited control.
Although we maintain policies with our employees, 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 employees, 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.
We may experience delays, product recalls, or loss of revenues if our products do not meet our quality
standards.
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 product 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.
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Risks Related to Operating a Global Business
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 global baby and young children’s apparel and accessories 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 including in certain instances some of our wholesale accounts. 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
acquisitions 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.
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 wholesale customers. For fiscal 2020, we derived approximately
33% of our consolidated net sales from our U.S. Wholesale segment and approximately 32% of our consolidated
net sales from our top ten wholesale customers. As of the end of fiscal 2020, approximately 92% 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 if one or more of these customers significantly decreases their business or
terminates their relationship with us as a result of financial difficulties (including bankruptcy or insolvency),
competitive forces, consolidation, reorganization, or other reasons, then we may have significant levels of excess
inventory that we may not be able to place elsewhere, 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 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 generate profitable store sales volumes. 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, particularly in response to the ongoing COVID-19 pandemic, we may seek to renegotiate existing lease
terms or 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
lease terms, 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.
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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.
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 in the United
States, Canada, and Mexico include:
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the failure of the computer systems, including those of third-party vendors, that operate our
eCommerce sites and mobile applications, 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 telecommunications 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;
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rapid technology changes;
the failure to deliver products to customers on-time and within customers’ expectations;
credit or debit card, or other electronic payment-type, 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.
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 (which occurred, for example, in the first fiscal quarter of 2020 due
to the COVID-19 pandemic) and the sale of excess inventory at discounted prices, which could have an adverse
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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.
Our profitability may decline as a result of increasing pressure on margins, including deflationary pressures
on our selling prices and increases in production costs and costs to serve.
The global 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 general
inflationary pressures, as well as the costs of our products, which are driven in part by the costs of raw materials
(including cotton and other commodities), labor, fuel, transportation and duties, any increases in mandatory
minimum wages, and the costs to deliver those products to our customers. 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 optimize prices or 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.
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, 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 experienced
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 businesses 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.
Our business could suffer a material adverse effect from unseasonable or extreme weather conditions, or
other effects of climate change.
Our business is susceptible to unseasonable weather conditions, which could influence customer demand,
consumer traffic, and shopping habits. For example, extended periods of unseasonably warm temperatures during
the winter season or cool temperatures during the summer season have in the past and could in the future 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, flooding, hurricanes, or other extreme weather conditions over
an extended period have caused and could in the future 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.
In addition, there is concern that climate changes could cause significant changes in weather patterns around the
globe and an increase in the frequency and severity of natural disasters. These changes may increase the effects
described above, and changing weather patterns could result in decreased agricultural productivity in certain
regions, which may limit availability and/or increase the cost of certain key materials, such as cotton. Public
expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw
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material costs, and may require us to make additional investments in facilities and equipment. As a result, the
effects of climate change could have a long-term adverse impact on our business and results of operations.
Risk Relating to Litigation
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.
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.
In addition, as previously reported, in 2009 the SEC and the U.S. Attorney’s Office began conducting
investigations, with which we cooperated, related to customer margin support provided by us, including
undisclosed margin support commitments and related matters. In December 2010, we entered into a
non-prosecution agreement with the SEC pursuant to which the SEC agreed not to charge us with any violations
of federal securities laws, commence any enforcement action against us, or require us to pay any financial
penalties in connection with the SEC investigation of customer margin support provided by us, conditioned upon
our continued cooperation with the SEC’s investigation and with any related proceedings. We have 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. We also expect 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.
Risks Related to Cybersecurity, Data Privacy, and Information Technology
Our systems, and those of our vendors, 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, modify, or block our
access to our private and sensitive internal and third-party information, including credit card information and
personally identifiable 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 (including the E.U. General Data Protection Act and the
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California Consumer Privacy Act) 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.
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 continues to grow 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 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.
Risks Related to our Global Supply Chain and Labor Force
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 global supply chain could be negatively affected due to a
number of factors, including:
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political instability (including between the People’s Republic of China and Hong Kong) or other
global events resulting in the disruption of operations or trade in or with foreign countries from which
we source our products;
the occurrence of a natural disaster, unusual weather conditions, or a disease epidemic in foreign
countries from which we source our products;
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;
increased costs of raw materials (including cotton and other commodities), labor, fuel, and
transportation;
interruptions in the supply of raw materials, including cotton, fabric, and trim items;
increases in the cost of labor in our sourcing locations;
changes in the U.S. customs procedures concerning the importation of apparel products;
unforeseen delays in customs clearance of any goods;
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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; and
other events beyond our control that could interrupt our supply chain and delay receipt of our products
into the United States, Canada, and Mexico.
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. For
example, in fiscal 2020 the COVID-19 pandemic had a material adverse effect on our sourcing operations,
particularly in China and the rest of Asia, and has slowed our ability to import products into North America.
Also, in fiscal 2020 and 2021, the U.S. Government took significant steps to address the forced labor concerns in
the Xinjiang Uyghur Autonomous Region of China, including withhold release orders issued by U.S. Customs
and Border Protection, which may in turn have an effect on global supply chains, including our own supply
chains for cotton and cotton-containing products, and the price of cotton in the marketplace.
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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 2020, we purchased approximately 58% of our products from ten vendors, of which approximately half
comes from three vendors. Additionally, we estimate that approximately 78% of the fabric that is used in the
manufacture our products is sourced from China. 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 become insolvent or experience financial difficulties, manufacturing capacity constraints, or significant
labor disputes) our business, results of operations, and financial condition may be adversely affected.
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 this west coast port and unions have
in the past resulted in a significant backlog of cargo containers entering the United States. In the past, the
insolvency of a major shipping company has 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.
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Our inability to effectively source and manage 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 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. 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, such as an in ability to source from a particular vendor or geographic region, 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 or cash flows.
Additionally, the nature of our business requires us to carry a significant amount of inventory, especially prior to
the peak holiday selling season when we build up our inventory levels, and to support our omni-channel
strategies, including our buy on-line and pick-up in store program. Merchandise usually must be ordered well in
advance of the season and frequently before apparel trends are confirmed by customer purchases. We must enter
into contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season.
As a result, we are vulnerable to demand and pricing shifts and to suboptimal selection and timing of
merchandise purchases and allocations to our sales channels. In the past, we have not always predicted our
customers’ preferences and acceptance levels of our trend items with accuracy. If sales do not meet expectations,
too much inventory may cause excessive markdowns and, therefore, lower-than-planned margins, and too little
inventory may result in lost sales.
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 our
distribution facility (such as a high level of demand during peak periods) or because of natural disasters, health
issues, 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.
Risks Relating to Our International Expansion
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 North America. 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
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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 laws or
relations, such as political uncertainty 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.
Risks Related to Governmental and Regulatory Changes
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 are subject to laws, regulations and standards set by various governmental authorities around the world,
including in the United States, Canada, and Mexico, including:
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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”);
the U.S. Foreign Corrupt Practices Act, and similar world-wide anti-bribery laws;
health care, employment and labor laws;
product and consumer safety laws, including those imposed by the U.S. Consumer Product Safety
Commission and the Americans with Disabilities Act of 1990;
data privacy laws, including the E.U. General Data Protection Act and the California Consumer
Privacy Act;
trade, transportation and logistics related laws, including tariffs and orders issued by Customs and
Border Protection; and
applicable environmental 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, these laws, regulations, and standards may change from
time to time, and the complexity of the regulatory environment in which we operate may increase. 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. Also, 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.
Risks Related to Executing Our Strategic Plan
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. These
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projects could place significant demands on our accounting, financial, information technology, and other
systems, and on our business overall. We are dependent on our management’s 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.
For example, our multi-channel global business model, which includes retail store, eCommerce, 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 address 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 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.
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,
such as those relating to product safety, anti-bribery or 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.
20
Risks Related to Financial Reporting, Our Debt, and Tax
We may not achieve sales growth plans, profitability objectives, 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 profitability objectives. 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. For
example, as of and for the first fiscal quarter of 2020, we recorded intangible asset impairments of $26.5 million
and a goodwill impairment of $17.7 million based on forecasted financial information derived from the
information reasonably available to us at the time given the unknown future impact of the COVID-19 pandemic.
In addition, in the third fiscal quarter of 2019, we recorded a non-cash charge of $30.8 million relative to the
impairment of our Skip Hop tradename, reflecting the effect of lower sales and profitability relative to the
assumptions supporting the valuation of the tradename at acquisition. 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 the end of fiscal 2020, we had $1.00 billion aggregate principal amount of debt outstanding (excluding
$5.0 million of outstanding letters of credit), and $745.0 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 liquidity, 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, in certain circumstances, our 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. For
example, provisions in our secured revolving credit facility as amended in May 2020 have the effect of restricting
our ability to pay cash dividends on, or make future repurchases of, our common stock through the date we
deliver our financial statements and associated certificates relating to the third fiscal quarter of 2021, and could
have the effect of restricting our ability to do so thereafter. These restrictions may limit our ability to 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.
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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. The taxable income in each jurisdiction is affected
by certain transfer prices between affiliated entities. Challenges to the arms-length nature of these transfer prices
could materially affect our taxable income in a taxing jurisdiction, and therefore affect our income tax expense.
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 geographic mix and level of earnings.
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.
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. For example, our taxable income
may be affected by new laws, rulings, initiatives, and other events, which may affect our business, financial
condition, or results of operations in future periods, including:
•
•
•
•
the CARES Act, which was enacted in March 2020, and which significantly effects U.S. taxation by
providing a retention credit and eases limitations on certain deductions including interest due to
potential volatility in 2020 taxable income;
a 2018 U.S. Supreme Court ruling, under which states may have additional ability to tax entities
operating in their state, but lacking physical presence;
mandatory country by country reporting of revenue, employees and profits, and certain international
initiatives (such as the Organisation for Economic Co-operation and Development (OECD)’s Base
Erosion and Profit Shifting (BEPS)) that are focused on the equity of international taxation, which
may ultimately result a worldwide minimum tax, or more defined approach around global profit
allocation between related companies operating in jurisdictions with disparate income tax rates; and
tax revenue reductions as a result of the economic impact of the pandemic, which may lead to
increases in state tax rates or the expansions of their tax base.
GENERAL RISK
Quarterly cash dividends and share repurchases are subject to a number of uncertainties, and may affect the
price of our common stock.
Quarterly cash dividends and share repurchases under our share repurchase program have historically been part
of our capital allocation strategy. However, in the first fiscal quarter of 2020 we suspended both our quarterly
22
cash dividends and our share repurchase program due to the effects of the COVID-19 pandemic, and we are not
required to declare dividends or make any share repurchases under our share repurchase program in the future.
Decisions with respect to future dividends and share repurchases are subject to the discretion of our Board of
Directors and will be based on a variety of factors, including restrictions under our secured revolving credit
facility, market conditions, the price of our common stock, the nature and timing of other investment
opportunities, changes in our business strategy, the terms of our financing arrangements, our outlook as to the
ability to obtain financing at attractive rates, the impact on our credit ratings and the availability of domestic
cash. If reinstated, a subsequent reduction or elimination of our cash dividend, or subsequent suspension or
elimination of our share repurchase program could adversely affect the market price of our common stock.
Additionally, there can be no assurance that any share repurchases will enhance shareholder value because the
market price of our common stock may decline below the levels at which we repurchased shares of common
stock, and short-term stock price fluctuations could reduce the program’s effectiveness.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The following is a summary of our principal owned and leased properties as of January 2, 2021.
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 leased space in a building in Mississauga,
Ontario, which serves as our regional headquarters for Canada, and we occupy 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 Vietnam 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 1.1 million and 0.5 million square feet, respectively. We also lease additional space in or use third-party
logistics providers in California, Canada, China, Mexico and Vietnam for warehousing and distribution purposes.
We also operate the following number of leased retail stores: 864 in the United States, 193 in Canada, and 44 in
Mexico. Our average remaining lease term for retail store leases in the United States, Canada, and Mexico is
approximately 3.8 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 trading symbol CRI. The last
reported sale price per share of our common stock on February 19, 2021 was $92.54. On that date there were 181
holders of record of our common stock.
OPEN MARKET SHARE REPURCHASES
The following table provides information about shares repurchased during the fourth quarter of fiscal 2020:
Period
Total number
of shares
purchased(1)
Average
price paid
per share
Total number of
shares
purchased as
part of publicly
announced plans
or programs(2)
September 27, 2020 through October 24, 2020 . . . . . .
— $
—
October 25, 2020 through November 28, 2020 . . . . . .
966
$
86.45
November 29, 2020 through January 2, 2021 . . . . . . .
— $
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
966
$
86.45
—
—
—
—
Approximate
dollar value of
remaining
shares that can
bepurchased
under the plans
or programs
$650,447,970
$650,447,970
$650,447,970
(1) All of the shares purchased during the current quarter represent shares of our common stock surrendered
by our employees to satisfy required tax withholding upon the vesting of restricted stock awards.
(2) In the first quarter of fiscal 2020, the Company announced that, in connection with the COVID-19
pandemic, it suspended its common stock share repurchase program. Refer to open market repurchases as
disclosed in Note 9, Common Stock, to the consolidated financial statements.
Share Repurchase Program
On both February 22, 2018 and February 13, 2020, our Board of Directors authorized an additional $500 million
of share repurchases, for total authorizations, inclusive of authorizations prior to 2018, of up $1.96 billion.
The total remaining capacity under outstanding repurchase authorizations as of January 2, 2021 was
approximately $650.4 million, based on settled repurchase transactions. The share repurchase authorizations have
no expiration dates.
We repurchased and retired shares in open market transactions in the following amounts for the fiscal periods
indicated:
For the fiscal year ended
January 2,
2021
December 28,
2019
December 29,
2018
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
474,684
2,107,472
1,879,529
Aggregate cost of shares repurchased (dollars in thousands) . . . . . . . .
$ 45,255
$ 196,910
$ 193,028
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
95.34
$
93.43
$
102.70
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On March 26, 2020, we announced that, in connection with the COVID-19 pandemic, we suspended our common
stock share repurchase program. While we may elect to resume purchases at any time, the timing and amount of
any future repurchases will be determined by the Company based on a number of factors, including restrictions
under our revolving credit facility, on our evaluation of market conditions, share price, and other investment
priorities.
DIVIDENDS
We paid a cash dividend of $0.60 per share in the first quarter of fiscal 2020. On May 1, 2020, in connection with
the COVID-19 pandemic, we suspended our quarterly cash dividend. The Board of Directors will evaluate future
dividend declarations based on a number of factors, including restrictions under our revolving credit facility,
business conditions, our financial performance, and other considerations. We paid a quarterly cash dividend of
$0.50 per share in each quarter of fiscal 2019. The dividends were paid during the fiscal quarter in which they
were declared.
Provisions in our secured revolving credit facility have the effect of restricting our ability to pay cash dividends
on, or make future repurchases of, our common stock through the date we deliver our financial statements and
associated certificates relating to the third fiscal quarter of 2021, and could have the effect of restricting our
ability to do so thereafter, as described in Item 8 “Financial Statements and Supplementary Data” under Note 8,
Long-Term Debt, to the consolidated financial statements.
RECENT SALES OF UNREGISTERED SECURITIES
None.
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ITEM 6.
SELECTED FINANCIAL DATA
Omitted at registrant’s option.
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
under “Risk Factors” in Part I, 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.
For a comparison of our results for fiscal year 2019 to our results for fiscal year 2018 and other financial
information related to fiscal year 2018, refer to Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in our 2019 Annual Report on Form 10-K, filed with the SEC on
February 24, 2020.
Fiscal Years
Our fiscal year ends on the Saturday in December or January nearest December 31. Every five or six years, our
fiscal year includes an additional, or 53rd, week of results. Fiscal year 2020 which ended on January 2, 2021,
contained 53 calendar weeks. Fiscal year 2019 and 2018 which ended on December 28, 2019 and December 29,
2018, respectively, each contained 52 calendar weeks.
The 53rd week in fiscal 2020 contributed approximately $32.1 million of incremental consolidated revenue.
Certain expenses increased in relationship to the additional revenue from the 53rd week, while other expenses,
such as fixed costs and expenses incurred on a calendar-month basis, did not increase. The consolidated gross
margin for the additional revenue from the 53rd week is slightly lower than the consolidated gross margin for
fiscal 2020 due to increased promotional activity during the 53rd week.
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 and
accessories for children in sizes newborn to 14.
Established in 1895, OshKosh is a well-known brand, trusted by consumers for high-quality apparel and
accessories for children in sizes newborn to 14, with a focus on playclothes for toddlers and young children.
Established in 2003, the Skip Hop brand re-thinks, re-energizes, and re-imagines durable necessities to create
higher value, superior quality, and top-performing products for parents, babies, and toddlers. We acquired the
Skip Hop brand in February 2017.
26
Our mission is to serve the needs of all families with young children, with a vision to be the world’s favorite
brands in young children’s apparel and products. We believe our brands provide a complementary product
offering and aesthetic, are each uniquely positioned in the marketplace, and offer strong value to families with
young children. The baby and young children’s apparel market ages zero to 10 in the U.S. is approximately
$24 billion. In that market, our Carter’s brands, including our exclusive brands, have the #1 position with
approximately 12% market share and our OshKosh brand has approximately 1% market share.
Our multi-channel, global business model, which includes retail stores, eCommerce, and wholesale sales
channels, as well as omni-channel capabilities in the United States, enables us to reach a broad range of
consumers around the world. At the end of fiscal 2020, our channels included 1,101 retail stores, approximately
19,800 wholesale locations, and eCommerce websites in North America, as well as our international wholesale
accounts and licensees who operate in over 90 countries.
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 focuses on:
•
•
•
providing the best value and experience in apparel and related products for young children;
extending the reach of our brands; and
improving profitability.
During fiscal 2020, the global pandemic caused by the spread of the novel strain of coronavirus (“COVID-19”)
negatively affected the global economy, disrupted global supply chains, and created significant disruption of the
financial and retail markets, including a disruption in consumer demand for baby and children’s clothing and
accessories. For more information on the effects the pandemic had on the Company, and our response to the
pandemic, see “Recent Developments.”
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Segments
Our three business segments 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 stores and eCommerce websites. 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 and eCommerce websites in Canada and Mexico, and sales to our international
wholesale customers 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.
Recent Developments
In December 2019, an outbreak of COVID-19 began in Wuhan, China. In March 2020, the World Health
Organization declared COVID-19 a pandemic and former President Trump declared a national emergency.
Federal, state and local governments and private entities mandated various restrictions, including travel
restrictions as new waves of the pandemic and new strains of the virus spread across the globe, restrictions on
public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to
the virus. The response to the COVID-19 pandemic has negatively affected the global economy, disrupted global
supply chains, and created significant disruption of the financial and retail markets, including a disruption in
consumer demand for baby and young children’s clothing and accessories.
The COVID-19 pandemic has had, and will likely continue to have, significant adverse effects on our business,
financial condition, and results of operations. During fiscal 2020, the impacts of the COVID-19 pandemic
included:
• We have seen lower sales both in our retail and wholesale channels, and some of our wholesale
customers have unilaterally extended their payment terms with us.
27
•
•
•
•
•
During March and April 2020, for the safety of customers and employees, we suspended retail store
operations in North America, which had a material effect on the results of operations in our U.S.
Retail segment. Stores began reopening in the second quarter of fiscal 2020. During December 2020,
we closed a number of our stores again in Canada and Mexico for the safety of our employees and
customers, and to comply with local regulation. As of January 2, 2021, there were approximately 133
stores closed in Canada, and we estimate most will remain closed until the middle of the first quarter
of fiscal 2021. As of January 2, 2021, we had 940 stores out of 1,101 stores open in North America;
stores were opened subject to safety considerations resulting from the progression of the pandemic
and related laws and regulations put in place by state and local governments.
As consumer preferences shifted to our eCommerce channel, we announced our plan to close
approximately 25% of our current stores, when leases come up for renewal or where there is a
kick-out provision in the lease. Over 100 of these closures are planned by the end of fiscal 2021.
To improve near-term liquidity in light of the uncertainty and disruption related to COVID-19:
•
•
•
in March 2020, we drew $639.0 million under our secured revolving credit facility;
on May 4, 2020, through our wholly owned subsidiary, The William Carter Company (“TWCC”),
we successfully amended our revolving credit facility to provide for, among other things, a waiver
of financial covenants through the balance of fiscal year 2020, revised covenant requirements
through the third quarter of fiscal year 2021, and the ability to raise additional unsecured
financing; and
on May 11, 2020, we completed the sale of $500 million principal amount of senior notes at par
issued by TWCC, bearing interest at a rate of 5.500% per annum, and maturing on May 15, 2025.
During the second and third quarters of fiscal 2020, we used the net proceeds from the notes, along
with cash on hand, to repay all of our outstanding borrowings under our secured revolving credit
facility. As of January 2, 2021, we had no outstanding borrowings under our secured revolving credit
facility, exclusive of $5.0 million of outstanding letters of credit, and we had approximately
$1.85 billion in total liquidity, including $1.10 billion cash on hand and $745.0 million available for
future borrowing under our secured revolving credit facility.
Additionally, to create additional financial flexibility, we reduced costs, inventory commitments, and
capital expenditures, during a portion of fiscal 2020. For example:
• We furloughed all of our U.S. and Canada store associates and certain office-based employees
during a portion of the time that our stores were closed. In addition, in the first and fourth quarters
of fiscal 2020, the Company announced several organizational restructuring initiatives which
included a reorganization of staffing models across multiple functions to drive labor savings and
increase efficiencies, the consolidation of certain functions into our corporate headquarters in
Atlanta, Georgia, and over 100 planned store closures by the end of fiscal 2021.
• We implemented temporary tiered salary and Board of Directors’ fee reductions and reduced other
compensation-related expenses. During the third quarter of fiscal 2020, we reinstated salaries and
Board of Directors’ fees.
• During the second quarter of fiscal 2020, the Company suspended rent payments under the leases
for our temporarily closed stores in North America. The Company resumed making the required
rent payments under these leases in the third quarter of fiscal 2020.
•
In the first half of fiscal 2020, we announced that we suspended our share repurchase program and
our quarterly cash dividend.
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• We also executed substantial reductions in expenses, store occupancy costs, and overall costs,
including through reduced inventory purchases. During the third quarter of fiscal 2020, we
resumed our strategic investments in information technology, eCommerce, marketing, and omni-
channel retail store initiatives.
•
Our manufacturing supply chain, which is primarily in Asia, was disrupted due to delays in textile
mill and factory openings, delays in workers being able to return to work, and the spread of the
pandemic from China to other parts of the world. In addition, ocean and air freight carriers’ global
operations have been disrupted due to the global shift in demand, leading to delays in shipments and
increased costs from Asia to North America and elsewhere.
We cannot estimate with certainty the length or severity of this pandemic, or the extent to which the disruption
may materially impact our consolidated financial position, consolidated results of operations, and consolidated
cash flows. Refer to risks set forth in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Fiscal Year 2020 Highlights
•
Consolidated net sales decreased $495.0 million, or 14.1%, to $3.02 billion in fiscal 2020.
• The temporary closure of our retail stores, particularly during the months of March, April, May,
and for many stores in Canada and Mexico, in December, and a decrease in sales to certain of our
wholesale customers as a result of disruptions related to the COVID-19 pandemic, negatively
affected our financial results in fiscal 2020.
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• Our eCommerce operations delivered strong growth in fiscal 2020, reflecting higher online
demand, enhanced marketing efforts, the relaunch of our enhanced websites in the second half of
fiscal 2019, and the launch of our website in Mexico in late fiscal 2019.
• We continue to see good growth with our exclusive brands; U.S. sales of exclusive brands to our
top three wholesale customers grew 12.5%.
• We also delivered growth in our omni-channel programs during fiscal 2020 due to increased
investments and enhancements, including expanding our curbside pickup program and direct-
from-store shipment program.
• The 53rd week in fiscal 2020 contributed approximately $32.1 million in additional consolidated
net sales.
•
•
Gross profit decreased $195.1 million, or 12.9%, to $1.31 billion in fiscal 2020. Gross margin
increased 50 basis points (“bps”) to 43.4% in fiscal 2020, primarily due to an increase in eCommerce
average selling prices as a result of decreased promotions, as well as decreased product costs, partially
offset by the recognition of adverse inventory and fabric purchase commitments from disruptions
related to the COVID-19 pandemic, increased inventory provisions, and increased inventory-related
handling costs. The Company recorded adverse inventory and fabric purchase commitments of
$14.7 million and incremental excess inventory reserve related charges of $4.9 million in fiscal 2020,
primarily due to disruptions related to the COVID-19 pandemic.
Selling, general and administrative (“SG&A”) expenses as a percentage of total net sales (“SG&A
rate”) increased 420 bps to 36.6% for fiscal 2020. The increase in the SG&A rate was primarily
driven by lower net sales as a result of business disruptions related to the COVID-19 pandemic,
increased eCommerce distribution and fulfillment costs due to an increase in eCommerce demand,
deleverage of retail store expenses, incremental COVID-19 related charges, organizational
restructuring charges, impairment charges on operating lease assets, and increased bad debt expense,
all partially offset by decreased marketing costs and other reductions in spending.
29
• COVID-19 related SG&A expenses in fiscal 2020 were $21.4 million, which primarily included
incremental costs of $12.1 million related to payroll continuation for a period of time for our retail
employees and increased employee-related costs at our distribution centers, costs associated with
additional protective equipment and cleaning supplies of $8.9 million, and restructuring costs of
$2.3 million, partially offset by payroll tax benefits of $3.5 million.
Operating income decreased $182.0 million, or 48.9%, to $189.9 million in fiscal 2020, primarily due
to the factors discussed above and the recognition of a $17.7 million non-cash goodwill impairment
charge to the Other International reporting unit, a $15.5 million non-cash impairment charge related to
the OshKosh tradename, and an $11.0 million non-cash impairment charge related to the Skip Hop
tradename in fiscal 2020, partially offset by the recognition of a $30.8 million non-cash impairment
related to the Skip Hop tradename in fiscal 2019 that did not re-occur in fiscal 2020.
Net income decreased $154.1 million, or 58.4%, to $109.7 million in fiscal 2020, primarily due to the
factors discussed above and an increase in interest expense due to an increase in weighted-average
borrowings during fiscal 2020, partially offset by a $7.8 million loss on extinguishment of debt
recognized as part of our senior note refinancing in fiscal 2019 that did not re-occur in fiscal 2020.
Diluted net income per common share decreased 57.3% to $2.50 in fiscal 2020.
A total of $71.5 million was returned to our shareholders in fiscal 2020, comprised of $45.3 million in
share repurchases and $26.3 million in dividends.
The impacts of the COVID-19 pandemic adversely affected our fiscal 2020 results. However, we were
able to improve on our gross and operating margins throughout the second half of fiscal 2020 with
strong inventory management, continued progress in improving price realization, a better promotion
strategy, and our ability to manage costs in response to decreased sales.
•
Inventory increased 0.9%, compared to December 28, 2019, driven by strong inventory
management and sell through of excess inventory.
Operating cash flow increased 52.3%, compared to fiscal 2019, primarily due to an extension of
vendor payment terms and deferrals of retail store lease payments.
•
•
•
•
•
•
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RESULTS OF OPERATIONS
2020 FISCAL YEAR ENDED JANUARY 2, 2021 (53 WEEKS) COMPARED TO 2019 FISCAL YEAR
ENDED DECEMBER 28, 2019 (52 WEEKS)
The following table summarizes our results of operations. All percentages shown in the below table and the
discussion that follows have been calculated using unrounded numbers.
(dollars in thousands, except per share data)
Consolidated net sales . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . .
Adverse purchase commitments
(inventory and raw materials),
net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended
January 2, 2021
(53 weeks)
December 28, 2019
(52 weeks)
$3,024,334
1,696,224
$3,519,286
2,008,630
$ Change
$(494,952)
(312,406)
% / bps
Change
(14.1)%
(15.6)%
14,668
2,106
12,562
nm
Gross profit
. . . . . . . . . . . . . . . . . . . . .
1,313,442
1,508,550
(195,108)
(12.9)%
Gross profit as % of consolidated
net sales . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . .
Royalty income as % of
43.4%
26,276
42.9%
34,637
(8,361)
consolidated net sales . . . . . . . . .
0.9%
1.0%
50 bps
(24.1)%
(10) bps
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Selling, general, and administrative
expenses . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses as % of
consolidated net sales . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . .
Intangible asset impairment . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Operating income as % of
consolidated net sales . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Other expense (income), net
Loss on extinguishment of debt . . . . . .
1,105,607
1,140,515
(34,908)
(3.1)%
36.6%
17,742
26,500
189,869
6.3%
56,062
(1,515)
338
—
32.4%
—
30,800
17,742
(4,300)
371,872
(182,003)
10.6%
37,617
(1,303)
(217)
7,823
327,952
64,150
18,445
(212)
555
(7,823)
(192,968)
(38,883)
420 bps
nm
(14.0)%
(48.9)%
(430) bps
49.0%
16.3%
nm
nm
(58.8)%
(60.6)%
Income before income taxes . . . . . . . .
Provision for income taxes . . . . . . . . . .
134,984
25,267
Effective tax rate(*) . . . . . . . . . . . . .
18.7%
19.6%
(90) bps
Net income . . . . . . . . . . . . . . . . . . . . . .
$ 109,717
$ 263,802
$(154,085)
(58.4)%
Basic net income per common
share . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common
share . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend declared and paid per
common share . . . . . . . . . . . . . . . . .
$
$
$
2.51
2.50
0.60
$
$
$
5.89
5.85
2.00
$
$
$
(3.38)
(57.4)%
(3.35)
(57.3)%
(1.40)
(70.0)%
(*) Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.
Note: Results may not be additive due to rounding. Percentage changes that are considered not meaningful are
denoted with “nm”.
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CONSOLIDATED NET SALES
Consolidated net sales decreased $495.0 million, or 14.1%, to $3.02 billion in fiscal 2020. This decrease
primarily reflected the temporary closure of our retail stores, particularly during the months of March, April,
May, and for many of our stores in Canada and Mexico, in December, and decreased sales to certain of our
wholesale customers as a result of disruptions related to the COVID-19 pandemic, partially offset by an increase
in net sales through our eCommerce channel. The 53rd week in fiscal 2020 contributed approximately
$32.1 million in additional consolidated net sales. Changes in foreign currency exchange rates used for
translation in fiscal 2020, as compared to fiscal 2019, had an unfavorable effect on our consolidated net sales of
approximately $4.7 million.
GROSS PROFIT AND GROSS MARGIN
Our consolidated gross profit decreased $195.1 million, or 12.9%, to $1.31 billion in fiscal 2020. Consolidated
gross margin increased 50 bps to 43.4% in fiscal 2020.
Gross profit is calculated as consolidated net sales less cost of goods sold, and gross margin is calculated as gross
profit divided by consolidated net sales. Cost of goods sold include expenses related to the merchandising,
design, and procurement of product, including inbound freight costs, purchasing and receiving costs, and
inspection costs. Also included in costs of goods sold are the costs of shipping eCommerce product to end
consumers. Retail store occupancy costs, distribution expenses, and generally all other expenses other than
interest and income taxes are included in SG&A. 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, including eCommerce fulfillment costs, and delivery to our wholesale customers and to our retail
stores. Accordingly, our gross profit and gross margin may not be comparable to other entities that define their
metrics differently.
The decrease in consolidated gross profit was primarily due to decreased net sales across our businesses. The
increase in gross margin was primarily due to an increase in eCommerce average selling prices as a result of
decreased promotions, as well as decreased product costs, partially offset by the recognition of adverse inventory
and fabric purchase commitments from disruptions related to the COVID-19 pandemic, increased excess
inventory provisions, and increased inventory-related handling costs. The Company recorded adverse inventory
and fabric purchase commitments of $14.7 million and incremental inventory reserve related charges of
$4.9 million in fiscal 2020, primarily due to disruptions related to the COVID-19 pandemic.
ROYALTY INCOME
Royalty income decreased $8.4 million, or 24.1%, to $26.3 million in fiscal 2020, primarily as a result of
decreased licensee sales volume due to business disruptions related to the COVID-19 pandemic. Additionally, in
2019, the Company ended a previous royalty arrangement with Target related to the Genuine Kids by OshKosh
brand. The Company now sells the OshKosh brand to Target directly under a wholesale business model.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Consolidated SG&A expenses decreased $34.9 million, or 3.1%, to $1.11 billion in fiscal 2020 and increased as a
percentage of consolidated net sales by approximately 420 bps to 36.6% in fiscal 2020. This increase as a
percentage of consolidated net sales was primarily driven by lower net sales as a result of business disruptions
related to the COVID-19 pandemic, increased eCommerce distribution and fulfillment costs due to an increase in
eCommerce demand, deleverage of retail store expenses, incremental COVID-19 related charges, organizational
restructuring charges, impairment charges on operating lease assets, and increased bad debt expense, all partially
offset by decreased marketing costs and other reductions in spending.
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GOODWILL IMPAIRMENT
During the first quarter of fiscal 2020, the Company’s market capitalization declined, and actual and projected
sales and profitability decreased as a result of disruptions related to COVID-19. Based on these events, we
concluded that a triggering event occurred, and we performed an interim quantitative impairment test as of
March 28, 2020. Based upon the results of the impairment test, we recognized a goodwill impairment charge of
$17.7 million during the first quarter of fiscal 2020 which was recorded to the Other International reporting unit
in the International segment.
INTANGIBLE ASSET IMPAIRMENT
In the first quarter of fiscal 2020, the Company recorded non-cash impairment charges of $15.5 million and
$11.0 million related to its OshKosh and Skip Hop tradename assets that were recorded in connection with the
acquisition of OshKosh B’Gosh, Inc. in July 2005 and Skip Hop Holdings, Inc. in February 2017,
respectively. The impairment reflected lower-than-expected actual sales, and lower projected sales and
profitability due to decreased demand as a result of disruptions related to COVID-19.
During the third quarter of fiscal 2019, the Company recorded a non-cash impairment charge of $30.8 million
related to its Skip Hop tradename asset that was recorded in connection with the acquisition of Skip Hop
Holdings, Inc. in February 2017.
OPERATING INCOME
Consolidated operating income decreased $182.0 million, or 48.9%, to $189.9 million in fiscal 2020 and
decreased as a percentage of net sales by approximately 430 bps to 6.3% in fiscal 2020, primarily due to the
factors discussed above.
INTEREST EXPENSE
Interest expense increased $18.4 million, or 49.0%, to $56.1 million in fiscal 2020. Weighted-average
borrowings for fiscal 2020 were $1.03 billion at an effective interest rate of 5.39%, compared to weighted-
average borrowings for fiscal 2019 of $662.2 million at an effective interest rate of 5.47%.
The increase in weighted-average borrowings during fiscal 2020 was attributable to the issuance of $500 million
in principal amount of senior notes in May 2020, and to temporarily increased borrowings under our secured
revolving credit facility. The decrease in the effective interest rate for fiscal 2020 compared to fiscal 2019 was
primarily due to lower London Interbank Offered Rate (“LIBOR”) for the outstanding borrowings on our
variable-rate secured revolving credit facility during the fiscal 2020 period.
LOSS ON EXTINGUISHMENT OF DEBT
During the first quarter of fiscal 2019, loss on extinguishment of debt was $7.8 million due to the early
extinguishment of our $400 million in aggregate principal amount of 5.25% senior notes due in 2021.
Concurrently, we issued $500 million in aggregate principal amount of 5.625% senior notes due in 2027.
INCOME TAXES
Our consolidated income taxes decreased $38.9 million, or 60.6%, to $25.3 million in fiscal 2020 and the
effective tax rate decreased approximately 90 bps to 18.7% in fiscal 2020 from 19.6% in fiscal 2019. The lower
effective tax rate in 2020 primarily reflects a greater portion of our income earned in jurisdictions with a tax rate
lower than the U.S. tax rate partially offset by the impact of goodwill impairments in the first quarter of fiscal
2020 with no corresponding tax benefit.
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NET INCOME
Our consolidated net income decreased $154.1 million, or 58.4%, to $109.7 million in fiscal 2020. This decrease
was due to the factors previously discussed.
RESULTS BY SEGMENT—FISCAL YEAR 2020 (53 WEEKS) COMPARED TO FISCAL YEAR 2019
(52 WEEKS)
The following table summarizes net sales and operating income, by segment, for the fiscal years ended
January 2, 2021 and December 28, 2019:
Fiscal year ended
January 2, 2021
(53 weeks)
% of
consolidated
net sales
December 28, 2019
(52 weeks)
% of
consolidated
net sales
$ Change % Change
(dollars in thousands)
Net sales:
U.S. Retail . . . . . . . . . . . .
U.S. Wholesale . . . . . . . .
. . . . . . . . . .
International
$1,671,644
996,088
356,602
55.3%
32.9%
11.8%
$1,884,150
1,205,646
429,490
53.5% $(212,506)
(209,558)
34.3%
(72,888)
12.2%
(11.3)%
(17.4)%
(17.0)%
Consolidated net
sales . . . . . . . . . . . . .
$3,024,334
100.0%
$3,519,286
100.0% $(494,952)
(14.1)%
% of
segment net
sales
% of
segment net
sales
Operating income (loss):
U.S. Retail . . . . . . . . . . . .
U.S. Wholesale . . . . . . . .
International
. . . . . . . . . .
Unallocated corporate
expenses . . . . . . . . . . .
Consolidated operating
income . . . . . . . . . . .
$ 146,806
141,456
(1,224)
8.8%
14.2%
(0.3)%
$ 225,874
212,558
36,650
12.0% $ (79,068)
(71,102)
17.6%
(37,874)
8.5%
(35.0)%
(33.5)%
(103.3)%
(97,169)
n/a
(103,210)
n/a
6,041
5.9%
$ 189,869
6.3%
$ 371,872
10.6% $(182,003)
(48.9)%
COMPARABLE SALES METRICS
As a result of the temporary store closures in fiscal 2020 in response to COVID-19, we have not included a
discussion of the fiscal 2020 retail comparable sales as we do not believe it is a meaningful metric during the
period.
U.S. RETAIL
U.S. Retail segment net sales decreased $212.5 million, or 11.3%, to $1.67 billion in fiscal 2020. The decrease in
net sales was primarily driven by temporary store closures and decreased retail store traffic in response to the
COVID-19 pandemic, partially offset by an increase in eCommerce sales. The 53rd week in fiscal 2020
contributed approximately $18.2 million in additional sales to the U.S. Retail segment.
As of January 2, 2021, we operated 864 retail stores in the U.S. compared to 862 (excluding five temporary Skip
Hop stores) in fiscal 2019. All stores were open as of January 2, 2021.
U.S. Retail segment operating income decreased $79.1 million, or 35.0%, to $146.8 million in fiscal 2020.
Operating income in fiscal 2020 included intangible asset impairment charges of $13.6 million and $0.5 million
related to the OshKosh and Skip Hop tradenames, respectively. Operating income in fiscal 2019 included an
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intangible asset impairment charge of $1.2 million related to the Skip Hop tradename. Operating margin
decreased 320 bps to 8.8% in fiscal 2020. The primary drivers of the decrease in operating margin were a
190 bps increase in gross margin, a 20 bps decrease in royalty income, a 420 bps increase in SG&A rate (SG&A
as a percentage of net sales), and the incremental intangible asset impairment charges. The increase in gross
margin was primarily due to an increase in eCommerce average selling prices, as a result of decreased
promotions, and decreased product costs, partially offset by the recognition of adverse inventory and fabric
purchase commitments from disruptions related to the COVID-19 pandemic and increased inventory related
handling costs. The decrease in royalty income was primarily due to decreased licensee sales volumes due to
business disruptions related to the COVID-19 pandemic. The increase in the SG&A rate was primarily due to
increased eCommerce distribution and fulfillment costs due to an increase in eCommerce demand, incremental
COVID-19 related charges, deleverage of retail store expenses due to store closures and reduced store traffic,
impairment charges on operating lease assets, investments in the U.S. Retail business and technology initiatives,
and organizational restructuring charges, partially offset by decreased marketing costs and other reductions in
spending.
U.S. WHOLESALE
U.S. Wholesale segment net sales decreased $209.6 million, or 17.4%, to $996.1 million in fiscal 2020, primarily
due to decreased sales to certain of our wholesale customers as a result of disruptions related to COVID-19,
partially offset by an increase in net sales in our exclusive Carter’s brands and an increase in average selling
price per unit. The 53rd week in fiscal 2020 contributed approximately $10.6 million in additional sales to the
U.S. Wholesale segment.
U.S. Wholesale segment operating income decreased $71.1 million, or 33.5%, to $141.5 million in fiscal 2020.
Operating income in fiscal 2020 included intangible asset impairment charges of $6.8 million and $1.6 million
related to the Skip Hop and OshKosh tradenames, respectively. Operating income in fiscal 2019 included an
intangible asset impairment charge of $19.1 million related to the Skip Hop tradename. Operating margin
decreased 340 bps to 14.2% in fiscal 2020. The primary drivers of the decrease in operating margin were a 210
bps decrease in gross margin, a 20 bps decrease in royalty income, a 190 bps increase in SG&A rate, and
decreased intangible asset impairment charges. The decrease in gross margin was primarily due to the
recognition of adverse inventory and fabric purchase commitments from disruptions related to the COVID-19
pandemic, increased excess inventory provisions, and unfavorable customer mix, partially offset by an increase
in average selling price per unit and decreased product costs. The decrease in royalty income was primarily a
result of our customers’ business disruptions and temporary store closures related to COVID-19 and the initiation
of wholesale sales of the OshKosh brand at Target, which replaced a former royalty business model. The increase
in the SG&A rate was primarily due to decreased sales due to customers’ business disruptions and temporary
store closures as a result of the COVID-19 pandemic, incremental COVID-19 related charges, and increased bad
debt expense, partially offset by decreased selling expenses as a result of fewer units sold and other reductions in
spending.
INTERNATIONAL
International segment net sales decreased $72.9 million, or 17.0%, to $356.6 million in fiscal 2020. Changes in
foreign currency exchange rates, primarily between the U.S. dollar and the Mexican peso and between the U.S.
dollar and the Canadian dollar, had a $4.7 million unfavorable effect on International segment net sales in fiscal
2020. The decrease in net sales is primarily due to a decrease in retail store sales in Canada and Mexico driven by
temporary store closures in response to COVID-19 and decreased wholesale shipments to our international
partners as a result of COVID-19, partially offset by growth in Canadian eCommerce and the addition of our
Mexico eCommerce business in late fiscal 2019. The 53rd week in fiscal 2020 contributed approximately
$3.3 million in additional sales to the International segment.
As of January 2, 2021, we operated 193 retail stores in Canada, of which 60 were open, compared to 201 in fiscal
2019. The Company expects to reopen most of the closed stores in Canada in the middle of the first quarter of
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fiscal 2021. As of January 2, 2021, we operated 44 retail stores in Mexico, of which 16 were open, compared to
46 in fiscal 2019.
International segment operating income decreased $37.9 million, or 103.3%, to a $1.2 million operating loss in
fiscal 2020. Operating loss in fiscal 2020 included a $17.7 million goodwill impairment charge recorded to the
Other International reporting unit, a $3.7 million intangible asset impairment charge related to the Skip Hop
tradename, and a $0.3 million intangible asset impairment charge related to the OshKosh tradename. Operating
income in fiscal 2019 included an intangible asset impairment charge of $10.5 million related to the Skip Hop
tradename.
Operating margin decreased 880 bps to (0.3)% in fiscal 2020. The decrease in the operating margin was primarily
attributable to the goodwill impairment charge partially offset by decreased intangible asset impairment charges,
a 160 bps decrease in gross margin, and a 400 bps increase in the SG&A rate. The decrease in gross margin was
primarily due to the recognition of adverse inventory and fabric purchase commitments from disruptions related
to the COVID-19 pandemic and increased excess inventory provisions, increased inbound transportation costs,
and product mix, partially offset by an increase in eCommerce average selling prices and decreased product
costs. The increase in the SG&A rate was primarily due to a deleverage of retail stores and distribution expenses
as a result of temporary store closures and reduced store traffic, incremental COVID-19 related charges,
increased eCommerce distribution and fulfillment costs due to an increase in eCommerce demand, and increased
bad debt expense, partially offset by decreased marketing costs and other reductions in spending.
UNALLOCATED CORPORATE EXPENSES
Unallocated corporate expenses decreased $6.0 million, or 5.9%, to $97.2 million in fiscal 2020. Unallocated
corporate expenses, as a percentage of consolidated net sales, decreased 30 bps to 3.2% in fiscal 2020. The
decrease as a percentage of consolidated net sales was a result of spending reductions, including decreased stock-
based compensation expense, partially offset by increased organizational restructuring costs.
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 be cash and cash equivalents on hand along with available borrowing capacity under our
secured revolving credit facility. In May 2020, through our wholly-owned subsidiary TWCC, we issued
$500 million principal amount of senior notes at par. During the second quarter of fiscal 2020, net proceeds from
this issuance, along with cash on hand, were used to pay down $500 million of then outstanding borrowings
under our secured revolving credit facility that was drawn down in March 2020 to improve liquidity. During the
third quarter of fiscal 2020, we repaid the remainder of our borrowings under our secured revolving credit facility
with cash on hand. Our cash on hand increased by approximately $888.0 million as of January 2, 2021, compared
to December 28, 2019.
We further believe that cash on hand, cash flow from operations, access to additional capital and increased
flexibility under financial maintenance covenants, along with reductions in costs, and suspension of our share
repurchase program and quarterly cash dividend, will allow us to manage the continuing adverse impact of
COVID-19 on our business operations for the foreseeable future. Looking ahead, we have developed contingency
plans to reduce costs further if our financial condition deteriorates. We will continue to evaluate our financial
position in light of future developments, particularly those relating to COVID-19. We believe that our sources of
liquidity will fund our projected requirements for at least the next twelve months. These sources of liquidity may
be affected by events described in our risk factors, as discussed under the heading “Risk Factors” in Part I, Item
1A of this Annual Report on Form 10-K.
As of January 2, 2021, we had approximately $1.10 billion of cash and cash equivalents held at major financial
institutions, including approximately $85.8 million held at financial institutions located outside of the United
States. We maintain cash deposits with major financial institutions that exceed the insurance coverage limits
36
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 as having acceptable
risk profiles.
BALANCE SHEET
Net accounts receivable at January 2, 2021 were $186.5 million compared to $251.0 million at December 28,
2019. The decrease of $64.5 million, or 25.7%, as compared to December 28, 2019, was primarily a result of
reduced customer demand and an increase in our bad debt reserves as a result of COVID-19, offset in part by
timing of cash receipts.
Inventories at January 2, 2021 were $599.3 million compared to $594.0 million at December 28, 2019. The
increase of $5.3 million, or 0.9%, compared to December 28, 2019, was primarily a result of reduced customer
demand and temporary retail store closures in Canada and Mexico at the end of fiscal 2020, partially offset by
higher excess inventory provisions from disruptions related to COVID-19.
CASH FLOW
Net Cash Provided by Operating Activities
Net cash provided by operating activities for fiscal 2020 was $589.9 million, compared to $387.2 million in fiscal
2019. Our cash flow provided by operating activities is dependent on net income and changes in our working
capital. The increase in net cash provided by operating activities was primarily due to an extension of payment
terms and deferrals of retail store lease payments, partially offset by lower earnings related to COVID-19.
Operating cash flow is expected to be unfavorably impacted in fiscal 2021 due to a decrease in payment terms to
certain of our vendors and due to the payment of deferred retail store rents from fiscal 2020.
Net Cash Used in Investing Activities
Net cash used in investing activities was $32.9 million in fiscal 2020, compared to $60.7 million in fiscal 2019.
This decrease in net cash used in investing activities for fiscal 2020 is primarily due to a decrease in capital
expenditures in response to COVID-19. Capital expenditures in fiscal 2020 primarily included $10.6 million for
our U.S. and international retail store openings and remodelings, $12.4 million for information technology
initiatives, and $8.3 million for our distribution facilities.
We plan to invest approximately $50 million in capital expenditures in fiscal 2021, which primarily relates to
critical information technology initiatives, U.S. and international retail store renovations and remodels,
investments to strengthen our omni-channel capabilities, and distribution facility initiatives.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was $324.8 million in fiscal 2020, compared to net cash used of
$283.4 million in fiscal 2019. This increase in net cash provided by financing activities in fiscal 2020 was
primarily due to an issuance of $500 million in principal amount of senior notes in May 2020 to improve our
cash position in light of the uncertainty and disruption related to COVID-19, decreased repurchases of common
stock, and decreased dividend payments, partially offset by the repayment of the remainder of our borrowings
under our secured revolving credit facility with cash on hand.
SECURED REVOLVING CREDIT FACILITY
To improve our cash position in light of the uncertainty and disruption related to COVID-19, we drew
$639.0 million under our secured revolving credit facility in the month of March 2020, and in May 2020 repaid
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$500 million of the outstanding borrowings with the net proceeds of a new $500 million senior notes offering, as
discussed below, and cash on hand. During the third quarter of fiscal 2020, we repaid the remainder of our
outstanding borrowings under our secured revolving credit facility with cash on hand. As of January 2, 2021, we
had no outstanding borrowings under our secured revolving credit facility, exclusive of $5.0 million of
outstanding letters of credit. As of December 28, 2019, we had $100.0 million in outstanding borrowings under
our secured revolving credit facility, exclusive of $5.0 million of outstanding letters of credit. As of January 2,
2021 and December 28, 2019, there was approximately $745.0 million and $645.0 million available for future
borrowing, respectively. All outstanding borrowings under our secured revolving credit facility are classified as
non-current liabilities on our consolidated balance sheets due to 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.
TERMS OF THE 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, which provided for, among other things:
• An extension of the term of the facility to August 25, 2022.
• 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 amendment provided 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.
• 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.
• 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”)) and 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)) covenants, which were amended by
Amendment No.2 (as defined and described below).
• 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.
Under the fourth amended and restated 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.
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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.
On May 4, 2020, TWCC entered into Amendment No.2 to its fourth amended and restated credit agreement
(“Amendment No. 2”). Amendment No. 2 provided for, among other things, access to additional capital and
increased flexibility under financial maintenance covenants, which the Company sought in part due to the
unforeseen negative effects of the COVID-19 pandemic.
In particular, Amendment No. 2 provided that the Company may issue additional debt securities in an aggregate
principal amount of up to $500 million on or prior to the last day of fiscal 2020 (the “Post-Amendment Debt
Issuance”), and must use half of the net cash proceeds from the Post-Amendment Debt Issuance to repay
outstanding borrowings under the Secured Revolving Credit Facility (or, if such outstanding borrowings do not
exceed an amount equal to half of such net cash proceeds, the amount necessary to repay the borrowings in full).
The aggregate gross principal amount outstanding of any Post-Amendment Debt issuance will not count as
Consolidated Indebtedness for purposes of leverage determinations under the Secured Revolving Credit
Agreement to the extent that the Company’s and certain other subsidiaries’ on-hand cash and cash equivalents is
at least equal to the aggregate principal gross amount outstanding of that issuance. On May 11, 2020, TWCC
issued $500 million principal amount of senior notes at par, bearing interest at a rate of 5.500% per annum, and
maturing on May 15, 2025, as more fully described below.
Additionally, Amendment No.2 provided that:
• The Lease Adjusted Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio covenants
were waived during the period from and including the second fiscal quarter of 2020 through and
including the fourth fiscal quarter of 2020, and thereafter,
•
•
the Lease Adjusted Leverage Ratio was set at 5.50:1.00 for the first fiscal quarter of 2021 and,
during the remainder of 2021, gradually steps down to 4.00:1.00 for the fourth fiscal quarter of
2021 and, subject to the consummation of a Material Acquisition (as defined in Amendment
No.2), thereafter.
the Consolidated Fixed Charge Coverage Ratio was set at 1.25:1.00 for the first fiscal quarter of
2021 and, during the remainder of 2021 and, gradually steps back up to 1.85:1.00 for the fourth
fiscal quarter of 2021 and, subject to the consummation of a Material Acquisition, thereafter.
• During the period from May 4, 2020 through the date the Company delivers its financial statements and
associated certificates relating to the third fiscal quarter of 2021 (the “Restricted Period”), the
Company must maintain a minimum liquidity (defined as cash-on-hand plus availability under its
secured revolving credit facility) on the last day of each fiscal month of at least $700 million.
• During the Restricted Period, the Company must demonstrate a business need for revolving borrowings
if it maintains more than $700 million of cash on-hand at the time of the draw, subject to certain
exceptions.
• During Restricted Period, the availability of certain exceptions to the lien, investment, indebtedness,
and restricted payment negative covenants (including those related to dividend payments and share
repurchases) are limited or removed, and any incremental credit extensions and the possibility of
collateral and covenant release periods are suspended.
• During the Restricted Period, interest rate margins applicable to the secured revolving credit facility
were initially 2.125% for LIBOR rate loans (which may be adjusted based on a leverage-based pricing
grid ranging from 1.125% to 2.375%) and 1.125% for base rate loans (which may be adjusted based on
a leverage-based pricing grid ranging from 0.125% to 1.375%). Amendment No. 2 also provided for a
commitment fee initially equal to 0.35% per annum, and ranging thereafter from 0.15% per annum to
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0.40% per annum based upon a leverage-based pricing grid, which is payable quarterly in arrears with
respect to the average daily unused portion of the revolving loan commitments.
Approximately $1.2 million, including both bank fees and other third-party expenses, has been capitalized in
connection with Amendment No. 2 and is being amortized over the remaining term of the secured revolving
credit facility.
Weighted-average borrowings for fiscal 2020 were $212.2 million compared to weighted-average borrowings for
fiscal 2019 of $182.5 million. The increase in weighted-average borrowings for fiscal 2020 was primarily due to
increased borrowings in the first half of fiscal 2020 to improve our cash position in light of the uncertainty and
disruption related to COVID-19.
As of January 2, 2021, the interest rate margins applicable to the amended revolving credit facility were 1.625%
for LIBOR rate and 0.625% for base rate loans. There were no U.S. dollar borrowings or foreign currency
borrowings outstanding on January 2, 2021. As of December 28, 2019, 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 3.42%. The effective interest rate for fiscal 2020 was 2.84% compared
to an effective interest rate of 3.76% for fiscal 2019.
As of January 2, 2021, we were in compliance with our financial and other covenants under our secured
revolving credit facility.
SENIOR NOTES
As of January 2, 2021, we had $500.0 million principal amount of senior notes outstanding, bearing interest at a
rate of 5.500% per annum, and maturing on May 15, 2025, and $500.0 million principal amount of senior notes
outstanding, bearing interest at a rate of 5.625% per annum, and maturing on March 15, 2027. On our
consolidated balance sheet, the $1.00 billion of outstanding senior notes as of January 2, 2021 is reported net
of $10.5 million of unamortized issuance-related debt costs, and the $500.0 million of outstanding senior notes as
of December 28, 2019 is reported net of $5.3 million of unamortized issuance-related debt costs.
The senior notes mentioned above 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.
The indentures governing the senior notes provides that 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, plus accrued and unpaid interest to (but excluding) the date of purchase.
The indentures 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 certain
types of indebtedness that is secured by a lien; (b) enter into certain sale and leaseback transactions; and
(c) consolidate or merge with or into, or sell substantially all of the issuer’s assets to, another person, under
certain circumstances. 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 25.0% 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.
2020 Issuance of Senior Notes
On May 11, 2020, we issued through TWCC $500 million principal amount of senior notes at par, bearing
interest at a rate of 5.500% per annum, and maturing on May 15, 2025, all of which were outstanding as of
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January 2, 2021. We received net proceeds from the offering of the senior notes of approximately $494.5 million,
after deducting underwriting fees, which we used to repay borrowings outstanding under our secured revolving
credit facility. Approximately $6.5 million, including both bank fees and other third party expenses, has been
capitalized in connection with the issuance and is being amortized over the term of the senior notes.
2019 Redemption and Issuance of Senior Notes
On March 14, 2019, we redeemed $400.0 million principal amount of senior notes, bearing interest at a rate of
5.25% per annum, and maturing on August 15, 2021, pursuant to the optional redemption provisions of the notes,
which required that we pay the outstanding principal plus accrued interest and an early redemption premium of
1.31% of the outstanding principal amounts of the senior notes. This debt redemption resulted in a loss on
extinguishment of debt of $7.8 million, consisting of $5.2 million of early redemption premiums and $2.6 million
of unamortized debt issuance costs.
Concurrently, we issued through TWCC $500.0 million principal amount of senior notes at par, bearing interest
at a rate of 5.625% per annum, and maturing on March 15, 2027. We received net proceeds from the offering of
the senior notes of approximately $494.8 million, after deducting underwriting fees and other expenses, which
we used to redeem the senior notes discussed above and repay borrowings outstanding under our secured
revolving credit facility. Approximately $5.8 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.
Organizational Restructuring and Office Consolidation
During the first and fourth quarters of fiscal 2020, we announced several organizational restructuring initiatives
which included a reorganization of staffing models across multiple functions to drive labor savings and increase
efficiencies, the consolidation of certain functions into our corporate headquarters in Atlanta, Georgia, and over
100 planned store closures by the end of fiscal 2021. In conjunction with these initiatives, we incurred
restructuring-related charges of approximately $16.6 million for fiscal 2020. The Company paid approximately
$4.3 million in severance and other termination benefits during fiscal 2020. As of January 2, 2021, we had
approximately $7.7 million in reserves primarily related to severance and other termination benefits expected to
be paid in fiscal 2021. We expect to incur additional restructuring-related charges of approximately $2.0 million
to $3.0 million through fiscal 2021. These charges primarily relate to accelerated depreciation and severance.
SHARE REPURCHASES
On February 13, 2020, our Board of Directors authorized an additional $500 million of share repurchases, for
total authorizations, inclusive of authorizations prior to 2019, of up to $1.96 billion.
Open-market repurchases of our common stock during fiscal years 2020 and 2019 were as follows:
For the fiscal year ended
January 2,
2021
December 28,
2019
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate cost of shares repurchased (dollars in thousands) . . . . . . . . . . . .
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
474,684
$ 45,255
95.34
$
2,107,472
$ 196,910
93.43
$
The total remaining capacity under outstanding repurchase authorizations as of January 2, 2021 was
approximately $650.4 million, based on settled repurchase transactions. The share repurchase authorizations have
no expiration dates.
On March 26, 2020, we announced that, in connection with the COVID-19 pandemic, we suspended our common
stock share repurchase program. While we may elect to resume purchases at any time, the timing and amount of
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any future repurchases will be determined by the Company based on a number of factors, including restrictions
under our revolving credit facility, on our evaluation of market conditions, share price, and other investment
priorities.
DIVIDENDS
We paid a cash dividend of $0.60 per share in the first quarter of fiscal 2020. On May 1, 2020, in connection with
the COVID-19 pandemic, we suspended our quarterly cash dividend. The Board of Directors will evaluate future
dividend declarations based on a number of factors, including restrictions under our revolving credit facility,
business conditions, our financial performance, and other considerations. We paid a quarterly cash dividend of
$0.50 per share in each quarter of fiscal 2019. The dividends were paid during the fiscal quarter in which they
were declared.
Provisions in our secured revolving credit facility have the effect of restricting our ability to pay cash dividends
on, or make future repurchases of, our common stock through the date we deliver our financial statements and
associated certificates relating to the third fiscal quarter of 2021, and could have the effect of restricting our
ability to do so thereafter, as described in Item 8 “Financial Statements and Supplementary Data” under Note 8,
Long-Term Debt, to the consolidated financial statements.
COMMITMENTS
The following table summarizes as of January 2, 2021, the maturity or expiration dates of mandatory contractual
obligations and commitments for the following fiscal years:
(dollars in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
. . . . . . . . . .
Long-term debt
Interest on debt(1) . . . . . . . . .
Operating leases(2) . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
$
— $
— $
— $
55,625
206,814
231
55,625
159,350
231
55,625
130,646
211
— $500,000
41,875
77,134
—
55,625
105,515
—
$500,000
42,188
129,195
—
$1,000,000
306,563
808,654
673
Total financial
obligations . . . . . . . . . . . .
Letters of credit . . . . . . . . . .
$262,670
5,018
$215,206
—
$186,482
—
$161,140
—
$619,009
—
$671,383
—
$2,115,890
5,018
Total financial obligations
and commitments (3) (4) (5) $267,688
$215,206
$186,482
$161,140
$619,009
$671,383
$2,120,908
(1) Reflects: i) a fixed interest rate of 5.500% for the senior notes due 2025, and ii) a fixed interest
rate of 5.625% for the senior notes due 2027.
(2) The minimum lease obligation includes all lease and non-lease components that were included in
the measurement of the lease liability.
(3) The table above excludes our reserves for income taxes, as we are unable to reasonably predict the
ultimate amount or timing of settlement.
(4) The table above excludes purchase obligations. Our estimate as of January 2, 2021 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.
(5) The table above excludes any potential future Company funding for obligations under our defined
benefit retirement plans. Our estimates of such obligations as of January 2, 2021 have been
determined in accordance with U.S. GAAP and are included in other current liabilities and other long-
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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.
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
and capital expenditure requirements for the foreseeable future, although no assurance can be given in this
regard.
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, we adopted the provisions of Accounting Standards Codification (“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 expected credit losses and an
allowance for chargebacks. The allowance for expected credit losses includes estimated losses resulting from the
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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
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 expected credit losses 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 $0.5 million for fiscal 2020, $3.1 million for
fiscal 2019, and $3.0 million for fiscal 2018 as a component of SG&A expenses on our 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 goods sold when the related inventory item is
sold. The Company also has minimum inventory purchase commitments, including fabric commitments, with our
suppliers which secure a portion of our raw material needs for future seasons. In the event anticipated market
sales prices are lower than these committed costs or customer orders are canceled, the Company records a reserve
for these adverse inventory and fabric purchase commitments. Increases to this reserve are reflected in Costs of
goods sold on our consolidated statement of operations. Due to the materiality of these charges in fiscal 2020,
these charges have been presented separately on our consolidated statement of operations.
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 “more likely than not” 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, we compare the fair value of a reporting unit to its carrying value,
including goodwill. We use the income approach and the market approach to determine the fair value of a
reporting unit. The assumptions used in these approaches include revenue growth and profitability, terminal
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values, discount rates, and an implied control premium. These assumptions are consistent with those we believe
hypothetical marketplace participants would use. An impairment is recorded for any excess carrying value above
the fair value of the reporting unit, not to exceed the carrying value of 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
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 revenue growth rates and selecting the appropriate
terminal value, discount rate, and royalty rate.
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.
Due to the decrease in the Company’s market capitalization, lower than expected actual sales, and lower
projected sales and profitability, primarily due to the impacts from the outbreak of COVID-19, the Company
concluded that impairment indicators existed for the first quarter of fiscal 2020. As a result, during the first
quarter of fiscal 2020, the Company conducted interim quantitative impairment assessments of 1) the goodwill
ascribed to the Other International reporting unit recorded in connection with the allocation of goodwill to the
newly created International segment as a result of the acquisition of Bonnie Togs in 2011 and 2) on the value of
the Company’s indefinite-lived OshKosh and Skip Hop tradename assets that was recorded in connection with the
acquisition of OshKosh B’Gosh Inc. in July 2005 and Skip Hop Holdings, Inc. in February 2017, respectively.
The goodwill impairment assessment for the Other International reporting unit was performed in accordance with
ASC 350, “Intangibles—Goodwill and Other” (“ASC 350”) and compares the carrying value of the Other
International reporting unit to its fair value. Consistent with prior practice, the fair value of the Other
International reporting unit was determined using the income approach and the market approach. As a result of
this assessment, a goodwill impairment charge of $17.7 million was recorded to our Other International reporting
unit in the International segment during the first quarter of fiscal 2020. The goodwill impairment charge recorded
on our Other International reporting unit included charges of $9.4 million, $5.2 million, and $3.1 million to Skip
Hop, Carter’s, and Carter’s Mexico goodwill, respectively. The carrying value of the Company’s goodwill for the
Other International reporting unit as of January 2, 2021 was $11.8 million.
The OshKosh and Skip Hop indefinite-lived tradename asset assessments were performed in accordance with
ASC 350 and were determined using a discounted cash flow analysis which examined the hypothetical cost
savings that accrue as a result of not having to license the tradename from another owner. Based on these
assessments, charges of $15.5 million and $11.0 million were recorded during the first quarter of fiscal 2020 on
our indefinite-lived OshKosh and Skip Hop tradename assets, respectively. The charge recorded on our
indefinite-lived OshKosh tradename asset included charges of $13.6 million, $1.6 million, and $0.3 million in the
U.S. Retail, U.S. Wholesale, and International segments, respectively, to reflect the impairment of the value
ascribed to the indefinite-lived OshKosh tradename asset. The charge recorded on our indefinite-lived Skip Hop
tradename asset included charges of $6.8 million, $3.7 million, and $0.5 million in the U.S. Wholesale,
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset. The carrying values of the Company’s indefinite-lived OshKosh and
Skip Hop tradename assets as of January 2, 2021 were $70.0 million and $15.0 million, respectively.
In the third quarter of fiscal 2019, the Company’s Skip Hop business experienced lower than expected actual and
projected sales and profitability due to lower domestic demand, including the loss of a significant customer that
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declared bankruptcy (Toys “R” Us), lower international demand and higher product costs primarily driven by
tariffs imposed on products sourced from China. As a result, the Company conducted an interim impairment
assessment in the third quarter of fiscal 2019 on the value of the Company’s indefinite-lived Skip Hop tradename
asset that was recorded in connection with the acquisition of Skip Hop Holdings, Inc. in February 2017. The
indefinite-lived tradename asset assessment was performed in accordance with ASC 350, “Intangibles—Goodwill
and Other” and was determined using a discounted cash flow analysis which examined the hypothetical cost
savings that accrue as a result of our ownership of the tradename. Based on this assessment, a charge of
$30.8 million was recorded during the third quarter of fiscal 2019 on our indefinite-lived Skip Hop tradename
asset. The charge included charges of $19.1 million, $10.5 million, and $1.2 million in the U.S. Wholesale,
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset.
Based upon our most recent annual assessment, performed as of January 2, 2021, there were no further
impairments in the values of goodwill or indefinite-lived or definite-lived intangible assets. This annual
assessment indicated that each reporting unit’s fair value exceeded its carrying value by at least 53%. The annual
assessment also indicated that the OshKosh and Skip Hop indefinite-lived tradename assets’ fair value exceeded
its carrying value by approximately 10% and 40%, respectively. Sensitivity tests on the OshKosh indefinite-lived
tradename asset showed that a 100 basis point increase in the discount rate, a 10% decrease in forecasted
revenues, or a 25 basis point decrease in the royalty rate was needed to change the conclusion. Although the
Company determined that no further impairment exists for the Company’s goodwill or indefinite-lived or
definite-lived intangible assets, these assets could be at risk for impairment should global economic conditions
continue to deteriorate as a result of COVID-19.
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 advisers 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 related to
unrecognized tax benefits is recognized as a component of interest expense and associated penalties related to
unrecognized tax benefits are recognized as a component of income tax expense.
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We also assess permanent and temporary differences resulting from differing basis 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 Other expense (income), net 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 Other expense
(income), net 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. Historically, these contracts have not been designated for hedge accounting
treatment, and therefore changes in the fair value of these contracts were 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
January 2, 2021, 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 deferred gains and losses in
Accumulated other comprehensive income (loss) within stockholder’s equity. Deferred 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 2020, compared to fiscal 2019, negatively affected our International segment’s net sales
by approximately $4.7 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 intercompany loans with foreign subsidiaries that are marked to market. In our consolidated statement of
operations, these gains and losses are recorded within Other expense (income), net. Foreign currency transaction
gains and losses related to intercompany loans with foreign subsidiaries that are of a long-term nature are
accounted for as translation adjustments and are included in Accumulated other comprehensive income (loss).
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 may use 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
January 2, 2021 were $212.2 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 2020 by approximately $2.1 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 January 2, 2021 and December 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
51
55
Consolidated Statements of Operations for the fiscal years ended January 2, 2021, December 28, 2019,
and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2021,
December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019,
and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended January 2, 2021,
December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
60
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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 January 2, 2021 and December 28, 2019, and the related consolidated statements of
operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three
years in the period ended January 2, 2021, 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 January 2, 2021, 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 January 2, 2021 and December 28, 2019, and the results of its operations
and its cash flows for each of the three years in the period ended January 2, 2021 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 January 2, 2021, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it
accounts for leases in 2019.
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.
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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
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements
and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Indefinite-Lived Tradename Impairment Assessment for Skip Hop and OshKosh
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated indefinite-
lived tradename balance was $305.2 million as of January 2, 2021, which includes the OshKosh tradename of
$70.0 million and the Skip Hop tradename of $15.0 million. Management performs a review for potential
impairment annually as of the last day of each fiscal year or whenever significant events or changes in
circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying amount
exceeds the fair value of the tradename, an impairment charge is recognized in the amount of the excess. Due to
the decrease in the Company’s market capitalization, lower than expected actual sales, and lower projected sales
and profitability primarily due to the impacts from the outbreak of COVID-19, management concluded that
impairment indicators existed for the first quarter of fiscal 2020. As a result, during the first quarter of fiscal
2020, management conducted an interim quantitative impairment assessment which indicated an impairment
charge of $15.5 million and $11.0 million related to the OshKosh and Skip Hop tradename assets, respectively.
Management determines fair value of the tradename using a discounted cash flow model that uses the relief-
from-royalty method. Significant assumptions in the impairment model includes estimates of revenue growth
rates, terminal value, discount rate, and royalty rate.
The principal considerations for our determination that performing procedures relating to the indefinite-lived
tradename impairment assessment for OshKosh and Skip Hop is a critical audit matter are (i) the significant
judgment by management when determining the fair value of the tradenames; (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating management’s significant
assumptions related to estimates of revenue growth rates, terminal values, discount rates, and royalty rates; and
(iii) the audit effort involved the use of professionals with specialized skill and knowledge.
52
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness
of controls relating to management’s indefinite- lived tradename impairment assessments, including controls
over the valuation of the Company’s Skip Hop and OshKosh indefinite-lived tradenames. These procedures also
included, among others, (i) testing management’s process for determining the fair value estimate of the Skip Hop
and OshKosh tradenames, (ii) evaluating the appropriateness of the relief-from-royalty method, (iii) testing the
completeness and accuracy of underlying data used in the estimate, and (iv) evaluating the significant
assumptions used by management related to revenue growth rates, terminal values, discount rates, and royalty
rates. Evaluating management’s assumptions related to revenue growth rates involved evaluating whether the
assumptions used by management were reasonable considering (i) the current and past performance of the
tradename, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were
consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge
were used to assist in the evaluation of the Company’s relief-from-royalty method, terminal value, the discount
rate, and royalty rate assumptions.
Goodwill Impairment Assessment for Other International Reporting Unit
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated goodwill
balance was $211.8 million as of January 2, 2021, and the goodwill associated with the Other International
reporting unit was $11.5 million. Management performs a review for potential impairment annually as of the last
day of each fiscal year or whenever significant events or changes in circumstances indicate that the carrying
value of the assets may not be recoverable. If the carrying amount exceeds the fair value of the reporting unit, an
impairment charge is recognized in the amount of the excess. Due to the decrease in the Company’s market
capitalization, lower than expected actual sales, and lower projected sales and profitability primarily due to the
impacts from the outbreak of a COVID-19, management concluded that impairment indicators existed for the
first quarter of fiscal 2020. As a result, during the first quarter of fiscal 2020, management conducted an interim
quantitative impairment assessment which indicated a goodwill impairment charge of the Other International
reporting unit of $17.7 million. Management determines fair value of the reporting unit using a discounted cash
flows (“income approach”) and relevant data from guideline public companies (“market approach”). Significant
assumptions in the income approach includes estimates of revenue growth and profitability, terminal value,
discount rate, and an implied control premium.
The principal considerations for our determination that performing procedures relating to the goodwill
impairment assessment for the Other International reporting unit are (i) the significant judgment by management
when determining the fair value measurement of the reporting unit; (ii) a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to
estimates of revenue growth and profitability, terminal value, discount rate, and implied control premium; and
(iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming
our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness
of controls relating to management’s goodwill impairment assessment, including controls over the valuation of
the Company’s Other International reporting unit. These procedures also included, among others, (i) testing
management’s process for determining the fair value estimate of the Other International reporting unit,
(ii) evaluating the appropriateness of the income and market approaches, (iii) testing the completeness and
accuracy of underlying data used in the estimate, and (iv) evaluating the reasonableness of significant
assumptions related to revenue growth and profitability, terminal value, discount rate and implied control
premium. Evaluating management’s assumptions related to revenue growth and profitability involved evaluating
whether the assumptions used by management were reasonable considering (i) the current and past performance
of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these
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assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized
skill and knowledge were used to assist in the evaluation of the Company’s income and market approaches and
the terminal value, discount rate, and implied control premium assumptions.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 26, 2021
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.
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CARTER’S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
January 2,
2021
December 28,
2019
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for credit losses of $5,940 and $6,354,
$1,102,323
$ 214,311
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186,512
251,005
Finished goods inventories, net of inventory reserves of $14,206 and $9,283,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradenames, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
599,262
57,927
1,946,024
262,345
593,008
307,893
211,776
37,510
34,024
593,987
48,454
1,107,757
320,168
687,024
334,642
229,026
41,126
33,374
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,392,580
$2,753,117
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 472,140
185,152
135,240
$ 183,641
160,228
131,631
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
792,532
989,530
52,770
554,497
65,218
475,500
594,672
74,370
664,372
64,073
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,454,547
$1,872,987
Commitments and contingencies—Note 18
Stockholders’ equity:
Preferred stock; par value $0.01 per share; 100,000 shares authorized; none issued or
outstanding at January 2, 2021 and December 28, 2019 . . . . . . . . . . . . . . . . . . . . . .
Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized;
43,780,075 and 43,963,103 shares issued and outstanding at January 2, 2021 and
December 28, 2019, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
—
438
17,752
(32,760)
952,603
440
—
(35,634)
915,324
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
938,033
880,130
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,392,580
$2,753,117
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)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adverse purchase commitments (inventory and raw materials),
net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairment
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . .
Dividend declared and paid per common share . . . . . . . . . . . . . .
For the fiscal year ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
$
3,024,334
1,696,224
$
3,519,286
2,008,630
$
3,462,269
1,962,113
14,668
1,313,442
26,276
1,105,607
17,742
26,500
2,106
1,508,550
34,637
1,140,515
—
30,800
189,869
56,062
(1,515)
338
—
134,984
25,267
109,717
2.51
2.50
0.60
$
$
$
$
371,872
37,617
(1,303)
(217)
7,823
327,952
64,150
263,802
5.89
5.85
2.00
$
$
$
$
2,673
1,497,483
38,930
1,144,980
—
—
391,433
34,569
(527)
1,416
—
355,975
73,907
282,068
6.06
6.00
1.80
$
$
$
$
See accompanying notes to the consolidated financial statements.
56
CARTER’S, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized (loss) gain on OshKosh defined benefit plan, net of tax
benefit or (tax expense) of $680, $(230), and $80 for the fiscal
years 2020, 2019, and 2018, respectively . . . . . . . . . . . . . . . . . . .
Unrealized (loss) gain on Carter’s post-retirement benefit
obligation, net of tax benefit or (tax expense) of $39, $150, and
$(70) for fiscal years 2020, 2019, and 2018, respectively . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . .
For the fiscal year ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
$
109,717
$
263,802
$
282,068
(2,197)
746
(281)
(144)
5,215
2,874
(483)
6,442
6,705
214
(11,679)
(11,746)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
112,591
$
270,507
$
270,322
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57
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 or property, plant, and equipment . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for (recoveries of) excess and obsolete inventory,
net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other asset impairments and loss on disposal of property, plant
and equipment, net of recoveries . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized foreign currency exchange loss (gain), net . . . . . . . . . .
Provisions for doubtful (recoveries of) accounts receivable from
customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . .
. . .
Disposals and recoveries from property, plant, and equipment
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from senior notes due 2025 . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from senior notes due 2027 . . . . . . . . . . . . . . . . . . . . . . .
Payment of senior notes due 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums paid to extinguish debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings under secured revolving credit facility . . . . . . . . . . . .
Payments on secured revolving credit facility . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withholdings from vesting of restricted stock . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . .
Net effect of exchange rate changes on cash and cash equivalents . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . .
Cash and cash equivalents, beginning of fiscal year . . . . . . . . . . . . . .
Cash and cash equivalents, end of fiscal year . . . . . . . . . . . . . . . . . . .
For the fiscal year ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
$
109,717
$
263,802
$
282,068
90,284
3,715
4,866
17,742
26,500
12,785
2,372
12,830
361
6,072
—
(23,254)
92,207
3,747
5,791
—
30,800
452
1,437
16,529
(564)
(220)
7,823
(13,300)
85,936
3,717
(6,954)
—
—
995
1,746
14,673
271
15,801
—
(1,018)
58,275
(8,063)
(9,132)
284,824
589,894
$
8,121
(22,474)
(13,759)
6,823
387,215
$
(34,448)
(23,692)
12,121
4,982
356,198
(32,871) $
—
—
(32,871) $
(61,419) $
—
749
(60,670) $
(63,783)
96
380
(63,307)
500,000
—
—
—
(7,639)
644,000
(744,000)
(45,255)
(26,260)
(5,011)
9,008
324,843
6,146
888,012
214,311
1,102,323
$
— $
500,000
(400,000)
(5,252)
(5,793)
265,000
(361,000)
(196,910)
(89,591)
(4,328)
14,490
—
—
—
—
(968)
290,000
(315,000)
(193,028)
(83,717)
(6,830)
10,597
$ (283,384) $ (298,946)
(2,362)
(8,417)
178,494
170,077
1,073
44,234
170,077
214,311
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
58
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 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
3
10,594
(57,554)
126,638
—
(1,879,529)
—
—
(1)
1
—
(19)
—
—
(6,829)
(1)
14,673
(18,437)
—
—
—
—
—
—
—
—
10,597
(6,830)
—
—
—
—
(11,746)
—
(174,572)
(83,717)
282,068
14,673
(193,028)
(83,717)
270,322
Balance at December 29, 2018 . . . .
45,629,014
$456
$
— $(40,839)
$ 909,816
$ 869,433
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 . . . . . . . . . . .
Reclassification of tax effects(*) . . . . .
274,960
(46,429)
213,030
—
(2,107,472)
—
—
—
3
—
2
—
(21)
—
—
—
14,487
(4,328)
(2)
16,529
(26,686)
—
—
—
—
—
—
—
—
—
14,490
(4,328)
—
—
—
—
6,705
(1,500)
—
(170,203)
(89,591)
263,802
1,500
16,529
(196,910)
(89,591)
270,507
—
Balance at December 28, 2019 . . . .
43,963,103
$440
$
— $(35,634)
$ 915,324
$ 880,130
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 . . . . . . . . . . .
193,645
(47,337)
145,348
—
(474,684)
—
—
2
—
1
—
(5)
—
—
9,006
(5,011)
(1)
12,830
928
—
—
—
—
—
—
—
—
2,874
—
—
—
9,008
(5,011)
—
—
(46,178)
(26,260)
109,717
12,830
(45,255)
(26,260)
112,591
Balance at January 2, 2021 . . . . . . .
43,780,075
$438
$ 17,752
$(32,760)
$ 952,603
$ 938,033
(*) In the first quarter of fiscal 2019, the Company reclassified $1.5 million of tax benefits from
“Accumulated other comprehensive loss” to “Retained earnings” for the tax effects resulting from the
December 22, 2017 enactment of the Tax Cut and Jobs Act in accordance with the adoption of
Accounting Standards Update 2018-02, Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income.
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, OshKosh, Skip Hop, Child of Mine, Just One You, Simple Joys,
Carter’s little baby basics, 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 December 31. Every five or six
years, our fiscal year includes an additional, or 53rd, week of results. Fiscal 2020, ended on January 2, 2021,
contained 53 calendar weeks. Fiscal 2019, ended on December 28, 2019, and fiscal 2018, ended on December 29,
2018, contained 52 calendar weeks.
Certain expenses increased in relationship to the additional revenue from the 53rd week, while other expenses,
such as fixed costs and expenses incurred on a calendar-month basis, did not increase. The consolidated gross
margin for the additional revenue from the 53rd week is slightly lower than the consolidated gross margin for
fiscal 2020 due to increased promotional activity during the 53rd week.
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.
REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
During the second quarter of fiscal year 2020, it was determined that there were amounts presented incorrectly in
the statement of cash flows for the annual and interim year to date periods subsequent to the December 30, 2018
adoption of ASC 842, Leases, due to the presentation of the non-cash impact of the initial and subsequent
recognition of the Right of Use (“ROU”) assets and lease liabilities within the “Prepaid expenses and other
assets” and “Accounts payable and other liabilities” line items, respectively, within operating cash flows. This
incorrect presentation had no impact on net cash (used in) provided by operating activities for any of the periods.
We assessed the materiality of the incorrect presentation and concluded that the previously issued financial
statements were not materially misstated. The presentation errors resulted in an offsetting overstatement of cash
used for prepaid expenses and other assets and cash provided by accounts payable and other liabilities of
60
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
$739 million, $773 million and $815 million for the three, six and nine-months ended March 30, 2019, June 29,
2019 and September 28, 2019, respectively, $828 million for the year ended December 28, 2019 and $29 million
for the three months ended March 28, 2020. The accompanying consolidated statement of cash flows
appropriately reflect the corrected presentation of these non-cash activities. In addition, the Company has
reclassified prior comparable period amounts to present ROU asset amortization and lease liability payment
activity on a net basis within the “Accounts payable and other liabilities” line item. The revisions to the three, six
and nine-months ended March 30, 2019, June 29, 2019 and September 28, 2019 have been presented in previous
Form 10-Q filings. The revisions to the year ended December 31, 2019 have been presented in this Form 10-K.
Revisions to the three months ended March 31, 2020 will be presented in a future Form 10-Q filing. We will
continue to provide supplemental noncash cash flow disclosure information in the notes to the financial
statements.
COVID -19
In December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) began in Wuhan, China. In March
2020, the World Health Organization declared COVID-19 a pandemic and former President Trump declared a
national emergency. As a result of COVID-19, the Company temporarily closed its retail stores in North America
and implemented several actions during fiscal 2020 to enhance liquidity and financial flexibility including the
deferral of lease payments, reductions in discretionary spending, amending its revolving credit facility, issuing
$500 million principal amount of senior notes, and suspending dividends and share repurchases.
Beginning in April 2020, the Company suspended rent payments under the leases for our temporarily closed
stores in North America and initiated discussions with landlords to obtain rent concessions. The Company
considered the Financial Accounting Standards Board’s (“FASB”) recent guidance regarding lease concessions
as a result of the effects of the COVID-19 pandemic and has elected to treat these rent concessions as lease
modifications. As of January 2, 2021, lease modifications resulting from COVID-19 related rent concessions
decreased the Company’s operating lease liabilities by $23.7 million during fiscal 2020. The Company continues
to negotiate lease concessions with landlords. As of the end of the third fiscal quarter, the Company resumed
making the required rent payments under these leases.
On May 4, 2020, the Company, through its wholly owned subsidiary, The William Carter Company (“TWCC”),
amended its revolving credit facility. This amendment provided for, among other things, a waiver of financial
covenants through the balance of fiscal year 2020, revised covenant requirements through the third quarter of
fiscal year 2021, and the ability to raise additional unsecured financing at the Company’s discretion.
Additionally, on May 11, 2020, TWCC issued $500 million principal amount of senior notes at par, bearing
interest at a rate of 5.500% per annum, and maturing on May 15, 2025. See Note 8, Long-Term Debt, for further
details on the amendment to the revolving credit facility and the issuance of $500 million principal amount of
senior notes.
The Company announced in the first half of fiscal 2020, that in connection with the COVID-19 pandemic, it
suspended its common stock share repurchase program and its quarterly cash dividend.
The Company also assessed certain accounting matters that generally require consideration of forecasted
financial information in context with the information reasonably available to us and the unknown future impacts
of COVID-19 as of January 2, 2021 and through the date of this report filing. The accounting matters assessed
included, but were not limited to, our allowance for credit losses, inventory reserves, adverse inventory and
fabric purchase commitments, stock based compensation, and the carrying value of our goodwill and other long-
61
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
lived assets. Based on these assessments, in fiscal 2020, the Company recorded impairments on operating lease
assets and other long-lived assets for our underperforming retail stores of $9.0 million, adverse inventory and
fabric purchase commitments of $14.7 million, incremental excess inventory reserve related charges of
$4.9 million, intangible asset impairments of $26.5 million, and goodwill impairment of $17.7 million. There
could be a further material impact to our consolidated financial statements in future reporting periods if, at a
future date, the Company determines that these assessments of the magnitude and duration of COVID-19, as well
as other factors, were incorrect.
Additional COVID-19 related charges in fiscal 2020 were $21.4 million, which primarily included incremental
costs of $12.1 million related to payroll continuation for a period of time for our retail employees and increased
employee-related costs at our distribution centers, costs associated with additional protective equipment and
cleaning supplies of $8.9 million, and restructuring costs of $2.3 million, partially offset by a payroll tax benefit
of $3.5 million.
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 sheets.
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 the impact of
intercompany loans with foreign subsidiaries that are marked to market. Foreign currency transaction gains and
losses are recognized in earnings, as a separate component of Other expense (income), net, within the
consolidated statements of operations. Foreign currency transaction gains and losses related to intercompany
loans with foreign subsidiaries that are of a long-term nature are accounted for as translation adjustments and are
included in Accumulated other comprehensive income (loss) within the accompanying consolidated balance
sheets.
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 statements 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
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 January 2, 2021, the Company had approximately $1.10 billion of cash and cash equivalents in major
financial institutions, including approximately $85.8 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.
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ACCOUNTS RECEIVABLE
CONCENTRATION OF CREDIT RISK
In fiscal 2020, 2019, and 2018, no one customer accounted for 10% or more of the Company’s consolidated net
sales.
At January 2, 2021, 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 69% of total gross trade receivables outstanding. At December 28, 2019, 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 52% of
total gross trade receivables outstanding.
VALUATION ACCOUNTS FOR WHOLESALE ACCOUNTS RECEIVABLE
Accounts Receivable Reserves
The Company’s accounts receivable reserves for wholesale customers include an allowance for expected credit
losses and an allowance for chargebacks. The allowance for expected credit losses 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 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 expected credit losses 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 inventory) 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.
LEASES
At the beginning of fiscal 2019, the Company adopted the provisions of ASC No. 842, Leases (“ASC 842”),
using a modified retrospective approach. This approach allows the Company to apply the standard and related
disclosures to the financial statements for the period of adoption and to apply the old guidance in the comparative
periods.
The standard had a material impact on our consolidated balance sheets, but did not have a material impact on our
consolidated income statements or statement of cash flows. The most significant impact was the recognition of
right of use (“ROU”) assets and lease liabilities for operating leases. Finance leases are not material to the
Company’s consolidated balance sheets, consolidated statements of operations or statements of cash flows.
Financial Presentation
The Company determines if an arrangement is a lease at its inception. Operating leases are included in operating
lease assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated
balance sheets.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments over the lease term. Our lease
terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that
option.
The operating lease ROU asset also includes initial direct costs and excludes lease incentives. Lease expense is
recognized on a straight-line basis over the lease term.
Certain of our lease agreements include variable rental payments based on a percentage of retail sales over
contractual levels and others include variable rental payments adjusted periodically for inflation. Our lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Policy Elections
Practical Expedient Package — The Company has elected the following expedients and applied them
consistently to all leases:
•
•
•
The Company will not revisit whether a contract is, or contains, a lease under the ASC 842 definition
of a lease.
The lease classification determined under prior guidance will not be reevaluated under ASC 842.
Previously capitalized initial direct costs under prior guidance will be carried forward. Any initial
direct costs after the effective date will be included within the ROU asset under ASC 842.
Portfolio approach — In general, the Company accounts for the underlying leased asset and applies a discount
rate at the lease level. However, there are certain non-real estate leases for which the Company utilizes the
portfolio method by aggregating similar leased assets based on the underlying lease term.
Non-lease component — The Company has lease agreements with lease and non-lease components. The
Company has elected a policy to account for lease and non-lease components as a single component for all asset
classes.
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Short-term lease — Leases with an initial term of 12 months or less are not recorded on the balance sheets.
Discount rate — As most of the Company’s leases do not provide an implicit rate, the Company uses the
incremental borrowing rate based on the information available at commencement date in determining the present
value of lease payments.
Renewal options — The Company evaluates the inclusion of renewal options on a lease by lease basis. In
general, for leased retail real estate, the Company does not include renewal options in the underlying lease term.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost, less accumulated depreciation and amortization. When fixed
assets are sold or otherwise disposed of, the accounts are relieved of the original cost of the assets and the related
accumulated depreciation or amortization and any resulting profit or loss is credited or charged to income. For
financial reporting purposes, depreciation and amortization are computed on the straight-line method over the
estimated useful lives of the assets as follows: buildings and improvements from 15 to 26 years, retail store
fixtures, equipment, and computers from 3 to 10 years. Leasehold improvements and fixed assets purchased
under capital lease are amortized over the lesser of the asset life or related lease term. The Company capitalizes
the cost of its fixtures designed and purchased for use at major wholesale accounts. The cost of these fixtures is
amortized over 3 years.
INTERNAL-USE SOFTWARE
The Company purchases software 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Cloud computing
implementation costs incurred in a hosting arrangement that is a service contract and that meet the applicable
criteria are capitalized and reported in Prepaid expenses and other current assets on the consolidated balances
sheets. Any capitalized costs are amortized over the term of the hosting arrangement, and the expense is
presented in the same line item within the consolidated statements of operations as the expense for the service
contract’s fees.
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
revenue growth and profitability, terminal values, discount rates, an implied control premium, and, in the case of
tradenames, royalty rates.
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 a goodwill
impairment test using quantitative assessments must be performed. If it is determined that it is “not more likely
than not” 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.
Under a quantitative assessment for goodwill, the Company compares the fair value of a reporting unit to its
carrying value, including goodwill. The Company uses the income approach and the market approach to
determine the fair value of a reporting unit. The assumptions used in these approaches include revenue growth
and profitability, terminal values, discount rates, and an implied control premium. These assumptions are
consistent with those of hypothetical marketplace participants. An impairment is recorded for any excess
carrying value above the fair value of the reporting unit, not to exceed the carrying value of goodwill.
Due to the decrease in the Company’s market capitalization, lower than expected actual sales, and lower
projected sales and profitability, primarily due to the impacts from the outbreak of COVID-19, the Company
concluded that impairment indicators existed for the first quarter of fiscal 2020. As a result, during the first
quarter of fiscal 2020, the Company conducted interim quantitative impairment assessments of 1) the goodwill
ascribed to the Other International reporting unit recorded in connection with the allocation of goodwill to the
newly created International segment as a result of the acquisition of Bonnie Togs in 2011 and 2) on the value of
the Company’s indefinite-lived OshKosh and Skip Hop tradename assets that was recorded in connection with the
acquisition of OshKosh B’Gosh Inc. in July 2005 and Skip Hop Holdings, Inc. in February 2017, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The goodwill impairment assessment for the Other International reporting unit was performed in accordance with
ASC 350, “Intangibles—Goodwill and Other” (“ASC 350”) and compares the carrying value of the Other
International reporting unit to its fair value. Consistent with prior practice, the fair value of the Other
International reporting unit was determined using the income approach and the market approach. As a result of
this assessment, a goodwill impairment charge of $17.7 million was recorded to our Other International reporting
unit in the International segment during the first quarter of fiscal 2020. The goodwill impairment charge recorded
on our Other International reporting unit included charges of $9.4 million, $5.2 million, and $3.1 million to Skip
Hop, Carter’s, and Carter’s Mexico goodwill, respectively. The carrying value of the Company’s goodwill for the
Other International reporting unit as of January 2, 2021 was $11.8 million.
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.
As discussed above, during the first quarter of fiscal 2020, the Company conducted interim quantitative
impairment assessments on the value of the Company’s indefinite-lived OshKosh and Skip Hop tradename assets
that was recorded in connection with the acquisition of OshKosh B’Gosh Inc. in July 2005 and Skip Hop
Holdings, Inc. in February 2017, respectively. The OshKosh and Skip Hop indefinite-lived tradename asset
assessments were performed in accordance with ASC 350 and were determined using a discounted cash flow
analysis which examined the hypothetical cost savings that accrue as a result of not having to license the
tradename from another owner. Based on these assessments, charges of $15.5 million and $11.0 million were
recorded during the first quarter of fiscal 2020 on our indefinite-lived OshKosh and Skip Hop tradename assets,
respectively. The charge recorded on our indefinite-lived OshKosh tradename asset included charges of
$13.6 million, $1.6 million, and $0.3 million in the U.S. Retail, U.S. Wholesale, and International segments,
respectively, to reflect the impairment of the value ascribed to the indefinite-lived OshKosh tradename asset. The
charge recorded on our indefinite-lived Skip Hop tradename asset included charges of $6.8 million, $3.7 million,
and $0.5 million in the U.S. Wholesale, International, and U.S. Retail segments, respectively, to reflect the
impairment of the value ascribed to the indefinite-lived Skip Hop tradename asset. The carrying values of the
Company’s indefinite-lived OshKosh and Skip Hop tradename assets as of January 2, 2021 were $70.0 million
and $15.0 million, respectively.
In the third quarter of fiscal 2019, the Company’s Skip Hop business experienced lower than expected actual and
projected sales and profitability due to lower domestic demand, including the loss of a significant customer that
declared bankruptcy (Toys “R” Us), lower international demand and higher product costs primarily driven by
tariffs imposed on products sourced from China. As a result, the Company conducted an interim impairment
assessment in the third quarter of fiscal 2019 on the value of the Company’s indefinite-lived Skip Hop tradename
asset that was recorded in connection with the acquisition of Skip Hop Holdings, Inc. in February 2017. The
indefinite-lived tradename asset assessment was performed in accordance with ASC 350, “Intangibles—Goodwill
and Other” and was determined using a discounted cash flow analysis which examined the hypothetical cost
savings that accrue as a result of our ownership of the tradename. Based on this assessment, a charge of
$30.8 million was recorded during the third quarter of fiscal 2019 on our indefinite-lived Skip Hop tradename
asset. The charge included charges of $19.1 million, $10.5 million, and $1.2 million in the U.S. Wholesale,
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Based upon our most recent annual assessment, performed as of January 2, 2021, there were no further
impairments in the values of goodwill or indefinite-lived or definite-lived intangible assets. This annual
assessment indicated that each reporting unit’s fair value exceeded its carrying value by at least 53%. The annual
assessment also indicated that the OshKosh and Skip Hop indefinite-lived tradename assets’ fair value exceeded
its carrying value by approximately 10% and 40%, respectively. Sensitivity tests on the OshKosh indefinite-lived
tradename asset showed that a 100 basis point increase in the discount rate, a 10% decrease in forecasted
revenues, or a 25 basis point decrease in the royalty rate was needed to change the conclusion. Although the
Company determined that no further impairment exists for the Company’s goodwill or indefinite-lived or
definite-lived intangible assets, these assets could be at risk for impairment should global economic conditions
continue to deteriorate as a result of COVID-19.
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
The Company reviews other long-lived assets, including operating lease assets, 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.
The impact of the COVID-19 pandemic resulted in a qualitative indication of impairment related to our store
long-lived assets. In fiscal 2020, the Company recorded impairment charges of operating lease assets and other
long-lived assets for our underperforming retail stores of $9.0 million. The impairment charges were recorded in
Selling, general and administrative expenses on the Company’s consolidated statements of operations.
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 sheets 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
REVENUE RECOGNITION
At the beginning of fiscal 2018, the Company adopted the provisions of ASC 606 using the full retrospective
adoption method.
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 when the performance obligations are satisfied
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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. For purchases made through the
Company’s eCommerce channel, revenue is recognized when the goods are physically delivered to the customer.
Loyalty program — Retail customers can earn loyalty points that accumulate towards earning reward certificates
that are redeemable for a specified amount off of future purchases for a specified period of time. Points and
reward certificates earned by retail customers under the Company’s loyalty program represent a separate
performance obligation. For transactions where a customer earns loyalty points, the Company allocates revenue
between the goods sold and the loyalty points expected to be earned towards a reward certificate based upon the
relative standalone selling price. The revenue that is deferred is recorded within Other current liabilities on the
Company’s consolidated balance sheets and then recognized as revenue upon redemption of the reward
certificate. Loyalty program breakage is recognized as revenue based on the customer redemption pattern.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Gift Cards — Customer purchases of gift cards are not recognized as revenue until the gift card is redeemed. The
revenue that is deferred is recorded within Other current liabilities on the Company’s consolidated balance
sheets. Gift card breakage is recognized as revenue based on the customer redemption pattern.
Royalty Revenues — 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. Except in very limited instances, the Company
does not allow its wholesale customers to return goods to the Company.
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 most retail transactions in stores, no
significant judgments are involved since revenue is recognized at the point of sale when tender is exchanged and
the customer receives the goods. For retail transactions made through the Company’s eCommerce channel,
revenue is recognized when the goods are physically delivered to the customer. The Company recognizes
revenue from omni-channel sales, including buy on-line and pick up in store, buy-on-line, ship-to-store, and
buy-on-line, deliver-from-store, when the product is physically delivered to the customer or when the product
arrives at the store and has been picked up by the customer.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $0.5 million
for fiscal 2020, $3.1 million for fiscal 2019, and $3.0 million for fiscal 2018 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 include changes to our inventory reserve and expenses
related to the merchandising, design, and procurement of product, including inbound freight costs, purchasing
and receiving costs, and inspection costs. Also included in costs of goods sold are the costs of shipping
eCommerce product to end consumers. For omni-channel transactions, costs of goods sold include the costs of
shipping product to end customers or to retail stores.
Retail store occupancy costs, distribution expenses, and generally all expenses other than interest and income
taxes are included in Selling, general, and administrative “SG&A”. 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, including eCommerce fulfillment costs, and delivery to our wholesale customers and to our
retail stores. Distribution expenses included in SG&A totaled $190.7 million, $191.1 million, and $188.9 million
for fiscal years 2020, 2019, and 2018, respectively.
GROSS PROFIT
Gross profit is calculated as consolidated net sales less cost of goods sold, and gross margin is calculated as gross
profit divided by consolidated net sales. Definitions of gross profit and gross margin vary across the industry and,
as such, our metrics may not be comparable to other companies.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME FROM ROYALTIES AND LICENSE FEES
We license our Carter’s, OshKosh, Child of Mine, Just One You, Simple Joys, and Carter’s little baby basics
brands to partners to expand our product offerings to include bedding, cribs, diaper bags, footwear, gift sets, hair
accessories, jewelry, outerwear, paper goods, socks, shoes, swimwear, and toys. 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.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
•
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.
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Stock Awards
The fair value of stock granted to non-management board members is determined based on the quoted closing
price of the Company’s common stock on the date of grant. The Company records the stock-based compensation
expense immediately as there are no vesting terms.
INCOME TAXES
The accompanying consolidated financial statements reflect current and deferred tax provisions, 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 basis of assets and liabilities
using presently enacted tax rates. Deferred tax assets are a component of non-current Other assets in the
Company’s consolidated balance sheet. 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.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid in cash approximated $55.1 million, $36.5 million, and $33.6 million for fiscal years 2020, 2019,
and 2018, respectively. Income taxes paid in cash approximated $54.7 million, $67.6 million and $55.9 million
for fiscal years 2020, 2019, and 2018, respectively.
Additions to property, plant and equipment of approximately $6.0 million, $1.2 million, and $1.9 million were
excluded from capital expenditures on the Company’s consolidated statements of cash flows for fiscal years
2020, 2019, and 2018, 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).
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 2020, 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. Any service costs that arise during the period are presented in the same statement line
item as other employee compensation on the consolidated statement of operations. All other components of
current period costs related to defined benefit plans, such as prior service costs and actuarial gains and
losses, are presented in Other (income) expense, net on the consolidated statement of operations. The actuarial
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.
74
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. 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.
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 2020
Credit Losses (ASU 2016-13)
At the beginning of fiscal 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). This new guidance changed how entities account for credit impairment for trade and other
receivables, as well as for certain financial assets and other instruments. ASU 2016-13 replaced the previous
“incurred loss” model with an “expected loss” model, that requires an entity to 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 Company estimates current expected credit losses
based on collection history and management’s assessment of the current economic trends, business environment,
customers’ financial condition, accounts receivable aging, and customer disputes that may impact the level of
future credit losses. The effect of the adoption of ASU 2016-13 was not material to the Company’s consolidated
financial statements.
Goodwill Impairment Testing (ASU 2017-04)
At the beginning of fiscal 2020, the Company adopted ASU No. 2017-04, Intangibles-Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminated the requirement
to calculate the implied fair value of goodwill 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. Any
impairment charge will be limited to the amount of goodwill allocated to an impacted reporting unit. The effect
of the adoption of ASU 2017-04 had no impact to the Company’s consolidated financial statements. During the
first quarter of fiscal 2020, the Company conducted an interim quantitative impairment assessment on the
goodwill ascribed to the Other International reporting unit. As a result of this assessment and based on the
application of ASU 2017-04, a goodwill impairment charge of $17.7 million was recorded to our Other
International reporting unit. See Note 6, Goodwill and Other Intangible Assets, for further details on the
impairment charge and valuation methodology.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Simplifying the Accounting for Income Taxes (ASU 2019-12)
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes (“ASU 2019-12”), as part of its overall simplification initiative to reduce costs and complexity
of applying accounting standards while maintaining or improving the usefulness of the information provided to
users of financial statements. Amendments include removal of certain exceptions to the general principles of
Topic 740, “Income Taxes,” and simplification in several other areas. ASU 2019-12 is effective for annual
reporting periods beginning after December 15, 2020, and interim periods therein, with early adoption permitted.
The Company elected to early adopt this guidance in the first quarter of fiscal 2020. The Company
retrospectively adopted the provision related to the classification of taxes partially based on income and has
determined that the adoption of this standard did not have a material impact on its prior period financial
statements. The provisions related to intraperiod tax allocation and interim recognition of enactment of tax laws
are being adopted on a prospective basis. The effect of the adoption of ASU 2019-12 was not material to the
Company’s consolidated financial statements.
To Be Adopted After Fiscal 2020
Reference Rate Reform (ASU 2020-04)
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients
and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by
reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of
accounting for reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through
December 31, 2022. The Company is currently evaluating the effect of adopting ASU 2020-04, but does not
expect adoption will have a material impact on the Company’s financial statements.
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.
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 customers. The Company also earns royalties
from its licensees. Disaggregated revenues from these sources for fiscal years 2020, 2019, and 2018 were as
follows:
(dollars in thousands)
Fiscal year ended January 2, 2021 (53 weeks)
U.S. Retail
U.S. Wholesale
International
Total
Wholesale channel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct-to-consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $996,088
—
1,671,644
$120,244
236,358
$1,116,332
1,908,002
$1,671,644
$996,088
$356,602
$3,024,334
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,732
$ 13,120
$
4,424
$
26,276
76
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3—REVENUE RECOGNITION (Continued)
(dollars in thousands)
Fiscal year ended December 28, 2019 (52 weeks)
U.S. Retail
U.S. Wholesale
International
Total
Wholesale channel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct-to-consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $1,205,646
—
1,884,150
$163,793
265,697
$1,369,439
2,149,847
$1,884,150
$1,205,646
$429,490
$3,519,286
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,990
$
17,670
$
3,977
$
34,637
(dollars in thousands)
Fiscal year ended December 29, 2018 (52 weeks)
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
$1,851,193
$1,180,687
$430,389
$3,462,269
Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,877
$
22,511
$
3,542
$
38,930
ACCOUNTS RECEIVABLE FROM CUSTOMERS AND LICENSEES
The components of Accounts receivable, net, were as follows:
(dollars in thousands)
January 2,
2021
December 28,
2019
Trade receivables from wholesale customers, net (1) . . . . . . . . . . .
Royalties receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant allowances and other receivables . . . . . . . . . . . . . . . . . . .
$180,830
5,733
12,315
$239,059
6,982
16,247
Total gross receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$198,878
$262,288
Less: Wholesale accounts receivable reserves (1)(2) . . . . . . . . . . . .
(12,366)
(11,283)
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$186,512
$251,005
(1) The Company reclassified $1.7 million of customer support related items from Wholesale accounts
receivable reserves into Trade receivables from wholesale customers, net for the period ended
December 28, 2019.
(2) Includes allowance for credit losses of $5.9 million and $6.4 million for the periods ended January 2,
2021 and December 28, 2019, respectively.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3—REVENUE RECOGNITION (Continued)
Information regarding Wholesale accounts receivable reserves is as follows:
(dollars in thousands)
Balance at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to Trade receivables (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to reserve (2)
Balance at January 2, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholesale accounts
receivable reserves
$ 13,736
30,280
(32,150)
$ 11,866
9,047
(7,939)
$ (1,691)
$ 11,283
9,625
(8,542)
$ 12,366
(1) The Company reclassified $1.7 million of customer support related items from Wholesale accounts
receivable reserves into Trade receivables from wholesale customers, net for the period December 28,
2019.
(2) Charges to the reserve include total write-offs of $6.5 million related to the bankruptcy of customers
during fiscal 2020.
CONTRACT ASSETS AND LIABILITIES
The Company’s contract assets are not material.
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from a customer and has a future
obligation to transfer goods to the customer. Total contract liabilities consisted of the following amounts:
(dollars in thousands)
Contract liabilities-current:
January 2,
2021
December 28,
2019
Unredeemed gift cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed customer loyalty rewards . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Carter’s credit card—upfront bonus (1)
$18,300
5,241
714
Total contract liabilities—current (2)
. . . . . . . . . . . . . . . . . . .
$24,255
Contract liabilities—non-current
$ 2,857
Total contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,112
$17,563
5,615
714
$23,892
$ 3,571
$27,463
(1) Carter’s credit card—upfront bonus—the Company received an upfront signing bonus from a third-party
financial institution, which will be recognized as revenue on a straight-line basis over the term of the
agreement. This amount reflects the current portion of this bonus to be recognized as revenue in 2021.
(2) Included with Other current liabilities on the Company’s consolidated balance sheet.
78
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3—REVENUE RECOGNITION (Continued)
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
program 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—LEASES
The Company has operating leases for retail stores, distribution centers, corporate offices, data centers, and
certain equipment. The Company’s leases generally have initial terms ranging from 1 year to 10 years, some of
which may include options to extend the leases for up to 5 years, and some of which may include options to early
terminate the lease.
As of January 2, 2021, the Company’s finance leases were not material to the consolidated balance sheets,
consolidated statements of operations or statement of cash flows.
As a result of the COVID-19 pandemic, during the second quarter of fiscal 2020 the Company suspended rent
payments under the leases for our temporarily closed stores in North America. The Company resumed making
the required rent payments under these leases in the third quarter of fiscal 2020.
Additionally, as a result of the effects COVID-19 pandemic, the Company renegotiated approximately 725 lease
agreements with landlords. Lease modifications resulting from COVID-19 related rent concessions increased the
Company’s operating lease liabilities by $23.7 million during fiscal 2020, primarily due to addition of the
deferred lease payments to the updated lease terms and due to a decrease in the discount rates used for the
remeasurement of the lease liabilities. The Company continues to negotiate lease concessions with landlords.
In fiscal 2020, the Company recorded operating lease asset impairment charges totaling $7.4 million related to
underperforming stores primarily as a result of decreased net revenues and cash flow projections resulting from
the COVID-19 disruption and other facility and office closures. See Note 15, Fair Value Measurements, for
further details on the fair value calculations for operating lease assets for the retail stores.
The following components of lease expense are included in Selling, general and administrative expenses on the
Company’s consolidated statements of operations for fiscal 2020:
(dollars in thousands)
For the fiscal year ended
January 2,
2021
December 28,
2019
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$180,056
71,971
$179,982
63,043
Net lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$252,027
$243,025
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4—LEASES (Continued)
(*) Includes operating lease impairment charges, and short-term leases, which are immaterial.
Supplemental balance sheet information related to leases was as follows:
January 2,
2021
December 28,
2019
Weighted average remaining operating lease term (years) . . . . . . . . . . . . . .
Weighted average discount rate for operating leases . . . . . . . . . . . . . . . . . . .
5.4
3.33%
6.0
4.35%
Cash paid for amounts included in the measurement of operating lease liabilities in fiscal 2020 and fiscal 2019
was $161.7 million and $193.5 million, respectively.
Non-cash transactions to recognize operating assets and liabilities for new leases in fiscal 2020 and fiscal 2019
were $62.6 million and $110.0 million, respectively.
As of January 2, 2021, the maturities of lease liabilities were as follows:
(dollars in thousands)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases
$206,814
159,350
130,646
105,515
77,134
129,195
$808,654
(69,005)
Present value of lease liabilities(*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$739,649
(*) As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the
information available at commencement date to determine the present value of lease payments. We used
the incremental borrowing rate on December 30, 2018, for operating leases that commenced prior to that
date.
As of January 2, 2021, the minimum rental commitments for additional operating lease contracts that have not
yet commenced, primarily for retail stores, are $10.9 million. These operating leases will commence between
fiscal year 2021 and fiscal year 2023 with lease terms of 7 years to 11 years.
Rent expense under operating leases (including properties and computer and office equipment) was
approximately $165.6 million for the fiscal year ended December 29, 2018.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5—PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net consists of the following:
(dollars in thousands)
January 2,
2021
December 28,
2019
Land, building, and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixtures, equipment, and computer hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 358,121
308,260
159,558
9,819
10,567
$ 363,428
297,930
161,104
11,160
10,394
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
846,325
(583,980)
844,016
(523,848)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 262,345
$ 320,168
Depreciation and amortization expense related to property, plant, and equipment was approximately
$90.3 million, $92.2 million, and $85.9 million for fiscal years 2020, 2019, and 2018, respectively.
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS
The balances and changes in the carrying amount of goodwill attributable to each segment were as follows:
(dollars in thousands)
U.S. Retail
U.S. Wholesale
International
Total
Balance at December 29, 2018 . . . . . . . . . . .
Foreign currency impact . . . . . . . . . . . . . . . . .
$83,934
—
Balance at December 28, 2019 . . . . . . . . . . .
$83,934
$74,454
—
$74,454
$ 68,713
1,925
$227,101
1,925
$ 70,638
$229,026
Goodwill impairment(1) . . . . . . . . . . . . . . . . .
Foreign currency impact . . . . . . . . . . . . . . . . .
—
—
—
—
(17,742)
492
(17,742)
492
Balance at January 2, 2021(2) . . . . . . . . . . .
$83,934
$74,454
$ 53,388
$211,776
(1) In the first quarter of fiscal 2020, a charge of $17.7 million was recorded to reflect the impairment of the
value ascribed to the goodwill in the Other International reporting unit in the International segment.
(2) Goodwill balance for the International reporting unit is net of accumulated impairment losses of
$17.7 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
A summary of the carrying value of the Company’s intangible assets were as follows:
(dollars in thousands)
Weighted-
average
useful life
January 2, 2021
December 28, 2019
Gross
amount
Accumulated
amortization
Net
amount
Gross
amount
Accumulated
amortization
Net
amount
Carter’s tradename . . . . . . . . . . .
Indefinite $220,233
OshKosh tradename(1)
70,000
Indefinite
. . . . . . . . .
Skip Hop tradename(2)(3) . . . . . . . .
15,000
Indefinite
3,911
Finite-life tradenames . . . . . . . . . 5 - 20 years
$ — $220,233 $220,233
85,500
70,000
26,000
15,000
3,911
2,660
—
—
1,251
$ — $220,233
85,500
26,000
2,909
—
—
1,002
Total tradenames, net
. . . . . . . . .
$309,144
$ 1,251
$307,893 $335,644
$1,002
$334,642
Skip Hop customer
relationships . . . . . . . . . . . . . . .
15 years
$ 47,300
$11,834
$ 35,466 $ 47,300
$8,657
$ 38,643
Carter’s Mexico customer
relationships . . . . . . . . . . . . . . .
10 years
3,108
1,064
2,044
3,258
775
2,483
Total customer relationships,
net
. . . . . . . . . . . . . . . . . . . . . .
$ 50,408
$12,898
$ 37,510 $ 50,558
$9,432
$ 41,126
(1) In fiscal 2020, a charge of $13.6 million, $1.6 million, and $0.3 million was recorded on our indefinite-
lived OshKosh tradename asset in the U.S. Retail, U.S. Wholesale, and International segments,
respectively, to reflect the impairment of the value ascribed to the indefinite-lived OshKosh tradename
asset.
(2) In fiscal 2020, a charge of $6.8 million, $3.7 million, and $0.5 million was recorded on our indefinite-
lived Skip Hop tradename asset in the U.S. Wholesale, International, and U.S. Retail segments,
respectively, to reflect the impairment of the value ascribed to the indefinite-lived Skip Hop tradename
asset.
(3) In fiscal 2019, a charge of $19.1 million, $10.5 million, and $1.2 million was recorded on our indefinite-
lived Skip Hop tradename asset in the U.S. Wholesale, International, and U.S. Retail segments,
respectively, to reflect the impairment of the value ascribed to the indefinite-lived Skip Hop tradename
asset.
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. Due to the decrease in the Company’s
market capitalization, lower than expected actual sales, and lower projected sales and profitability, primarily due
to the impacts from the outbreak of COVID-19, the Company concluded that impairment indicators existed for
the first quarter of fiscal 2020. As a result, during the first quarter of fiscal 2020, the Company conducted interim
quantitative impairment assessments of 1) the goodwill ascribed to the Other International reporting unit
recorded in connection with the allocation of goodwill to the newly created International segment as a result of
the acquisition of Bonnie Togs in 2011 and 2) on the value of the Company’s indefinite-lived OshKosh and Skip
Hop tradename assets that was recorded in connection with the acquisition of OshKosh B’Gosh Inc. in July 2005
and Skip Hop Holdings, Inc. in February 2017, respectively.
The goodwill impairment assessment for the Other International reporting unit was performed in accordance with
ASC 350, “Intangibles—Goodwill and Other” (“ASC 350”) and compares the carrying value of the Other
International reporting unit to its fair value. Consistent with prior practice, the fair value of the Other
International reporting unit was determined using discounted cash flows (“income approach”) and relevant data
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
from guideline public companies (“market approach”). As a result of this assessment, a goodwill impairment
charge of $17.7 million was recorded to our Other International reporting unit in the International segment during
the first quarter of fiscal 2020. The goodwill impairment charge recorded on our Other International reporting
unit included charges of $9.4 million, $5.2 million, and $3.1 million to Skip Hop, Carter’s, and Carter’s Mexico
goodwill, respectively. The carrying value of the Company’s goodwill for the Other International reporting unit
as of January 2, 2021 was $11.8 million.
The OshKosh and Skip Hop indefinite-lived tradename asset assessments were performed in accordance with
ASC 350 and were determined using a discounted cash flow analysis which examined the hypothetical cost
savings that accrue as a result of not having to license the tradename from another owner. Based on these
assessments, charges of $15.5 million and $11.0 million were recorded during the first quarter of fiscal 2020 on
our indefinite-lived OshKosh and Skip Hop tradename assets, respectively. The charge recorded on our
indefinite-lived OshKosh tradename asset included charges of $13.6 million, $1.6 million, and $0.3 million in the
U.S. Retail, U.S. Wholesale, and International segments, respectively, to reflect the impairment of the value
ascribed to the indefinite-lived OshKosh tradename asset. The charge recorded on our indefinite-lived Skip Hop
tradename asset included charges of $6.8 million, $3.7 million, and $0.5 million in the U.S. Wholesale,
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset. The carrying values of the Company’s indefinite-lived OshKosh and
Skip Hop tradename assets as of January 2, 2021 were $70.0 million and $15.0 million, respectively.
In the third quarter of fiscal 2019, the Company’s Skip Hop business experienced lower than expected actual and
projected sales and profitability due to lower domestic demand, including the loss of a significant customer that
declared bankruptcy (Toys “R” Us), lower international demand and higher product costs primarily driven by
tariffs imposed on products sourced from China. As a result, the Company conducted an interim impairment
assessment in the third quarter of fiscal 2019 on the value of the Company’s indefinite-lived Skip Hop tradename
asset that was recorded in connection with the acquisition of Skip Hop Holdings, Inc. in February 2017. The
indefinite-lived tradename asset assessment was performed in accordance with ASC 350, “Intangibles—Goodwill
and Other” and was determined using a discounted cash flow analysis which examined the hypothetical cost
savings that accrue as a result of our ownership of the tradename. Based on this assessment, a charge of
$30.8 million was recorded during the third quarter of fiscal 2019 on our indefinite-lived Skip Hop tradename
asset. The charge included charges of $19.1 million, $10.5 million, and $1.2 million in the U.S. Wholesale,
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset.
Based upon our most recent annual assessment, performed as of January 2, 2021, there were no further
impairments in the values of goodwill or indefinite-lived or definite-lived intangible assets. Although the
Company determined that no further impairment exists for the Company’s goodwill or indefinite-lived or
definite-lived intangible assets, these assets could be at risk for impairment should global economic conditions
continue to deteriorate as a result of COVID-19.
Changes in the carrying values between comparative periods for goodwill related to the International segment
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 for Skip Hop and Carter’s Mexico and the changes in the carrying value of
customer relationships for Carter’s Mexico, including the related accumulated amortization, that were not
attributable to amortization expense was also impacted by foreign currency exchange rate fluctuations.
Amortization expense for intangible assets subject to amortization was approximately $3.7 million for each of
fiscal years 2020, 2019, and 2018.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
The estimated amortization expense for the next five fiscal years is as follows:
(dollars in thousands)
Amortization expense
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,737
$3,737
$3,695
$3,665
$3,665
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 December 30, 2017 . . . . . . . . . . . . .
Fiscal year 2018 change . . . . . . . . . . . . . . . . . . .
$
(9,281) $
(281)
Balance at December 29, 2018 . . . . . . . . . . . . .
Reclassification of tax effects(*) . . . . . . . . . . . . .
Fiscal year 2019 change . . . . . . . . . . . . . . . . . . .
Balance at December 28, 2019 . . . . . . . . . . . . .
Fiscal year 2020 change . . . . . . . . . . . . . . . . . . .
(9,562)
(1,880)
746
(10,696)
(2,197)
1,473
214
1,687
380
(483)
1,584
(144)
$
(21,285) $
(11,679)
(32,964)
—
6,442
(26,522)
5,215
(29,093)
(11,746)
(40,839)
(1,500)
6,705
(35,634)
2,874
Balance at January 2, 2021 . . . . . . . . . . . . . . . .
$
(12,893) $
1,440
$
(21,307) $
(32,760)
(*) In fiscal 2019, the Company reclassified $1.5 million of tax benefits from accumulated other
comprehensive loss to retained earnings for the tax effects resulting from the December 22, 2017
enactment of the Tax Cut and Jobs Act in accordance with the adoption of ASU 2018-02, Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income.
As of January 2, 2021 and December 28, 2019, the cumulative tax effect on the pension liability adjustments
were $4.0 million and $3.3 million, respectively. As of January 2, 2021 and December 28, 2019, the cumulative
tax effect on the post-retirement liability adjustments were approximately $0.5 million and $0.5 million,
respectively.
For the fiscal years ended January 2, 2021 and December 28, 2019, 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT
Long-term debt consisted of the following:
(dollars in thousands)
January 2,
2021
December 28,
2019
5.500% Senior Notes due 2025 . . . . . . . . . . . . . . . . . . . . . . . . .
5.625% Senior Notes due 2027 . . . . . . . . . . . . . . . . . . . . . . . . .
$ 500,000
500,000
Total senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: unamortized issuance-related costs for senior notes . . . . .
$1,000,000
(10,470)
Senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . .
$ 989,530
—
$
—
500,000
$500,000
(5,328)
$494,672
100,000
Total long-term debt, net
. . . . . . . . . . . . . . . . . . . . . . . . . .
$ 989,530
$594,672
SECURED REVOLVING CREDIT FACILITY
To improve the Company’s cash position in light of the uncertainty and disruption related to COVID-19, the
Company drew $639.0 million under its secured revolving credit facility in the month of March 2020, and in
May 2020 repaid $500 million of the outstanding borrowings with the net proceeds of a new $500 million senior
notes offering, as discussed below, and cash on hand. During the third quarter of fiscal 2020, the Company repaid
the remainder of its outstanding borrowings under its secured revolving credit facility with cash on hand. As of
January 2, 2021, the Company had no outstanding borrowings under its secured revolving credit facility,
exclusive of $5.0 million of outstanding letters of credit. As of December 28, 2019, the Company had
$100.0 million in outstanding borrowings under its secured revolving credit facility, exclusive of $5.0 million of
outstanding letters of credit. As of January 2, 2021 and December 28, 2019, there was approximately
$745.0 million and $645.0 million available for future borrowing, respectively. All outstanding borrowings under
the Company’s secured revolving credit facility are classified as non-current liabilities on the Company’s
consolidated balance sheets due to contractual repayment terms under the credit facility.
TERMS OF THE SECURED REVOLVING CREDIT FACILITY
On August 25, 2017, the Company’s wholly owned subsidiary, The William Carter Company (“TWCC”) and the
syndicate of lenders entered into a fourth amended and restated secured revolving credit agreement, which
provided for, among other things:
•
•
An extension of the term of the facility to August 25, 2022.
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 amendment provided 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT (Continued)
•
•
•
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.
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”)) and 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)) covenants, which
were amended by Amendment No.2 (as defined and described below).
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.
Under the fourth amended and restated 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.
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.
On May 4, 2020, TWCC entered into Amendment No.2 to its fourth amended and restated credit agreement
(“Amendment No. 2”). Amendment No. 2 provided for, among other things, access to additional capital and
increased flexibility under financial maintenance covenants, which the Company sought in part due to the
unforeseen negative effects of the COVID-19 pandemic.
In particular, Amendment No. 2 provided that the Company may issue additional debt securities in an aggregate
principal amount of up to $500 million on or prior to the last day of fiscal 2020 (the “Post-Amendment Debt
Issuance”), and must use half of the net cash proceeds from the Post-Amendment Debt Issuance to repay
outstanding borrowings under the Secured Revolving Credit Facility (or, if such outstanding borrowings do not
exceed an amount equal to half of such net cash proceeds, the amount necessary to repay the borrowings in full).
The aggregate gross principal amount outstanding of any Post-Amendment Debt issuance will not count as
Consolidated Indebtedness for purposes of leverage determinations under the Secured Revolving Credit
Agreement to the extent that the Company’s and certain other subsidiaries’ on-hand cash and cash equivalents is
at least equal to the aggregate principal gross amount outstanding of that issuance. On May 11, 2020, TWCC
issued $500 million principal amount of senior notes at par, bearing interest at a rate of 5.500% per annum, and
maturing on May 15, 2025, as more fully described below.
Additionally, Amendment No.2 provided that:
•
The Lease Adjusted Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio covenants
were waived during the period from and including the second fiscal quarter of 2020 through and
including the fourth fiscal quarter of 2020, and thereafter,
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT (Continued)
•
•
the Lease Adjusted Leverage Ratio was set at 5.50:1.00 for the first fiscal quarter of 2021 and,
during the remainder of 2021, gradually steps down to 4.00:1.00 for the fourth fiscal quarter of
2021 and, subject to the consummation of a Material Acquisition (as defined in Amendment
No.2), thereafter.
the Consolidated Fixed Charge Coverage Ratio was set at 1.25:1.00 for the first fiscal quarter of
2021 and, during the remainder of 2021 and, gradually steps back up to 1.85:1.00 for the fourth
fiscal quarter of 2021 and, subject to the consummation of a Material Acquisition, thereafter.
During the period from May 4, 2020 through the date the Company delivers its financial statements
and associated certificates relating to the third fiscal quarter of 2021 (the “Restricted Period”), the
Company must maintain a minimum liquidity (defined as cash-on-hand plus availability under its
secured revolving credit facility) on the last day of each fiscal month of at least $700 million.
During the Restricted Period, the Company must demonstrate a business need for revolving
borrowings if it maintains more than $700 million of cash on-hand at the time of the draw, subject to
certain exceptions.
During Restricted Period, the availability of certain exceptions to the lien, investment, indebtedness,
and restricted payment negative covenants (including those related to dividend payments and share
repurchases) are limited or removed, and any incremental credit extensions and the possibility of
collateral and covenant release periods are suspended.
During the Restricted Period, interest rate margins applicable to the secured revolving credit facility
were initially 2.125% for LIBOR rate loans (which may be adjusted based on a leverage-based pricing
grid ranging from 1.125% to 2.375%) and 1.125% for base rate loans (which may be adjusted based
on a leverage-based pricing grid ranging from 0.125% to 1.375%). Amendment No. 2 also provided
for a commitment fee initially equal to 0.35% per annum, and ranging thereafter from 0.15% per
annum to 0.40% per annum based upon a leverage-based pricing grid, which is payable quarterly in
arrears with respect to the average daily unused portion of the revolving loan commitments.
•
•
•
•
Approximately $1.2 million, including both bank fees and other third party expenses, has been capitalized in
connection with Amendment No. 2 and is being amortized over the remaining term of the secured revolving
credit facility.
As of January 2, 2021, the interest rate margins applicable to the amended revolving credit facility were 1.625%
for LIBOR (London Interbank Offered Rate) rate loans and 0.625% for base rate loans. There were no U.S. dollar
borrowings or foreign currency borrowings outstanding on January 2, 2021. As of December 28, 2019, 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 3.42%. There were no Canadian
borrowings outstanding on January 2, 2021 or December 28, 2019.
As of January 2, 2021, the Company was in compliance with its financial and other covenants under the secured
revolving credit facility.
Senior Notes
2020 Issuance of Senior Notes
On May 11, 2020, TWCC issued $500 million principal amount of senior notes at par, bearing interest at a rate of
5.500% per annum, and maturing on May 15, 2025, all of which were outstanding as of January 2, 2021. TWCC
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT (Continued)
received net proceeds from the offering of the senior notes of approximately $494.5 million, after deducting
underwriting fees, which TWCC used to repay borrowings outstanding under the Company’s secured revolving
credit facility. Approximately $6.5 million, including both bank fees and other third party expenses, has been
capitalized in connection with the issuance and is being amortized over the term of the senior notes.
The senior notes are unsecured and are fully and unconditionally guaranteed by Carter’s, Inc. and certain
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 May 15, 2022, 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 May 15 of each of the years indicated is as follows:
Year
2022 . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . .
Percentage
102.75%
101.38%
100.00%
2019 Redemption and Issuance of Senior Notes
On March 14, 2019, TWCC redeemed $400 million principal amount of senior notes, bearing interest at a rate of
5.25% per annum, and maturing on August 15, 2021, pursuant to the optional redemption provisions of the notes,
which required that TWCC pay the outstanding principal plus accrued interest and an early redemption premium
of 1.31% of the outstanding principal amounts of the senior notes. This debt redemption resulted in a loss on
extinguishment of debt of $7.8 million, consisting of $5.2 million of early redemption premiums and $2.6 million
of unamortized debt issuance costs.
Concurrently, TWCC issued $500 million principal amount of senior notes at par, bearing interest at a rate of
5.625% per annum, and maturing on March 15, 2027. TWCC received net proceeds from the offering of the
senior notes of approximately $494.8 million, after deducting underwriting fees and other expenses, which
TWCC used to redeem the senior notes discussed above and repay borrowings outstanding under the Company’s
secured revolving credit facility. Approximately $5.8 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.
On and after March 15, 2022, 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 March 15 of each of the years indicated is as follows:
Year
2022 . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . .
Percentage
102.81%
101.41%
100.00%
The senior notes mentioned above 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8—LONG-TERM DEBT (Continued)
The indenture governing the senior notes provides that 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, plus accrued and unpaid interest to (but excluding) the date of purchase.
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 certain types
of indebtedness that is secured by a lien; (b) enter into certain sale and leaseback transactions; and (c) consolidate
or merge with or into, or sell substantially all of the issuer’s assets to, another person, under certain
circumstances. 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 25.0% 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.
NOTE 9—COMMON STOCK
OPEN MARKET SHARE REPURCHASES
On both February 13, 2020 and February 22, 2018, the Company’s Board of Directors authorized an additional
$500 million of share repurchases, for total authorizations, inclusive of authorizations prior to 2018, of up to
$1.96 billion.
The Company repurchased and retired shares in open market transactions in the following amounts for the fiscal
periods indicated:
For the fiscal year ended
January 2,
2021
December 28,
2019
December 29,
2018
Number of shares repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate cost of shares repurchased (dollars in thousands)
. . . . . .
Average price per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
474,684
$ 45,255
95.34
$
2,107,472
$ 196,910
93.43
$
1,879,529
$ 193,028
102.70
$
The total remaining capacity under outstanding repurchase authorizations as of January 2, 2021 was
approximately $650.4 million, based on settled repurchase transactions. The share repurchase authorizations have
no expiration dates.
On March 26, 2020, the Company announced that, in connection with the COVID-19 pandemic, it suspended its
common stock share repurchase program. While we may elect to resume purchases at any time, the timing and
amount of any future repurchases will be determined by the Company based on its evaluation of market
conditions, share price, other investment priorities, and other factors.
DIVIDENDS
In the first fiscal quarter of 2020, the Company declared and paid cash dividends of $0.60 per share. On May 1,
2020, in connection with the COVID-19 pandemic, the Company suspended its quarterly cash dividend. As a
result, the Company did not declare or pay cash dividends for the remainder of fiscal 2020. The Board of
Directors will evaluate future dividend declarations based on a number of factors, including restrictions under the
Company’s revolving credit facility, business conditions, the Company’s financial performance, and other
considerations. In fiscal 2019, the Company declared and paid cash dividends of $0.50 per share during all four
quarters.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9—COMMON STOCK (Continued)
Provisions in the Company’s secured revolving credit facility have the effect of restricting the Company’s ability
to pay cash dividends on, or make future repurchases of, its common stock through the date the Company
delivers its financial statements and associated certificates relating to the third fiscal quarter of 2021, and could
have the effect of restricting the Company’s ability to do so thereafter, 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 January 2, 2021, there were 3,293,796 remaining shares
available for grant under the Plan. The Plan makes a provision for the treatment of awards upon termination of
service or in the case of a merger or similar corporate transaction. Participation in the Plan is limited to members
of the Company’s board of directors, executive officers and other key employees.
The limit on shares available under the Plan, the individual limits, and other award terms are subject to
adjustment to reflect stock splits or stock dividends, combinations, and certain other events. All stock options
issued under the Plan expire no later than ten years from the date of grant. The Company believes that the current
level of authorized shares is sufficient to satisfy future grants for the foreseeable future.
The Company recorded stock-based compensation cost as follows:
(dollars in thousands)
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock:
For the fiscal years ended
January 2,
2021
December 28,
2019
December 29,
2018
$ 2,694
$ 4,070
$ 4,788
Time-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,468
(1,927)
1,595
9,432
1,552
1,475
7,938
744
1,203
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,830
$16,529
$14,673
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 2020, the
achievement of performance target estimates was revised resulting in a reversal of previously recognized stock-
based compensation expense for outstanding performance-based awards.
Stock Options
Stock options vest in equal annual installments over a four-year period. The Company issues new shares to
satisfy stock option exercises.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10—STOCK-BASED COMPENSATION (Continued)
Changes in the Company’s stock options for the fiscal year ended January 2, 2021 were as follows:
Number of
shares
Weighted-
average
exercise price
Weighted-
average
remaining
contractual
terms (years)
Aggregate
intrinsic value
(in thousands)
Outstanding, December 28, 2019 . . . . . . . . . . . . . . . . . .
Granted (*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,128,607
$ 78.78
— $ —
$ 46.52
$101.56
$ 96.96
(193,645)
(31,758)
(42,493)
Outstanding, January 2, 2021 . . . . . . . . . . . . . . . . . . . . .
860,711
$ 84.31
Vested and expected to vest, January 2, 2021 . . . . . . . .
Exercisable, January 2, 2021 . . . . . . . . . . . . . . . . . . . . .
853,722
709,690
$ 84.10
$ 79.74
4.83
4.81
4.41
$13,164
$13,154
$12,584
(*) The Company did not grant any stock options in fiscal 2020.
The intrinsic value of stock options exercised during the fiscal years ended January 2, 2021, December 28, 2019,
and December 29, 2018 was approximately $8.2 million, $13.3 million, and $16.6 million, respectively. At
January 2, 2021, there was approximately $1.6 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 1.1 years.
The table below presents the weighted-average assumptions used to calculate the fair value of options granted in
each of the respective fiscal years:
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For the fiscal years ended
January 2,
2021(*)
December 28,
2019(*)
December 29,
2018
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value of options granted . . . . . . . . . . . . . . . . . . . . .
—%
—%
0
—%
$—
—%
—%
0
—%
$—
22.93%
2.75%
6.0
1.47%
$27.36
(*) There were no stock options granted in fiscal 2020 and 2019.
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).
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10—STOCK-BASED COMPENSATION (Continued)
The following table summarizes activity related to all restricted stock awards during the fiscal year ended
January 2, 2021:
Restricted
stock
awards
Weighted-
average
grant-date
fair value
Outstanding, December 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 94.58
458,500
$105.48
226,970
(140,345) $ 89.80
(82,588) $ 91.83
Outstanding, January 2, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
462,537
$101.87
During fiscal 2019, a total of 131,924 shares of restricted stock vested with a weighted-average fair value of
$93.03 per share. During fiscal 2018, a total of 151,321 shares of restricted stock vested with a weighted-average
fair value of $84.56 per share.
At January 2, 2021, there was approximately $19.8 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 2.6 years.
Time-based Restricted Stock Awards
Time-based restricted stock awards vest in equal annual installments or cliff vest after a three-year or four-year
period. During fiscal years 2020, 2019, and 2018, a total of 125,209 shares, 102,492 shares, and 100,625 shares,
respectively, of time-based restricted stock vested with a weighted-average fair value of $90.52 per share, $93.70
per share, and $85.64 per share, respectively. At January 2, 2021, there was approximately $19.8 million of
unrecognized compensation cost (net of estimated forfeitures) related to time-based restricted stock which is
expected to be recognized over a weighted-average period of approximately 2.6 years.
Performance-based Restricted Stock Awards
Fiscal year
Number of shares
granted
Weighted-average
fair value per
share
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,625
60,700
58,320
$120.25
$ 88.87
$108.76
Performance-based restricted stock awards cliff vest after a three-year period, subject to the achievement of the
performance target. During the fiscal year ended January 2, 2021, a total of 15,136 performance shares vested
with a weighted-average fair value of $83.84 per share. As of January 2, 2021, a total of 153,744 performance
shares were unvested with a weighted-average fair value of $104.16 per share. Vesting of these 153,744
performance shares is based on the performance targets for the shares granted in fiscal 2020, 2019, and 2018. As
of January 2, 2021, there was no unrecognized compensation cost related to the unvested performance-based
restricted stock awards based on the current estimates of the number of awards that will vest.
92
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10—STOCK-BASED COMPENSATION (Continued)
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 2020, 2019, and 2018, such awards were as follows:
Fiscal year
Number of shares
issued
Fair value per
share
Aggregate value
(in thousands)
2018 . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . .
10,971
16,097
21,362
$109.67
$ 91.63
$ 74.67
$1,203
$1,475
$1,595
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.
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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)
For the fiscal year ended
January 2, 2021
December 28, 2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
. . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
68,331
2,171
6,666
(3,040)
74,128
61,961
6,496
(3,040)
65,417
8,711
$
$
$
$
$
62,297
2,432
6,039
(2,437)
68,331
55,564
8,834
(2,437)
61,961
6,370
The accumulated benefit obligation is equal to the projected benefit obligation as of January 2, 2021 and
December 28, 2019 because the plan is frozen. The unfunded status is included in Other long-term liabilities in
the Company’s consolidated balance sheet. The Company does not expect to make any contributions to the
93
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 – EMPLOYEE BENEFIT PLANS (Continued)
OshKosh B’Gosh pension plan during fiscal 2021 as the plan’s funding exceeds the minimum funding
requirements. The actuarial loss incurred in both fiscal 2020 and fiscal 2019 was primarily attributable to lower
discount rates in each year.
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)
January 2, 2021 December 28, 2019 December 29, 2018
For the fiscal year ended
Recognized in the statement of operations:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Expected return on plan assets . . . . . . . . . . . . . . . . . .
Amortization of net loss (*) . . . . . . . . . . . . . . . . . . . .
Net periodic pension (benefit) cost
. . . . . . . . . . . .
Changes recognized in other comprehensive income:
Net loss (gain) arising during the fiscal year . . . . . . .
Amortization of net loss (*) . . . . . . . . . . . . . . . . . . . .
$ 2,171
(3,217)
510
$ (536)
$ 3,387
(510)
$ 2,432
(2,613)
795
$
614
$ (182)
(795)
Total changes recognized in other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,877
$ (977)
Total net periodic cost and changes recognized in
other comprehensive income . . . . . . . . . . . . . . . . .
$ 2,341
$ (363)
$ 2,287
(2,934)
709
$
62
$ 1,070
(709)
$
$
361
423
(*) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2021,
approximately $0.4 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
2020
2019
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.50% 3.25%
Net periodic pension cost
2020
2019
2018
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on assets . . . . . . . . . . . . . . . . . . . . .
3.25% 4.00% 3.50%
6.00% 5.50% 6.25%
The discount rates used at January 2, 2021, December 28, 2019, and December 29, 2018 were determined with
consideration given to the Citigroup Pension Discount and Liability Index and the Barclays 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.
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 – EMPLOYEE BENEFIT PLANS (Continued)
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 $2.5 million.
The Company currently expects benefit payments for its defined benefit pension plans as follows for the next ten
fiscal years:
(dollars in thousands)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026-2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,780
$ 2,860
$ 2,970
$ 3,160
$ 3,370
$18,710
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 6.00% 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 January 2, 2021 and December 28, 2019, 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) . . . . . . . . . . . . . . . .
January 2, 2021
December 28, 2019
Total
Level 1
Level 2
Total
Level 1
Level 2
$
644
$
644
$ —
$
606
$
606
$ —
9,006
4,105
3,913
2,608
9,882
9,006
4,105
3,913
2,608
9,882
—
—
—
—
—
8,673
3,905
3,751
2,511
9,408
8,673
3,905
3,751
2,511
9,408
—
—
—
—
—
31,995
3,264
$65,417
31,751
3,264
$65,173
244
—
$244
30,051
3,056
$61,961
29,779
3,056
$61,689
272
—
$272
(1) This category comprises low-cost equity index funds not actively managed that track the Standard & Poor’s 500
Index.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
January 2,
2021
December 28,
2019
APBO at beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contribution . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,311
25
94
(162)
9
(279)
APBO at end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,998
$
3,228
21
123
238
—
(299)
3,311
Approximately $2.7 million and $3.0 million of the APBO at the end of fiscal 2020 and 2019, 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 (Continued)
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
January 2,
2021
December 28,
2019
December 29,
2018
Recognized in the statement of operations:
Service cost
Interest cost
Amortization of net gain (*)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net periodic post-retirement (benefit) cost
. . . . . . . . . . . . . . . . . . .
Changes recognized in other comprehensive income:
Net (gain) loss arising during the fiscal year . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net gain (*)
Total changes recognized in other comprehensive income . . . . . . .
Total net periodic cost (benefit) and changes recognized in
other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
25
94
(345)
$
21
123
(396)
(226) $
(252) $
(162) $
345
183
$
238
396
634
(43) $
382
$
$
$
32
123
(289)
(134)
(573)
289
(284)
(418)
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(*) Represents pre-tax amounts reclassified from accumulated other comprehensive loss. For fiscal 2021,
approximately $0.3 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
2020
2019
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.00% 3.00%
Net periodic pension cost
2020
2019
2018
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.00% 4.00% 3.25%
The discount rates used at January 2, 2021, December 28, 2019, and December 29, 2018, were determined with
primary consideration given to the Citigroup Pension Discount and Liability Index adjusted for the timing of
expected plan distributions. The Company believes this index reflects a risk-free rate with maturities that are
comparable to the timing of the expected payments under the plan.
The effects on the Company’s plan of all future increases in health care costs are borne primarily by employees;
accordingly, increasing medical costs are not expected to have any material effect on the Company’s future
financial results.
The Company’s contribution for these post-retirement benefit obligations was approximately $0.3 million for
fiscal years 2020, 2019, and 2018. The Company expects that its contribution and benefit payments for post-
retirement benefit obligations will be approximately $0.3 million for fiscal years 2021, 2022, and 2023 and
97
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 – EMPLOYEE BENEFIT PLANS (Continued)
approximately $0.2 million for fiscal years 2024 and 2025. For the five years subsequent to fiscal 2025, the
aggregate contributions and benefit payments for post-retirement benefit obligations is expected to be
approximately $0.9 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 of
employee contributions. The Company’s expense for the U.S. defined contribution savings plan totaled
approximately $7.7 million, $8.0 million, and $8.0 million for the fiscal years ended January 2, 2021,
December 28, 2019, and December 29, 2018, respectively. Expenses related to the Canadian defined contribution
savings plan were approximately $0.2 million in fiscal year 2020, $0.1 million in fiscal year 2019, and
$0.1 million in fiscal year 2018.
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
January 2,
2021
December 28,
2019
December 29,
2018
Current tax provision:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
31,085
6,331
11,105
$
50,162
10,548
16,740
$
48,129
9,437
17,359
Total current provision . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
48,521
$
77,450
$
74,925
Deferred tax provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (18,449) $ (10,775)
(1,882)
(643)
(3,741)
(1,064)
$
(760)
140
(398)
Total deferred provision . . . . . . . . . . . . . . . . . . . . . . . . . .
(23,254)
(13,300)
(1,018)
Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
25,267
$
64,150
$
73,907
98
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12—INCOME TAXES (Continued)
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 has provided for deferred income
taxes related to these earnings. Since the current U.S. tax regime taxes foreign earnings in the year earned, taxes
associated with repatriation are not material. Deferred income taxes have not been provided for undistributed
foreign earnings from Canada or Mexico, 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 $70 million.
Unrecognized deferred tax liability related to undistributed earnings from the Company’s subsidiaries in Canada
and Mexico is estimated to be approximately $3 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.
The components of income before income taxes were as follows:
(dollars in thousands)
For the fiscal year ended
January 2,
2021
December 28,
2019
December 29,
2018
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
73,525
61,459
$
225,488
102,464
$
260,722
95,253
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
134,984
$
327,952
$
355,975
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
January 2,
2021
December 28,
2019
December 29,
2018
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 . . . . . . . . . . . . . . . .
Goodwill impairments and other . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.0%
2.7%
(4.8)%
(1.3)%
(1.1)%
2.2%
18.7%
21.0%
2.5%
(2.4)%
(0.7)%
(0.8)%
—%
19.6%
21.0%
2.8%
(1.5)%
(0.4)%
(1.1)%
—%
20.8%
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 U.S. tax authority examinations for years prior to fiscal 2017.
99
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12—INCOME TAXES (Continued)
DEFERRED TAXES
The following table reflects the Company’s calculation of the components of deferred tax assets and liabilities as
of January 2, 2021 and December 28, 2019.
(dollars in thousands)
January 2,
2021
December 28,
2019
Deferred tax assets:
Accounts receivable allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Assets (Liabilities)
4,072
11,775
13,807
5,039
7,928
130,776
4,961
3,437
7,963
10,219
5,222
7,220
178,356
3,699
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,358
216,116
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasing assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename and licensing agreements . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,777)
(107,269)
(76,409)
(5,593)
(52,664)
(149,085)
(82,592)
(4,084)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(228,048)
(288,425)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (49,690)
$ (72,309)
Amounts recognized in the consolidated balance sheets:
(dollars in thousands)
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2,
2021
December 28,
2019
Assets (Liabilities)
3,080
(52,770)
$ 2,061
(74,370)
(49,690)
$(72,309)
$
$
100
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to fiscal 2019 . . . . . . . . . . . . . .
Reductions for lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . .
Balance at December 28, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to fiscal 2020 . . . . . . . . . . . . . .
Reductions for prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . .
$12,193
3,350
241
(1,867)
$13,917
2,197
(2,191)
$13,923
760
(104)
(2,056)
Balance at January 2, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,523
As of January 2, 2021, the Company had gross unrecognized tax benefits of approximately $12.5 million, of
which $10.9 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 $3.3 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 2021
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 2020 and
2019, expense recorded on uncertain tax positions was approximately $0.4 million and $0.5 million, respectively.
During fiscal 2018, interest expense recorded on uncertain tax positions was not significant. The Company had
accrued interest on uncertain tax positions of approximately $2.7 million and $2.3 million as of January 2, 2021
and December 28, 2019, respectively.
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101
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
For the fiscal year ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
43,242,967
164,754
44,402,438
305,514
46,160,935
487,485
equivalent shares outstanding . . . . . . . . . . . . . .
43,407,721
44,707,952
46,648,420
Earnings per share:
(dollars in thousands, except per share data)
Basic net income per common share:
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 . . . . . . .
$
$
$
$
109,717
(1,118)
108,599
2.51
109,717
(1,115)
$
$
$
$
263,802
(2,430)
261,372
5.89
263,802
(2,419)
$
$
$
$
282,068
(2,148)
279,920
6.06
282,068
(2,132)
Net income available to common shareholders . . . . . . . . .
$ 108,602
$ 261,383
$ 279,936
Diluted net income per common share . . . . . . . . . . .
$
2.50
$
5.85
$
6.00
Anti-dilutive shares excluded from dilutive
earnings per share calculations (1) . . . . . . . . . . . . .
564,131
351,777
289,839
(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 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
102
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14—SEGMENT INFORMATION (Continued)
they are not included in the internal measures of segment operating performance used by the Company to
measure the underlying performance of its reportable segments.
Segment results include the direct costs of each segment and all other costs are allocated based upon detailed
estimates and analysis of actual time and expenses incurred to support the operations of each segment or units
produced or sourced to support each segment’s revenue. Certain costs, including incentive compensation for
certain employees, and various other general corporate costs that are not specifically allocable to segments, are
included in corporate expenses below. Intersegment sales and transfers are recorded at cost and are treated as a
transfer of inventory. The accounting policies of the segments are the same as those described in Note 2,
Summary of Significant Accounting Policies, to the consolidated financial statements.
The table below presents certain segment information for our reportable segments and unallocated corporate
expenses for the periods indicated:
(dollars in thousands)
January 2,
2021
(53 weeks)
% of
Consolidated
Net Sales
December 28,
2019
(52 weeks)
% of
Consolidated
Net Sales
December 29,
2018
(52 weeks)
% of
Consolidated
Net Sales
For the fiscal year ended
Net sales:
U.S. Retail
U.S. Wholesale . . . . . . . . . . . .
International . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . $1,671,644
996,088
356,602
Total consolidated net
55.3% $1,884,150
32.9% 1,205,646
429,490
11.8%
53.5% $1,851,193
34.3% 1,180,687
430,389
12.2%
53.5%
34.1%
12.4%
sales . . . . . . . . . . . . . . $3,024,334
100.0% $3,519,286
100.0% $3,462,269
100.0%
Operating income (loss):
% of
Segment
Net Sales
% of
Segment
Net Sales
% of
Segment
Net Sales
U.S. Retail
U.S. Wholesale . . . . . . . . . . . .
International . . . . . . . . . . . . . .
Corporate expenses (*) . . . . . .
. . . . . . . . . . . . . . . $ 146,806
141,456
(1,224)
(97,169)
8.8% $ 225,874
212,558
14.2%
36,650
(0.3)%
(103,210)
n/a
12.0% $ 224,784
224,194
17.6%
39,253
8.5%
(96,798)
n/a
12.1%
19.0%
9.1%
n/a
Total operating
income . . . . . . . . . . . . $ 189,869
6.3% $ 371,872
10.6% $ 391,433
11.3%
(*) Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive
management, severance and relocation, finance, office occupancy, information technology, certain legal fees,
consulting fees, and audit fees.
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103
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14—SEGMENT INFORMATION (Continued)
The tables below present additional segment information for our reportable segments for the periods presented:
(dollars in millions)
Charges:
January 2, 2021
U.S.
Retail
U.S.
Wholesale
International
Organizational restructuring (1)
. . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . .
Skip Hop tradename impairment charge . . . . . . . . . . .
OshKosh tradename impairment charge . . . . . . . . . . .
Incremental costs associated with COVID-19
pandemic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail store operating leases and other long-lived
asset impairments, net of gain(2) . . . . . . . . . . . . . . . .
$
5.0
—
0.5
13.6
9.6
7.4
$
2.0
—
6.8
1.6
9.6
—
$
2.2
17.7
3.7
0.3
2.2
0.3
Total charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
36.1
$
20.0
$
26.4
(1) The fiscal year ended January 2, 2021 also includes corporate charges related to organizational restructuring of
$7.4 million.
(2) Impairments include an immaterial gain on the remeasurement of retail store operating leases.
(dollars in millions)
December 28, 2019
December 29, 2018
Charges:
Skip Hop tradename
U.S.
Retail
U.S.
Wholesale
International
U.S.
Retail
U.S.
Wholesale
International
impairment charge . . . . . . $ 1.2
$19.1
$10.5
$ — $ —
$ —
Customer bankruptcy
charges . . . . . . . . . . . . . . . —
China business model
change . . . . . . . . . . . . . . . . —
Benefit related to sale of
inventory previously
reserved in China . . . . . . . —
—
—
Reversal of store
restructuring costs
previously recorded during
the third quarter of fiscal
2017 . . . . . . . . . . . . . . . . .
Customer bankruptcy
(0.7)
—
recovery . . . . . . . . . . . . . .
(0.6)
—
—
(2.1)
—
—
—
—
—
—
—
12.8
—
—
—
(1.9)
Insurance recovery
associated with storm-
related store closures.
. . . . —
—
—
(0.4)
—
Total charges (1) . . . . . . . . . $ 0.5
$18.5
$ 8.4
$(0.4)
$10.9
5.3
—
—
—
—
$5.3
(1) The fiscal year ended December 28, 2019 also includes corporate charges related to organizational restructuring of
$1.6 million.
104
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14—SEGMENT INFORMATION (Continued)
ADDITIONAL DATA BY SEGMENT
Inventory
The table below represents inventory by segment:
(dollars in thousands)
For the fiscal year ended
January 2,
2021
December 28,
2019
U.S. Wholesale (*) . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
464,229
47,889
87,144
$427,387
87,721
78,879
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
599,262
$593,987
(*) 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
January 2, 2021
(53 weeks)
December 28, 2019
(52 weeks)
December 29, 2018
(52 weeks)
Baby . . . . . . . . . . . . . . . . . . . . . . . . .
Playclothes . . . . . . . . . . . . . . . . . . . .
Sleepwear . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Other (*)
$
1,026,910
1,052,178
441,358
503,888
$
1,228,905
1,362,847
428,541
498,993
$
1,239,009
1,303,610
431,961
487,689
Total net sales . . . . . . . . . . . . . . .
$
3,024,334
$
3,519,286
$
3,462,269
(*) Other product offerings include bedding, outerwear, swimwear, shoes, socks, diaper bags, gift sets, toys, and hair
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accessories.
GEOGRAPHICAL DATA
Revenue
The Company’s international sales principally represent sales to customers in Canada. Such sales were 70.3%,
65.6%, and 64.2% of total international net sales in fiscal 2020, 2019, and 2018, 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
January 2,
2021
December 28,
2019
$
$
232,655
29,690
262,345
$
$
283,371
36,797
320,168
105
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14—SEGMENT INFORMATION (Continued)
Long-lived assets in the international segment relate principally to Canada. Long-lived assets in Canada were
84.0% and 84.3% of total international long-lived assets at the end of fiscal 2020 and 2019, respectively.
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 $20.2 million and $19.7 million at the end of fiscal 2020 and fiscal 2019, respectively. These
investments are classified as Level 1 within the fair value hierarchy. Investments in marketable securities
incurred a net gain of approximately $2.0 million for fiscal 2020 and a net gain of approximately $4.0 million for
fiscal 2019.
The fair value of the Company’s pension plan assets at January 2, 2021 and December 28, 2019, 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 January 2, 2021 and December 28, 2019, there were no open foreign currency contracts.
Realized and unrealized gains and losses on foreign currency contracts were not material for fiscal 2020, 2019,
and 2018.
BORROWINGS
As of January 2, 2021, the Company had no outstanding borrowings under its secured revolving credit facility.
The fair value of the Company’s senior notes at January 2, 2021 was approximately $1.06 billion. The fair value
of these senior notes with a notional value and carrying value (gross of debt issuance costs) of $1.00 billion 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.
IMPAIRMENT OF LONG-LIVED TANGIBLE ASSETS
Long-lived assets, which for the Company primarily consist of operating lease assets and store assets, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. The asset group is defined as the lowest level for which identifiable cash flows are
available and is largely independent of cash flows of other groups of assets, which for our retail stores, is at the
store level. For impaired assets, the Company recognized a loss equal to the difference between the carrying
106
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15—FAIR VALUE MEASUREMENTS (Continued)
amount of the asset or asset group and its estimated fair value, which is recorded in Selling, general and
administrative expenses on the Company’s consolidated statements of operations. For operating lease assets, the
Company determines the fair value of the assets by discounting the estimated market rental rates over the
remaining term of the lease. These estimates can be affected by factors such as future store results, real estate
demand, store closure plans, property specific discount rates, and economic conditions that can be difficult to
predict. These fair value measurements qualify as level 3 measurements in the fair value hierarchy.
The impact of the COVID-19 pandemic resulted in a qualitative indication of impairment related to our store
long-lived assets. In fiscal 2020, the Company recorded impairment charges of operating lease assets and other
long-lived assets for our underperforming retail stores of $9.0 million. The impairment charges were recorded in
Selling, general and administrative expenses on the Company’s consolidated statements of operations.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and indefinite-lived intangible assets are tested annually or if a triggering event occurs that indicates an
impairment loss may have been incurred using fair value measurements with unobservable inputs (Level 3).
Due to the decrease in the Company’s market capitalization, lower than expected actual sales, and lower
projected sales and profitability, primarily due to the impacts from the outbreak of COVID-19, the Company
concluded that impairment indicators existed for the first quarter of fiscal 2020. As a result, during the first
quarter of fiscal 2020, the Company conducted interim quantitative impairment assessments of 1) the goodwill
ascribed to the Other International reporting unit recorded in connection with the allocation of goodwill to the
newly created International segment as a result of the acquisition of Bonnie Togs in 2011 and 2) on the value of
the Company’s indefinite-lived OshKosh and Skip Hop tradename assets that was recorded in connection with the
acquisition of OshKosh B’Gosh Inc. in July 2005 and Skip Hop Holdings, Inc. in February 2017, respectively.
Based on these assessments, a goodwill impairment charge of $17.7 million was recorded during the first quarter
of fiscal 2020 to our Other International reporting unit in the International segment and charges of $15.5 million
and $11.0 million were recorded on our indefinite-lived OshKosh and Skip Hop tradename assets, respectively.
The charge recorded on our indefinite-lived OshKosh tradename asset included charges of $13.6 million,
$1.6 million, and $0.3 million in the U.S. Retail, U.S. Wholesale, and International segments, respectively, to
reflect the impairment of the value ascribed to the indefinite-lived OshKosh tradename asset. The charge
recorded on our indefinite-lived Skip Hop tradename asset included charges of $6.8 million, $3.7 million, and
$0.5 million in the U.S. Wholesale, International, and U.S. Retail segments, respectively, to reflect the
impairment of the value ascribed to the indefinite-lived Skip Hop tradename asset. The carrying value of the
Company’s goodwill for the Other International reporting unit as of January 2, 2021 was $11.8 million. The
carrying values of the Company’s indefinite-lived OshKosh and Skip Hop tradename asset as of January 2, 2021
were $70.0 million and $15.0 million, respectively.
In the third quarter of fiscal 2019, the Company’s Skip Hop business experienced lower than expected actual and
projected sales and profitability due to lower domestic demand, including the loss of a significant customer (Toys
“R” Us), lower international demand and higher product costs primarily driven by tariffs imposed on products
sourced from China. As a result, the Company conducted an interim impairment assessment in the third quarter
of fiscal 2019 on the value of the Company’s indefinite-lived Skip Hop tradename asset that was recorded in
connection with the acquisition of Skip Hop Holdings, Inc. in February 2017. Based on this assessment, a charge
of $30.8 million was recorded during the third quarter of fiscal 2019 on our indefinite-lived Skip Hop tradename
asset. The charge included charges of $19.1 million, $10.5 million, and $1.2 million in the U.S. Wholesale,
107
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CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15—FAIR VALUE MEASUREMENTS (Continued)
International, and U.S. Retail segments, respectively, to reflect the impairment of the value ascribed to the
indefinite-lived Skip Hop tradename asset.
See Note 6, Goodwill and Other Intangible Assets, for further details on the impairment charge and valuation
methodologies.
NOTE 16—OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
(dollars in thousands)
January 2,
2021
December 28,
2019
Accrued employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unredeemed gift cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
22,876
21,164
18,300
12,092
10,900
10,650
39,258
$
16,556
23,269
17,563
8,579
15,036
4,695
45,933
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
135,240
$
131,631
NOTE 17—ORGANIZATIONAL RESTRUCTURING AND OFFICE CONSOLIDATION
In the first and fourth quarters of fiscal 2020, the Company announced several organizational restructuring
initiatives which included a reorganization of staffing models across multiple functions to drive labor savings and
increase efficiencies, the consolidation of certain functions into our corporate headquarters in Atlanta, Georgia,
and over 100 planned store closures by the end of fiscal 2021. In conjunction with these initiatives, the Company
recorded the following charges in selling, general and administrative expenses:
(dollars in thousands)
Severance and other termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease exit costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Relocation and recruiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the fiscal
year ended
January 2,
2021
$12,029
2,727
1,800
80
$16,636
The Company paid approximately $4.3 million in severance and other termination benefits during fiscal 2020. As
of January 2, 2021 there was approximately $7.7 million in reserves related to severance and other termination
benefits expected to be paid during fiscal 2021 included in Other current liabilities in the Company’s
consolidated balance sheets. The Company expects to incur additional restructuring-related charges of
approximately $2.0 million to $3.0 million in fiscal 2021. These charges primarily relate to accelerated
depreciation and severance.
108
CARTER’S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 include obligations associated with leases, the secured
revolving credit agreement, senior notes, employee benefit plans, and facility consolidations/closures as
disclosed in Note 17, Organizational Restructuring and Office Consolidation, to the consolidated financial
statements.
The Company also has minimum inventory purchase commitments, including fabric commitments, with our
suppliers which secure a portion of our material needs for future seasons. In light of the COVID-19 pandemic,
some of our orders may be canceled. As of January 2, 2021, the Company had an outstanding reserve of
$13.3 million for adverse inventory and fabric purchase commitments.
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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 January 2, 2021.
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 January 2, 2021. 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
January 2, 2021.
The effectiveness of Carter’s, Inc. and its subsidiaries’ internal control over financial reporting as of January 2,
2021 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.
110
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 2020 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 20, 2021. 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
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
Equity compensation plans approved by security holders
(*) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
860,711
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
860,711
$84.31
—
$84.31
3,293,796
—
3,293,796
(*) 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.
111
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.
112
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(A)
1. Financial Statements filed as part of this report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at January 2, 2021 and December 28, 2019 . . . . . . . . . . . . . . .
Page
46
51
55
Consolidated Statements of Operations for the fiscal years ended January 2, 2021,
December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Comprehensive Income for the fiscal years ended January 2,
2021, December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021,
December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended
January 2, 2021, December 28, 2019, and December 29, 2018 . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
60
2. Financial Statement Schedules: None
(B)
Exhibits:
Exhibit Number
Description of Exhibits
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3.1
3.2
4.1
4.2
4.2.1
4.3
4.3.1
4.4
10.1
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-1A (No. 333-98679)
filed on October 10, 2003).
Indenture, dated March 14, 2019, by and among The William Carter Company,
certain guarantors from time to time party thereto 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 March 14, 2019).
Form of 5.625% Senior Notes due 2027 (included in Exhibit 4.2).
Indenture, dated May 11, 2020, by and among The William Carter Company,
certain guarantors from time to time party thereto 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 May 11, 2020).
Form of 5.500% Senior Notes due 2025 (included in Exhibit 4.3).
Description of Securities (incorporated by reference to Exhibit 4.3 of Carter’s,
Inc.’s Annual Report on Form 10-K filed on February 24, 2020).
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
113
Exhibit Number
Description of Exhibits
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).
Amendment No. 2, dated as of May 4, 2020, 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 Quarterly
Report on Form 10-Q filed on July 24, 2020).
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).
114
10.1.1
10.1.2
10.2*
10.3*
10.4*
Exhibit Number
Description of Exhibits
10.5*
10.6*
10.7
10.8
10.8.1
21
23
31.1
31.2
32
The William Carter Company Severance Plan, amended and restated effective
January 1, 2020 (incorporated by reference to Exhibit 10.5 of Carter’s, Inc,’s
Annual Report on Form 10-K filed on February 24, 2020).
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).
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).
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.
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Exhibit No. (101).INS
XBRL Instance Document—the instant document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document
Exhibit No. (101).SCH
XBRL Taxonomy Extension Schema Document
Exhibit No. (101).CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit No. (101).DEF
XBRL Taxonomy Extension Definition Linkbase Document
Exhibit No. (101).LAB
XBRL Taxonomy Extension Label Linkbase Document
Exhibit No. (101).PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit No. 104
The cover page from this Current Report on Form 10-K formatted as Inline
XBRL
*
Indicates a management contract or compensatory plan.
ITEM 16. FORM 10-K SUMMARY
Omitted at registrant’s option.
115
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 26, 2021
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 26, 2021
/s/ RICHARD F. WESTENBERGER Executive Vice President and Chief Financial Officer
February 26, 2021
Richard F. Westenberger
(Principal Financial and Accounting Officer)
/S/ HALI BORENSTEIN
Hali Borenstein
/S/ AMY WOODS BRINKLEY
Amy Woods Brinkley
Director
February 26, 2021
Director
February 26, 2021
/S/ GIUSEPPINA BUONFANTINO
Giuseppina Buonfantino
Director
February 26, 2021
/S/ A. BRUCE CLEVERLY
A. Bruce Cleverly
/S/ JEVIN S. EAGLE
Jevin S. Eagle
Director
February 26, 2021
Director
February 26, 2021
116
Name
/S/ MARK P. HIPP
Mark P. Hipp
Title
Director
Date
February 26, 2021
/S/ WILLIAM J. MONTGORIS
William J. Montgoris
Director
February 26, 2021
/S/ RICHARD A. NOLL
Richard A. Noll
/S/ DAVID PULVER
David Pulver
Director
February 26, 2021
Director
February 26, 2021
/S/ GRETCHEN W. SCHAR
Gretchen W. Schar
Director
February 26, 2021
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Exhibit 31.1
CERTIFICATION
I, Michael D. Casey, certify that:
1.
I have reviewed this annual report on Form 10-K of Carter’s, Inc.;
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 26, 2021
/s/ MICHAEL D. CASEY
Michael D. Casey
Chief Executive Officer
118
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 26, 2021
/s/ RICHARD F. WESTENBERGER
Richard F. Westenberger
Chief Financial Officer
119
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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 January 2, 2021 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 26, 2021
February 26, 2021
/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.
120
Carter’s, Inc. | 3438 Peachtree Road NE, Suite 1800 | Atlanta, GA 30326 | 678.791.1000 | carters.com | oshkosh.com | skiphop.com