10-Q 1 cri-20220402.htm 10-Q cri-20220402
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     For the quarterly period ended April 2, 2022
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
13-3912933
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.01 per shareCRINew York Stock Exchange
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 x 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 x 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ☐
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No x
As of April 22, 2022, there were 40,291,624 shares of the registrant’s common stock outstanding.



CARTER’S, INC.
INDEX
Page
Unaudited Condensed Consolidated Balance Sheets as of April 2, 2022, January 1, 2022, and April 3, 2021
Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter ended April 2, 2022 and April 3, 2021
Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter ended April 2, 2022 and April 3, 2021
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the fiscal quarter ended April 2, 2022 and April 3, 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the fiscal quarter ended April 2, 2022 and April 3, 2021
Part II. Other Information
Certifications




PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARTER’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
April 2, 2022January 1, 2022April 3, 2021
ASSETS
Current assets:
Cash and cash equivalents$702,266 $984,294 $1,053,690 
Accounts receivable, net of allowance for credit losses of $5,766, $7,281, and $6,695, respectively
265,694 231,354 240,212 
Finished goods inventories, net of inventory reserves of $11,307, $14,378, and $15,581, respectively
679,729 647,742 560,683 
Prepaid expenses and other current assets64,389 50,131 63,290 
Total current assets1,712,078 1,913,521 1,917,875 
Property, plant, and equipment, net of accumulated depreciation of $536,580, $528,926, and $557,608, respectively
197,515 216,004 248,799 
Operating lease assets469,354 487,748 559,391 
Tradenames, net307,581 307,643 307,830 
Goodwill212,518 212,023 212,271 
Customer relationships, net33,151 33,969 36,596 
Other assets29,084 30,889 27,711 
Total assets$2,961,281 $3,201,797 $3,310,473 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$284,034 $407,044 $334,831 
Current portion of long-term debt, net495,743   
Current operating lease liabilities146,823 147,537 172,117 
Other current liabilities111,078 176,449 149,911 
Total current liabilities1,037,678 731,030 656,859 
Long-term debt, net496,104 991,370 989,980 
Deferred income taxes48,450 40,910 56,990 
Long-term operating lease liabilities419,493 441,861 517,875 
Other long-term liabilities44,266 46,440 59,160 
Total liabilities$2,045,991 $2,251,611 $2,280,864 
Commitments and contingencies - Note 14
Stockholders’ equity:
Preferred stock; par value $0.01 per share;100,000 shares authorized; none issued or outstanding at April 2, 2022, January 1, 2022, and April 3, 2021
$ $ $ 
Common stock, voting; par value $0.01 per share; 150,000,000 shares authorized; 40,555,922, 41,148,870, and 43,947,659 shares issued and outstanding at April 2, 2022, January 1, 2022, and April 3, 2021, respectively
406 411 440 
Additional paid-in capital  21,904 
Accumulated other comprehensive loss(26,115)(28,897)(31,534)
Retained earnings940,999 978,672 1,038,799 
Total stockholders’ equity915,290 950,186 1,029,609 
Total liabilities and stockholders’ equity$2,961,281 $3,201,797 $3,310,473 
See accompanying notes to the unaudited condensed consolidated financial statements.
1


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
Fiscal quarter ended
April 2, 2022April 3, 2021
Net sales$781,284 $787,361 
Cost of goods sold426,193 401,731 
Adverse purchase commitments (inventory and raw materials), net49 (6,330)
Gross profit355,042 391,960 
Royalty income, net7,474 7,463 
Selling, general, and administrative expenses259,893 271,927 
Operating income 102,623 127,496 
Interest expense15,132 15,348 
Interest income(338)(225)
Other income, net(512)(917)
Income before income taxes88,341 113,290 
Income tax provision 20,408 27,094 
Net income $67,933 $86,196 
Basic net income per common share$1.66 $1.96 
Diluted net income per common share$1.66 $1.96 
Dividend declared and paid per common share$0.75 $ 
See accompanying notes to the unaudited condensed consolidated financial statements.
2


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
Fiscal quarter ended
April 2, 2022April 3, 2021
Net income $67,933 $86,196 
Other comprehensive income:
Foreign currency translation adjustments2,782 1,226 
Comprehensive income $70,715 $87,422 
See accompanying notes to the unaudited condensed consolidated financial statements.
3


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands, except share amounts)
(unaudited)
Common stock - shares Common stock - $Additional paid-in capital
Accumulated other comprehensive loss
Retained earningsTotal stockholders’ equity
Balance at January 2, 202143,780,075 $438 $17,752 $(32,760)$952,603 $938,033 
Exercise of stock options12,065  811   811 
Withholdings from vesting
of restricted stock
(37,444) (3,588)  (3,588)
Restricted stock activity192,963 2 (2)   
Stock-based compensation expense—  6,931   6,931 
Comprehensive income—   1,226 86,196 87,422 
Balance at April 3, 202143,947,659 $440 $21,904 $(31,534)$1,038,799 $1,029,609 
Common stock - sharesCommon stock - $Additional paid-in capital
Accumulated other comprehensive loss
Retained earningsTotal stockholders’ equity
Balance at January 1, 202241,148,870 $411 $ $(28,897)$978,672 $950,186 
Exercise of stock options5,100  222   222 
Withholdings from vesting
of restricted stock
(70,452) (6,623)  (6,623)
Restricted stock activity265,412 3 (3)   
Stock-based compensation expense—  5,859   5,859 
Repurchase of common stock(793,008)(8)545  (75,033)(74,496)
Cash dividends declared and paid of $0.75 per common share
—    (30,573)(30,573)
Comprehensive income—   2,782 67,933 70,715 
Balance at April 2, 202240,555,922 $406 $ $(26,115)$940,999 $915,290 
See accompanying notes to the unaudited condensed consolidated financial statements.
4


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Fiscal quarter ended
April 2, 2022April 3, 2021
Cash flows from operating activities:
Net income $67,933 $86,196 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of property, plant, and equipment13,282 23,183 
Amortization of intangible assets932 932 
(Recoveries of) provisions for excess and obsolete inventory, net(3,109)1,364 
Other asset impairments and loss (gain) on disposal of property, plant and equipment, net of recoveries190 (25)
Amortization of debt issuance costs787 738 
Stock-based compensation expense5,859 6,931 
Unrealized foreign currency exchange (gain) loss, net(189)49 
(Recoveries of) provisions for doubtful accounts receivable from customers(1,513)766 
Unrealized loss (gain) on investments935 (179)
Deferred income taxes7,759 4,365 
Effect of changes in operating assets and liabilities:
Accounts receivable(32,484)(54,484)
Finished goods inventories(27,720)37,812 
Prepaid expenses and other assets(13,245)(5,007)
Accounts payable and other liabilities(183,224)(142,171)
Net cash used in operating activities$(163,807)$(39,530)
Cash flows from investing activities:
Capital expenditures$(7,652)$(11,665)
Proceeds from sale of investments 5,000 
Net cash used in investing activities$(7,652)$(6,665)
Cash flows from financing activities:
Payment of debt issuance costs(3) 
Repurchases of common stock(74,496) 
Dividends paid(30,573) 
Withholdings from vesting of restricted stock(6,623)(3,588)
Proceeds from exercises of stock options222 811 
Net cash used in financing activities$(111,473)$(2,777)
Net effect of exchange rate changes on cash and cash equivalents904 339 
Net decrease in cash and cash equivalents$(282,028)$(48,633)
Cash and cash equivalents, beginning of period984,294 1,102,323 
Cash and cash equivalents, end of period$702,266 $1,053,690 
See accompanying notes to the unaudited condensed consolidated financial statements.
5


CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 My First Love, Little Planet, and other brands. The Company’s products are sourced through contractual arrangements with manufacturers worldwide for: 1) wholesale distribution to leading department stores, national chains, and specialty retailers domestically and internationally and 2) distribution to the Company’s own retail stores and eCommerce sites that market its brand name merchandise and other licensed products manufactured by other companies.
NOTE 2 – BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, comprehensive income, statement of stockholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the fiscal quarter ended April 2, 2022 are not necessarily indicative of the results that may be expected for the current fiscal year ending December 31, 2022.
The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
The accompanying condensed consolidated balance sheet as of January 1, 2022 was derived from the Company’s audited consolidated financial statements included in its most recently filed Annual Report on Form 10-K. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
Accounting Policies
The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K. There have been no material changes to these accounting policies.
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 retail customers. The Company also earns royalties from certain of its licensees. Disaggregated revenues from these sources for the first quarter of fiscal 2022 and 2021 were as follows:
Fiscal quarter ended April 2, 2022
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $307,301 $50,432 $357,733 
Direct-to-consumer366,358  57,193 423,551 
$366,358 $307,301 $107,625 $781,284 
Royalty income, net$3,240 $3,430 $804 $7,474 
6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fiscal quarter ended April 3, 2021
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Wholesale channel$ $283,377 $42,792 $326,169 
Direct-to-consumer407,067  54,125 461,192 
$407,067 $283,377 $96,917 $787,361 
Royalty income, net$3,070 $3,775 $618 $7,463 
Accounts Receivable from Customers and Licensees
The components of Accounts receivable, net, were as follows:
(dollars in thousands)April 2, 2022January 1, 2022April 3, 2021
Trade receivables from wholesale customers, net
$266,970 $233,928 $234,643 
Royalties receivable6,923 5,769 7,090 
Tenant allowances and other receivables9,282 10,352 11,664 
Total gross receivables$283,175 $250,049 $253,397 
Less: Wholesale accounts receivable reserves(*)
(17,481)(18,695)(13,185)
Accounts receivable, net$265,694 $231,354 $240,212 
(*)Includes allowance for credit losses of $5.8 million, $7.3 million, and $6.7 million for the periods ended April 2, 2022, January 1, 2022, and April 3, 2021, respectively.
Contract Assets and Liabilities
The Company’s contract assets are not material.
Contract Liabilities
The Company recognizes a contract liability when it has received consideration from a customer and has a future obligation to transfer goods to the customer. Total contract liabilities consisted of the following amounts:
(dollars in thousands)April 2, 2022January 1, 2022April 3, 2021
Contract liabilities - current:
Unredeemed gift cards$21,026 $21,619 $17,426 
Unredeemed customer loyalty rewards5,804 5,659 5,893 
Carter’s credit card - upfront bonus(1)
714 714 714 
Total contract liabilities - current(2)
$27,544 $27,992 $24,033 
Contract liabilities - non-current(3)
$1,964 $2,143 $2,679 
Total contract liabilities$29,508 $30,135 $26,712 
(1)The Company received an upfront signing bonus from a third-party financial institution, which will be recognized as revenue on a straight-line basis over the term of the agreement. This amount reflects the current portion of this bonus to be recognized as revenue over the next twelve months.
(2)Included with Other current liabilities on the Company’s consolidated balance sheet.
(3)This amount reflects the non-current portion of the Carter’s credit card upfront bonus.
NOTE 4 - 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 the periods presented, the Company’s finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or statements of cash flows.
7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following components of lease expense are included in Selling, general and administrative expenses on the Company’s consolidated statements of operations for the first quarter of fiscal 2022 and 2021:
Fiscal quarter ended
(dollars in thousands)April 2, 2022April 3, 2021
Operating lease cost$39,457 $42,698 
Variable lease cost(*)
17,068 16,398 
Net lease cost$56,525 $59,096 
(*)Includes short-term leases, which are not material, and operating lease impairment charges.
As of April 2, 2022, the weighted average remaining operating lease term was 4.8 years, and the weighted average discount rate for operating leases was 3.26%.
Cash paid for amounts included in the measurement of operating lease liabilities in the first quarter of fiscal 2022 was $43.3 million.
Operating lease assets obtained in exchange for operating lease liabilities in the first quarter of fiscal 2022 were $16.3 million.
As of April 2, 2022, the maturities of lease liabilities were as follows:
(dollars in thousands)Operating leases
Remainder of 2022$124,582 
2023146,425 
2024116,999 
202583,204 
202658,830 
202736,730 
After 202748,044 
Total lease payments$614,814 
Less: Interest(48,498)
Present value of lease liabilities(*)
$566,316 
(*)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.
As of April 2, 2022, the minimum rental commitments for additional operating lease contracts, primarily for retail stores, that have not yet commenced are $9.7 million. These operating leases will commence between fiscal year 2022 and fiscal year 2023 with lease terms of 3 years to 10 years.
NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of Accumulated other comprehensive loss consisted of the following:
(dollars in thousands)April 2, 2022January 1, 2022April 3, 2021
Cumulative foreign currency translation adjustments$(18,520)$(21,302)$(20,081)
Pension and post-retirement obligations(*)
(7,595)(7,595)(11,453)
Total accumulated other comprehensive loss$(26,115)$(28,897)$(31,534)
(*)Net of income taxes of $2.4 million, $2.4 million, and $3.5 million, for the period ended April 2, 2022, January 1, 2022, and April 3, 2021, respectively.
During the first quarter of both fiscal 2022 and fiscal 2021, no amounts were reclassified from Accumulated other comprehensive loss to the statement of operations.
8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The balances and changes in the carrying amount of Goodwill attributable to each segment were as follows:
(dollars in thousands)U.S. RetailU.S. WholesaleInternationalTotal
Balance at January 2, 2021$83,934 $74,454 $53,388 $211,776 
Foreign currency impact  495 495 
Balance at April 3, 2021(*)
$83,934 $74,454 $53,883 $212,271 
Balance at January 1, 2022
$83,934 $74,454 $53,635 $212,023 
Foreign currency impact  495 495 
Balance at April 2, 2022(*)
$83,934 $74,454 $54,130 $212,518 
(*)Goodwill balance for the International reporting unit is net of accumulated impairment losses of $17.7 million.
A summary of the carrying value of the Company’s intangible assets were as follows:
April 2, 2022January 1, 2022
(dollars in thousands)Weighted-average useful lifeGross amountAccumulated amortizationNet amountGross amountAccumulated amortizationNet amount
Carter’s tradename
Indefinite$220,233 $— $220,233 $220,233 $— $220,233 
OshKosh tradename
Indefinite70,000 — 70,000 70,000 — 70,000 
Skip Hop tradename
Indefinite15,000 — 15,000 15,000 — 15,000 
Finite-life tradenames
5 -20 years
3,911 1,563 2,348 3,911 1,501 2,410 
Total tradenames, net$309,144 $1,563 $307,581 $309,144 $1,501 $307,643 
Skip Hop customer relationships15 years$47,300 $15,804 $31,496 $47,300 $15,010 $32,290 
Carter’s Mexico customer relationships10 years3,099 1,444 1,655 3,047 1,368 1,679 
Total customer relationships, net$50,399 $17,248 $33,151 $50,347 $16,378 $33,969 
April 3, 2021
(dollars in thousands)Weighted-average useful lifeGross amountAccumulated amortizationNet amount
Carter’s tradename
Indefinite$220,233 $— $220,233 
OshKosh tradename
Indefinite70,000 — 70,000 
Skip Hop tradename
Indefinite15,000 — 15,000 
Finite-life tradenames
 5 - 20 years
3,911 1,314 2,597 
Total tradenames, net$309,144 $1,314 $307,830 
Skip Hop customer relationships15 years$47,300 $12,628 $34,672 
Carter’s Mexico customer relationships10 years3,063 1,139 1,924 
Total customer relationships, net$50,363 $13,767 $36,596 
Amortization expense for intangible assets subject to amortization was approximately $0.9 million for both first fiscal quarters ended April 2, 2022 and April 3, 2021.
9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated amortization expense for the next five fiscal years is as follows:
(dollars in thousands)Amortization expense
Remainder of 2022$2,803 
2023$3,695 
2024$3,665 
2025$3,665 
2026$3,665 
2027$3,535 
NOTE 7 – COMMON STOCK
Open Market Share Repurchases
The Company repurchased and retired shares in open market transactions in the following amounts for the fiscal periods indicated:
Fiscal quarter ended
April 2, 2022
April 3, 2021(*)
Number of shares repurchased793,008  
Aggregate cost of shares repurchased (dollars in thousands)$74,496 $ 
Average price per share$93.94 $ 
(*)As a result of actions taken in connection with the COVID-19 pandemic, the Company did not repurchase or retire any shares in open market transactions in the first quarter of fiscal 2021.
On February 24, 2022, the Company’s Board of Directors authorized share repurchases up to $1.00 billion, inclusive of approximately $301.9 million remaining under previous authorizations. The total aggregate remaining capacity under outstanding repurchase authorizations as of April 2, 2022 was approximately $974.7 million, based on settled repurchase transactions. The share repurchase authorizations have no expiration date.
Future repurchases may occur from time to time in the open market, in privately negotiated transactions, or otherwise. The timing and amount of any repurchases will be at the discretion of the Company subject to restrictions under the Company’s revolving credit facility, market conditions, stock price, other investment priorities, and other factors.
Dividends
In the first quarter of fiscal 2022, the Board of Directors declared and the Company paid cash dividends of $0.75 per common share. As a result of actions taken in connection with the COVID-19 pandemic, the Board of Directors did not declare and we did not pay cash dividends for the first quarter of fiscal 2021. The Board of Directors will evaluate future dividend declarations based on a number of factors, including restrictions under the Company’s revolving credit facility, business conditions, the Company’s financial performance, and other considerations.
Provisions in the Company’s secured revolving credit facility could have the effect of restricting the Company’s ability to pay cash dividends on, or make future repurchases of, its common stock, as further described in Note 8, Long-term Debt, to the consolidated financial statements.
10


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 – LONG-TERM DEBT
Long-term debt consisted of the following:
(dollars in thousands)April 2, 2022January 1, 2022April 3, 2021
$500 million 5.500% senior notes due May 15, 2025(*)
$ $500,000 $500,000 
$500 million 5.625% senior notes due March 15, 2027
500,000 500,000 500,000 
Total senior notes$500,000 $1,000,000 $1,000,000 
Less unamortized issuance-related costs for senior notes(*)
(3,896)(8,630)(10,020)
      Senior notes, net$496,104 $991,370 $989,980 
Secured revolving credit facility   
Total long-term debt, net
$496,104 $991,370 $989,980 
(*)As of April 2, 2022, senior notes due May 15, 2025 and the unamortized debt issuance-related costs for these senior notes are presented in Current portion of long-term debt.
On March 4, 2022, the Company announced an irrevocable commitment to redeem the $500 million principal amount of senior notes, bearing interest at a rate of 5.500% per annum, and originally maturing on May 15, 2025 (the “5.500% Senior Notes”). Accordingly, the principal amount of these senior notes have been presented on the Company’s consolidated balance sheet as Current portion of long-term debt, net as of April 2, 2022. The debt issuance costs of approximately $4.3 million associated with these senior notes have been presented on the Company’s consolidated balance sheet as a direct reduction in the carrying value of the associated current debt liability.
On April 4, 2022, the Company, through its wholly-owned subsidiary, The William Carter Company (“TWCC”), redeemed the 5.500% Senior Notes. Pursuant to the optional redemption provisions described in the Indenture dated as of May 11, 2020, TWCC paid the outstanding principal plus accrued interest and an Applicable Premium as defined in the Indenture. This debt redemption is estimated to result in a loss on extinguishment of debt of approximately $19.9 million in the second quarter of fiscal 2022.
Secured Revolving Credit Facility
As of April 2, 2022, the Company had no outstanding borrowings under its secured revolving credit facility, exclusive of $4.1 million of outstanding letters of credit. As of April 2, 2022, approximately $745.9 million remained available for future borrowing. All outstanding borrowings under the Company’s secured revolving credit facility are classified as non-current liabilities on the Company’s consolidated balance sheet because of the contractual repayment terms under the credit facility.
The Company’s revolving credit facility provides for an aggregate credit line of $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 credit facility matures on September 21, 2023. The facility contains covenants that restrict the Company’s ability to, among other things: (i) create or incur liens, debt, guarantees or other investments, (ii) engage in mergers and consolidations, (iii) pay dividends or other distributions to, and redemptions and repurchases from, equity holders, (iv) prepay, redeem or repurchase subordinated or junior debt, (v) amend organizational documents, and (vi) engage in certain transactions with affiliates.
As of April 2, 2022, the interest rate margins applicable to the secured revolving credit facility were 1.375% for LIBOR (London Interbank Offered Rate) rate loans and 0.375% for base rate loans.
On April 11, 2022, the Company, through its wholly owned subsidiary, TWCC entered into Amendment No. 4 to its fourth amended and restated credit agreement (“Amendment No. 4”) that, among other things, increased the borrowing capacity of the secured revolving credit facility to $850.0 million (combined U.S. dollar and multicurrency facility borrowings), extended the maturity of the secured revolving credit facility from September 2023 to April 2027, and reduced the number of financial maintenance covenants from two to one. Approximately $2.4 million, including both bank fees and other third-party expenses, has been capitalized in connection with Amendment No. 4 in the second quarter of fiscal 2022 and will be amortized over the remaining term of the secured revolving credit facility. As of April 2, 2022, the Company was in compliance with its financial and other covenants under the secured revolving credit facility.
11


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 – STOCK-BASED COMPENSATION
The Company recorded stock-based compensation expense as follows:
Fiscal quarter ended
(dollars in thousands)April 2, 2022April 3, 2021
Stock options$166 $474 
Restricted stock:
   Time-based awards5,159 3,900 
   Performance-based awards534 2,557 
Total$5,859 $6,931 
On February 16, 2022, the Company’s Board of Directors approved the issuance of the following new awards to certain key employees under the Company’s existing stock-based compensation plan, subject to vesting: 198,480 shares of time-based restricted stock awards with a grant-date fair value of $91.12 each; and 89,760 shares of performance-based restricted stock awards with a grant-date fair value of $91.12 each.
During the first quarter of fiscal 2022, a total of 169,620 restricted stock awards (time- and performance-based) vested.
The Company recognizes compensation cost ratably over the applicable performance periods based on the estimated probability of achievement of its performance targets at the end of each period. During the first quarter of fiscal 2021, the achievement of performance target estimates relating to certain performance-based grants were revised resulting in a $2.6 million increase to stock-based compensation expense.
NOTE 10 – INCOME TAXES
As of April 2, 2022, the Company had gross unrecognized income tax benefits of approximately $11.0 million, of which $7.7 million, if ultimately recognized, may affect the Company’s effective income tax rate in the periods settled. The Company has recorded tax positions for which the ultimate deductibility is more likely than not, but for which there is uncertainty about the timing of such deductions.
Included in the reserves for unrecognized tax benefits at April 2, 2022 is approximately $2.8 million of reserves for which the statute of limitations is expected to expire within the next 12 months. If these tax benefits are ultimately recognized, such recognition, net of federal income taxes, may affect the annual effective income tax rate for fiscal 2022 and/or fiscal 2023 along with the effective income tax rate in the quarter in which the benefits are recognized.
The Company recognizes interest related to unrecognized tax benefits as a component of interest expense and recognizes penalties related to unrecognized income tax benefits as a component of income tax expense. Interest expense recorded on uncertain tax positions was not material for the first fiscal quarter ended April 2, 2022 and April 3, 2021. The Company had approximately $2.0 million, $1.8 million, and $2.9 million of interest accrued on uncertain tax positions as of April 2, 2022, January 1, 2022, and April 3, 2021, respectively.
NOTE 11 – 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 condensed consolidated balance sheets, and their aggregate fair values were approximately $16.6 million, $17.5 million, and $15.4 million at April 2, 2022, January 1, 2022, and April 3, 2021, respectively. These investments are classified as Level 1 within the fair value hierarchy. The change in the aggregate fair values of marketable securities are due to the net activity of gains and losses and any contributions and distributions during the period. Losses on the investments in marketable securities were $0.9 million for the first fiscal quarter ended April 2, 2022. Gains on the investments in marketable securities were not material for the first fiscal quarter ended April 3, 2021. These amounts are included in Other (income) expense, net on the Company’s consolidated statement of operations.
Borrowings
As of April 2, 2022, the Company had no outstanding borrowings under its secured revolving credit facility.
12


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of the Company’s senior notes, including the 5.500% Senior Notes classified as a current liability, at April 2, 2022 was approximately $1.02 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.
Goodwill, Intangible, and Long-Lived Tangible Assets
Some assets are not measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances. These assets can include goodwill, indefinite-lived intangible assets, and long-lived tangible assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.
NOTE 12 – EARNINGS PER SHARE
The following is a reconciliation of basic common shares outstanding to diluted common and common equivalent shares outstanding:
Fiscal quarter ended
April 2, 2022April 3, 2021
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding40,270,895 43,370,744 
Dilutive effect of equity awards
77,437 129,198 
Diluted number of common and common equivalent shares outstanding40,348,332 43,499,942 
Earnings per share:
(dollars in thousands, except per share data)
Basic net income per common share:
Net income $67,933 $86,196 
Income allocated to participating securities
(921)(1,033)
Net income available to common shareholders$67,012 $85,163 
Basic net income per common share$1.66 $1.96 
Diluted net income per common share:
Net income $67,933 $86,196 
Income allocated to participating securities
(920)(1,030)
Net income available to common shareholders$67,013 $85,166 
Diluted net income per common share$1.66 $1.96 
Anti-dilutive awards excluded from diluted earnings per share computation(*)
172,987 481,491 
(*)The volume of anti-dilutive awards is, in part, due to the related unamortized compensation costs.
13


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13 – OTHER CURRENT LIABILITIES
Other current liabilities at the end of any comparable period, were as follows:
(dollars in thousands)April 2, 2022January 1, 2022April 3, 2021
Unredeemed gift cards$21,026 $21,619 $17,426 
Income taxes payable16,049 13,850 40,143 
Accrued taxes11,962 12,883 16,054 
Accrued interest11,782 11,942 11,987 
Accrued employee benefits11,544 26,517 17,307 
Accrued salaries and wages4,831 10,821 4,773 
Accrued bonuses and incentive compensation4,592 47,363 10,222 
Other29,292 31,454 31,999 
Other current liabilities$111,078 $176,449 $149,911 
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and pending or threatened lawsuits in the normal course of business. The Company is not currently a party to any legal proceedings that it believes would have a material adverse impact on its financial position, results of operations, or cash flows.
The Company’s contractual obligations and commitments include obligations associated with leases, the secured revolving credit agreement, senior notes, and employee benefit plans.
NOTE 15 – SEGMENT INFORMATION
The table below presents certain information for our reportable segments and unallocated corporate expenses for the periods indicated:
Fiscal quarter ended
(dollars in thousands)April 2, 2022
% of
consolidated
net sales
April 3, 2021
% of
consolidated
net sales
Net sales:
U.S. Retail$366,358 46.9 %$407,067 51.7 %
U.S. Wholesale307,301 39.3 %283,377 36.0 %
International    107,625 13.8 %96,917 12.3 %
Consolidated net sales
$781,284 100.0 %$787,361 100.0 %
Operating income:
% of
segment net sales
% of
segment net sales
U.S. Retail$49,994