SEC Filing | Carter's Inc

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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 March 28, 2020

☐ 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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	CRI	New 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 29, 2020, there were 43,606,338 shares of the registrant's common stock outstanding.

CARTER’S, INC.

INDEX



			Page
Part I. Financial Information

	Item 1	Financial Statements
		Unaudited Condensed Consolidated Balance Sheets as of March 28, 2020, December 28, 2019 and March 30, 2019	1
		Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter ended March 28, 2020 and March 30, 2019	2
		Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter ended March 28, 2020 and March 30, 2019	3
		Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the fiscal quarter ended March 28, 2020 and March 30, 2019	4
		Unaudited Condensed Consolidated Statements of Cash Flows for the fiscal quarter ended March 28, 2020 and March 30, 2019	5
		Notes to the Unaudited Condensed Consolidated Financial Statements	7
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3	Quantitative and Qualitative Disclosures about Market Risk	29
	Item 4	Controls and Procedures	29

Part II. Other Information

	Item 1	Legal Proceedings	31
	Item 1A	Risk Factors	31
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 3	Defaults upon Senior Securities	33
	Item 4	Mine Safety Disclosures	33
	Item 5	Other Information	33
	Item 6	Exhibits	34

Signatures			35

Certifications

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARTER’S, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)



	March 28, 2020			December 28, 2019			March 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	759,100		$	214,311		$	160,149
Accounts receivable, net of allowance for credit losses of $10,620, $6,354, $4,093, respectively	221,884			251,005			239,239
Finished goods inventories, net of inventory reserves of $35,597, $9,283, and $15,535, respectively	565,932			593,987			519,752
Prepaid expenses and other current assets	43,349			48,454			51,887
Total current assets	1,590,265			1,107,757			971,027
Property, plant, and equipment, net of accumulated depreciation of $542,158, $523,848, and $468,251, respectively	303,919			320,168			337,475
Operating lease assets	673,301			687,024			704,554
Tradenames, net	308,080			334,642			365,630
Goodwill	207,720			229,026			228,019
Customer relationships, net	39,785			41,126			43,669
Other assets	30,435			33,374			29,570
Total assets	$	3,153,505		$	2,753,117		$	2,679,944

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	187,199		$	183,641		$	108,221
Current operating lease liabilities	161,341			160,228			152,157
Other current liabilities	79,135			131,631			101,376
Total current liabilities	427,675			475,500			361,754

Long-term debt, net	1,238,822			594,672			625,278
Deferred income taxes	65,260			74,370			90,230
Long-term operating lease liabilities	647,334			664,372			692,056
Other long-term liabilities	58,412			64,073			61,222
Total liabilities	$	2,437,503		$	1,872,987		$	1,830,540

Commitments and contingencies - Note 14

Stockholders' equity:
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at March 28, 2020, December 28, 2019, and March 30, 2019	$	—		$	—		$	—
Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 43,610,725, 43,963,103 and 45,379,827 shares issued and outstanding at March 28, 2020, December 28, 2019, and March 30, 2019, respectively	436			440			454
Accumulated other comprehensive loss	(48,626		)	(35,634		)	(39,428		)
Retained earnings	764,192			915,324			888,378
Total stockholders' equity	716,002			880,130			849,404
Total liabilities and stockholders' equity	$	3,153,505		$	2,753,117		$	2,679,944

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share data)

(unaudited)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net sales	$	654,473		$	741,057
Cost of goods sold	403,373			425,138
Adverse purchase commitments (inventory, raw materials)	22,837			52
Gross profit	228,263			315,867
Royalty income, net	7,338			8,544
Selling, general, and administrative expenses	269,837			263,652
Goodwill impairment	17,742			—
Intangible asset impairment	26,500			—
Operating (loss) income	(78,478		)	60,759
Interest expense	8,864			9,629
Interest income	(464		)	(228		)
Other expense (income), net	4,818			(211		)
Loss on extinguishment of debt	—			7,823
(Loss) income before income taxes	(91,696		)	43,746
Income tax (benefit) provision	(13,002		)	9,280
Net (loss) income	$	(78,694	)	$	34,466

Basic net (loss) income per common share	$	(1.82	)	$	0.76
Diluted net (loss) income per common share	$	(1.82	)	$	0.75
Dividend declared and paid per common share	$	0.60		$	0.50

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

(unaudited)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Net (loss) income	$	(78,694	)	$	34,466
Other comprehensive (loss) income:
Foreign currency translation adjustments	(12,992		)	2,911
Comprehensive (loss) income	$	(91,686	)	$	37,377

See accompanying notes to the unaudited condensed consolidated financial statements.

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except share amounts)

(unaudited)

Fiscal quarter ended March 30, 2019:



	Common stock - shares		Common stock - $			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total stockholders’ equity
Balance at December 29, 2018	45,629,014		$	456		$	—		$	(40,839	)	$	909,816		$	869,433
Exercise of stock options	72,192		1			4,779			—			—			4,780
Withholdings from vesting of restricted stock	(43,844	)	—			(4,077		)	—			—			(4,077		)
Restricted stock activity	182,722		2			(2		)	—			—			—
Stock-based compensation expense	—		—			4,613			—			—			4,613
Repurchase of common stock	(460,257	)	(5		)	(5,313		)	—			(34,648		)	(39,966		)
Cash dividends declared and paid	—		—			—			—			(22,756		)	(22,756		)
Comprehensive income	—		—			—			2,911			34,466			37,377
Reclassification of tax effects^(*)	—		—			—			(1,500		)	1,500			—
Balance at March 30, 2019	45,379,827		$	454		$	—		$	(39,428	)	$	888,378		$	849,404


(*)	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 in the first quarter of fiscal 2019.

Fiscal quarter ended March 28, 2020:



	Common stock - shares		Common stock - $			Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings			Total stockholders’ equity
Balance at December 28, 2019	43,963,103		$	440		$	—		$	(35,634	)	$	915,324		$	880,130
Exercise of stock options	33,158		—			1,840			—			—			1,840
Withholdings from vesting of restricted stock	(43,611	)	—			(4,712		)	—			—			(4,712		)
Restricted stock activity	132,759		1			(1		)	—			—			—
Stock-based compensation expense	—		—			1,945			—			—			1,945
Repurchase of common stock	(474,684	)	(5		)	928			—			(46,178		)	(45,255		)
Cash dividends declared and paid	—		—			—			—			(26,260		)	(26,260		)
Comprehensive loss	—		—			—			(12,992		)	(78,694		)	(91,686		)
Balance at March 28, 2020	43,610,725		$	436		$	—		$	(48,626	)	$	764,192		$	716,002

See accompanying notes to the unaudited condensed consolidated financial statements

CARTER’S, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)



	Fiscal quarter ended
	March 28, 2020			March 30, 2019
Cash flows from operating activities:
Net (loss) income	$	(78,694	)	$	34,466
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation of property, plant, and equipment	22,433			22,629
Amortization of intangible assets	935			937
Provisions for excess and obsolete inventory	26,596			531
Goodwill impairment	17,742			—
Intangible asset impairments	26,500			—
Other asset impairments and loss on disposal of property, plant and equipment, net of recoveries	2,050			433
Amortization of debt issuance costs	353			367
Stock-based compensation expense	1,945			4,613
Unrealized foreign currency exchange loss (gain), net	3,856			(210		)
Provisions for (recoveries of) doubtful accounts receivable from customers	4,270			(2,562		)
Loss on extinguishment of debt	—			7,823
Deferred income taxes (benefit) expense	(10,053		)	3,242
Effect of changes in operating assets and liabilities:
Accounts receivable	22,926			21,891
Finished goods inventories	(5,634		)	55,321
Prepaid expenses and other assets	14,923			(717,808		)
Accounts payable and other liabilities	(64,450		)	605,350
Net cash (used in) provided by operating activities	$	(14,302	)	$	37,023

Cash flows from investing activities:
Capital expenditures	$	(8,068	)	$	(9,371	)
Net cash used in investing activities	$	(8,068	)	$	(9,371	)

Cash flows from financing activities:
Proceeds from senior notes due 2027	$	—		$	500,000
Payment of senior notes due 2021	—			(400,000		)
Premiums paid to extinguish debt	—			(5,252		)
Payment of debt issuance costs	—			(5,722		)
Borrowings under secured revolving credit facility	644,000			70,000
Payments on secured revolving credit facility	—			(135,000		)
Repurchases of common stock	(45,255		)	(39,966		)
Dividends paid	(26,260		)	(22,756		)
Withholdings from vestings of restricted stock	(4,712		)	(4,077		)
Proceeds from exercises of stock options	1,840			4,780
Net cash provided by (used in) financing activities	$	569,613		$	(37,993	)

Net effect of exchange rate changes on cash and cash equivalents	(2,454		)	413
Net increase (decrease) in cash and cash equivalents	$	544,789		$	(9,928	)
Cash and cash equivalents, beginning of period	214,311			170,077
Cash and cash equivalents, end of period	$	759,100		$	160,149

See accompanying notes to the unaudited condensed consolidated financial statements.

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," "its," "us" and "our") design, source, and market branded childrenswear and accessories under the Carter's, OshKosh B'gosh ("OshKosh"), Skip Hop, Child of Mine, Just One You, Simple Joys, Precious Baby, 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 (loss), 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 March 28, 2020 are not necessarily indicative of the results that may be expected for the current fiscal year ending January 2, 2021.

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 Company 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 March 28, 2020 and through the date of this report filing. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, inventory reserves, adverse inventory and fabric purchase commitments, stock based compensation, and the carrying value of our goodwill and other long-lived assets. Based on these assessments, the Company recorded inventory related charges of $26.6 million, adverse inventory and fabric purchase commitments of $22.8 million, intangible asset impairments of $26.5 million, and goodwill impairment of $17.7 million as of and for the quarter ended March 28, 2020. Our expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in further material impacts to our consolidated financial statements in future reporting periods.

The accompanying condensed consolidated balance sheet as of December 28, 2019 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. New accounting pronouncements adopted at the beginning of fiscal 2020 are noted below.

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,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 eliminates the requirement to calculate the implied fair value of goodwill (step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value (i.e., measure the charge based on the current step 1). Any impairment charge will be limited to the amount of goodwill allocated to an impacted reporting unit. ASU 2017-04 does not change the current guidance for completing step 1 of the goodwill impairment test, and an entity can still perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to step 1. 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 Intangible Assets, for further details on the impairment charge and valuation methodology.

Simplifying the Accounting for Income Taxes (Topic 740)

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 intra period 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.

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 2020 and 2019 were as follows:



	Fiscal quarter ended March 28, 2020
(dollars in thousands)	U.S. Retail		U.S. Wholesale		International		Total
Wholesale channel	$	—	$	252,130	$	38,730	$	290,860
Direct-to-consumer	320,717		—		42,896		363,613
	$	320,717	$	252,130	$	81,626	$	654,473

Royalty income	$	2,494	$	4,083	$	761	$	7,338

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)



	Fiscal quarter ended March 30, 2019
(dollars in thousands)	U.S. Retail		U.S. Wholesale		International		Total
Wholesale channel	$	—	$	275,367	$	40,788	$	316,155
Direct-to-consumer	377,053		—		47,849		424,902
	$	377,053	$	275,367	$	88,637	$	741,057

Royalty income	$	1,991	$	5,850	$	703	$	8,544

Accounts Receivable from Customers and Licensees

The components of Accounts receivable, net, were as follows:



(dollars in thousands)	March 28, 2020			December 28, 2019			March 30, 2019
Trade receivables from wholesale customers, net	$	221,101		$	240,750		$	226,455
Royalties receivable	6,428			6,982			7,511
Tenant allowances and other receivables	11,968			16,247			15,614
Total gross receivables	$	239,497		$	263,979		$	249,580
Less:
Wholesale accounts receivable reserves	(17,613		)	(12,974		)	(10,341		)
Accounts receivable, net	$	221,884		$	251,005		$	239,239

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)	March 28, 2020		December 28, 2019		March 30, 2019
Contract liabilities - current:
Unredeemed gift cards	$	16,758	$	17,563	$	13,724
Unredeemed customer loyalty rewards	4,503		5,615		8,520
Carter's credit card - upfront bonus⁽¹⁾	714		714		714
Total contract liabilities - current⁽²⁾	$	21,975	$	23,892	$	22,958


(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 over the next twelve months.


(2)	Included with Other current liabilities on the Company's consolidated balance sheet.

NOTE 4 - LEASES

We have 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 March 28, 2020, the Company's finance leases were not material to the consolidated balance sheets, consolidated statements of operations, or statements of cash flows.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following components of lease expense are included in Selling, general and administrative expenses on the Company's consolidated statements of operations for the first quarter of fiscal 2020 and 2019:



	Fiscal quarter ended
(dollars in thousands)	March 28, 2020		March 30, 2019
Operating lease cost	$	46,423	$	43,219
Variable lease cost ^(*)	16,285		16,448
Net lease cost	$	62,708	$	59,667


(*)	Includes short-term leases, which are immaterial.

Supplemental balance sheet information related to leases was as follows:



	Fiscal quarter ended
	March 28, 2020	March 30, 2019
Weighted average remaining operating lease term (years)	5.9	6.3
Weighted average discount rate for operating leases	4.29%	4.48%

Supplemental cash flow information related to leases was as follows:



	Fiscal quarter ended
(dollars in thousands)	March 28, 2020		March 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	50,177	$	47,264
Non-cash transactions to recognize operating assets and liabilities for new operating leases	$	25,867	$	18,004

As of March 28, 2020, the maturities of lease liabilities were as follows:



(dollars in thousands)	Operating leases
Remainder of 2020	$	145,928
2021	180,686
2022	155,957
2023	129,375
2024	104,674
After 2024	202,811
Total lease payments	$	919,431
Less: Interest	(110,756		)
Present value of lease liabilities^(*)	$	808,675


(*)	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 March 28, 2020, the minimum rental commitments for additional operating lease contracts that have not yet commenced, primarily for retail stores, are $17.4 million. These operating leases will commence between fiscal year 2020 and fiscal year 2023 with lease terms of 6 years to 10 years.

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of Accumulated other comprehensive loss consisted of the following:



(dollars in thousands)	March 28, 2020			December 28, 2019			March 30, 2019
Cumulative foreign currency translation adjustments	$	(39,514	)	$	(26,522	)	$	(30,053	)
Pension and post-retirement obligations^(*)	(9,112		)	(9,112		)	(9,375		)
Total accumulated other comprehensive loss	$	(48,626	)	$	(35,634	)	$	(39,428	)


(*)	Net of income taxes of $2.8 million, $2.8 million, and $2.9 million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the first quarter of both fiscal 2020 and fiscal 2019, no amounts were reclassified from Accumulated other comprehensive loss to the statement of operations.

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. Retail		U.S. Wholesale		International			Total
Balance at December 29, 2018	$	83,934	74,454		$	68,713		$	227,101
Foreign currency impact	—		—		918			918
Balance at March 30, 2019	$	83,934	$	74,454	$	69,631		$	228,019

Balance at December 28, 2019	$	83,934	$	74,454	$	70,638		$	229,026
Goodwill impairment^(*)	—		—		(17,742		)	(17,742		)
Foreign currency impact	—		—		(3,564		)	(3,564		)
Balance at March 28, 2020	$	83,934	$	74,454	$	49,332		$	207,720


(*)	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.

A summary of the carrying value of the Company's intangible assets were as follows:



		March 28, 2020						December 28, 2019
(dollars in thousands)	Weighted-average useful life	Gross amount		Accumulated amortization		Net amount		Gross amount		Accumulated amortization		Net amount
Carter's tradename	Indefinite	$	220,233	$	—	$	220,233	$	220,233	$	—	$	220,233
OshKosh tradename⁽¹⁾	Indefinite	70,000		—		70,000		85,500		—		85,500
Skip Hop tradename⁽²⁾	Indefinite	15,000		—		15,000		26,000		—		26,000
Finite-life tradenames	5-20 years	3,911		1,064		2,847		3,911		1,002		2,909
Total tradenames, net		$	309,144	$	1,064	$	308,080	$	335,644	$	1,002	$	334,642

Skip Hop customer relationships	15 years	$	47,300	$	9,451	$	37,849	$	47,300	$	8,657	$	38,643
Carter's Mexico customer relationships	10 years	2,790		854		1,936		3,258		775		2,483
Total customer relationships, net		$	50,090	$	10,305	$	39,785	$	50,558	$	9,432	$	41,126


(1)	In the first quarter of 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 the first quarter of 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. Fiscal 2019 includes a tradename impairment charge of $30.8 million.



		March 30, 2019
(dollars in thousands)	Weighted-average useful life	Gross amount		Accumulated amortization		Net amount
Carter's tradename	Indefinite	$	220,233	$	—	$	220,233
OshKosh tradename	Indefinite	85,500		—		85,500
Skip Hop tradename	Indefinite	56,800		—		56,800
Finite-life tradenames	5-20 years	3,911		814		3,097
Total tradenames, net		$	366,444	$	814	$	365,630

Skip Hop customer relationships	15 years	$	47,300	$	6,274	$	41,026
Carter's Mexico customer relationships	10 years	3,179		536		2,643
Total customer relationships, net		$	50,479	$	6,810	$	43,669

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 a new strain of coronavirus ("COVID-19"), the Company concluded that impairment indicators existed for the first quarter of fiscal 2020. As a result, the Company conducted interim quantitative impairment assessments on 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 on the value of the Company's indefinite-lived Skip Hop and OshKosh tradename assets that was recorded in connection with the acquisition of Skip Hop Holdings, Inc. in February 2017 and OshKosh B'Gosh Inc. in July 2005, 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 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. 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.

The Skip Hop and OshKosh 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 $11.0 million and $15.5 million were recorded on our indefinite-lived Skip Hop and OshKosh tradename assets, respectively. 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 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, International segments, respectively, to reflect the impairment of the value ascribed to the indefinite-lived OshKosh tradename asset. The carrying values of the Company's indefinite-lived Skip Hop and OshKosh tradename assets after the impairment charges were $15.0 million and $70.0 million, respectively.

The interim assessments performed indicated that fair values exceeded carrying amounts for our other reporting units and indefinite-lived intangible assets by at least 50%. Although the Company determined that no impairment exists for the Company's other 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.

Amortization expense for intangible assets subject to amortization was approximately $0.9 million for both first fiscal quarters ended March 28, 2020 and March 30, 2019.

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



(dollars in thousands)	Amortization expense
2021	$	3,690
2022	$	3,690
2023	$	3,648
2024	$	3,618
2025	$	3,618

NOTE 7 – COMMON STOCK

Open Market Share Repurchases

The total aggregate remaining capacity under outstanding repurchase authorizations as of March 28, 2020 was approximately $650.4 million, based on settled repurchase transactions. The authorizations have no expiration date.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company repurchased and retired shares in open market transactions in the following amounts for the fiscal periods indicated:



	Fiscal quarter ended
	March 28, 2020		March 30, 2019
Number of shares repurchased	474,684		460,257
Aggregate cost of shares repurchased (dollars in thousands)	$	45,255	$	39,966
Average price per share	$	95.34	$	86.83

On March 26, 2020, the Company announced, that in connection with the COVID-19 pandemic, it suspended its common stock share repurchase program. Once the program resumes, future repurchases may occur from time to time in the open market, in negotiated transactions, or otherwise. The timing and amount of any repurchases will be determined by the Company based on its evaluation of market conditions, share price, other investment priorities, and other factors. The share repurchase authorizations have no expiration dates.

Dividends

In the first fiscal quarter ended March 28, 2020 and March 30, 2019, the Company declared and paid cash dividends per share of $0.60 and $0.50, respectively. On May 1, 2020, in connection with the COVID-19 pandemic, the Company's Board of Directors suspended its quarterly cash dividend. The Board of Directors will evaluate future dividend declarations based on a number of factors, including 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 future cash dividends on, or make future repurchases of, its common stock, as described in the Company's Annual Report on Form 10-K for the 2019 fiscal year ended December 28, 2019.

NOTE 8 – LONG-TERM DEBT

Long-term debt consisted of the following:



(dollars in thousands)	March 28, 2020			December 28, 2019			March 30, 2019
Senior notes at amounts repayable	$	500,000		$	500,000		$	500,000
Less unamortized issuance-related costs for senior notes	(5,178		)	(5,328		)	(5,722		)
Senior notes, net	$	494,822		$	494,672		$	494,278
Secured revolving credit facility	744,000			100,000			131,000
Total long-term debt, net	$	1,238,822		$	594,672		$	625,278

Secured Revolving Credit Facility

To improve near-term liquidity 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. As of March 28, 2020, the Company had $744.0 million in outstanding borrowings under its secured revolving credit facility, exclusive of $5.0 million of outstanding letters of credit. As of March 28, 2020, approximately $1.0 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.

As of March 28, 2020, the interest rate margins applicable to the secured revolving credit facility were 1.375% for LIBOR (London Interbank Offered Rate) rate loans (which may be adjusted based on a leverage-based pricing grid ranging from 1.125% to 1.875%) and 0.375% for base rate loans (which may be adjusted based on a leverage-based pricing grid ranging from 0.125% to 0.875%).

As of March 28, 2020, U.S. dollar borrowings outstanding under the secured revolving credit facility accrued interest at a LIBOR rate plus the applicable margin, which resulted in a weighted-average borrowing rate of 2.32%. There were no foreign currency borrowings outstanding on March 28, 2020.

As of March 28, 2020, the Company was in compliance with the financial and other covenants under the secured revolving credit facility. Due to the impact of the COVID-19 pandemic, the Company’s revised business forecasts indicated that the

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Company would not be in compliance with debt covenants contained within its revolving credit facility in the second, third and fourth quarters of fiscal year 2020. Accordingly, on May 5, 2020 the Company, through its wholly owned subsidiary, The William Carter Company, successfully 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. The Company believes, based on its current forecasts for recovery of the business and broader marketplace, that it will be in compliance with the revised covenant requirements as specified in the amendment through fiscal year 2021.

The terms of the Amendment (i) suspend the Fixed Charge Coverage Ratio and Lease Adjusted Leverage Ratio covenants, in each case, as defined in the 2017 Credit Agreement, for three fiscal quarters until December 26, 2020 ("Specified Test Period") and ii) temporarily replace the suspended covenants with a Minimum Consolidated EBITDA covenant, computed on a trailing four quarters basis and measured quarterly, and a Minimum Liquidity covenant that is measured monthly, each as defined in the Amendment, throughout the Specified Test Period, with the Minimum Liquidity covenant extending through September 26, 2021.

Additionally, Amendment No. 2 provides that, among other things during the period from May 5, 2020 through the date the Company delivers its financial statements and associated certificates relating to the third quarter of fiscal 2021, interest rate margins applicable to the secured revolving credit facility will increase to 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 provides for a commitment fee initially equal to 0.35% per annum and ranging 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.

Senior Notes

As of March 28, 2020, the Company had outstanding $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.

NOTE 9 – STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense as follows:



	Fiscal quarter ended
(dollars in thousands)	March 28, 2020			March 30, 2019
Stock options	$	883		$	1,347
Restricted stock:
Time-based awards	2,989			2,548
Performance-based awards	(1,927		)	718
Total	$	1,945		$	4,613

On February 12, 2020, 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: 138,168 shares of time-based restricted stock awards with a grant-date fair value of $110.35 each; and 55,952 shares of performance-based restricted stock awards with a grant-date fair value of $110.35 each.

During the first quarter of fiscal 2020, a total of 109,345 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 2020, the achievement of performance target estimates was revised resulting in a $2.8 million reversal of previously recognized stock-based compensation expense.

NOTE 10 – INCOME TAXES

As of March 28, 2020, the Company had gross unrecognized income tax benefits of approximately $13.9 million, of which $11.9 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Included in the reserves for unrecognized tax benefits at March 28, 2020 is approximately $2.1 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 income tax rate for fiscal 2020 or fiscal 2021 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. During the first fiscal quarter ended March 28, 2020 and March 30, 2019, interest expense on uncertain tax positions was not material. The Company had approximately $2.5 million, $2.3 million, and $2.1 million of interest accrued on uncertain tax positions as of March 28, 2020, December 28, 2019, and March 30, 2019, respectively.

The Company early adopted the provisions of ASU 2019-12 in the first quarter of 2020 in order to simplify its income tax accounting disclosures during 2020 as a result of incurring an operating loss. 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 intra period tax allocation and interim recognition of enactment of tax laws are being adopted on a prospective basis.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, ("CARES Act") was signed into law. This law includes several taxpayer favorable provisions which may impact the Company including an employee retention credit, relaxed interest expense limitations, provides for a carryback of net operating losses, permits accelerated depreciation on certain store build out costs and allows for the deferral of employer FICA taxes. It is likely that this act will reduce the Company’s cash requirement for taxes over the balance of 2020.

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 consolidated balance sheets, and their aggregate fair values were approximately $16.7 million, $19.7 million, and $17.3 million at March 28, 2020, December 28, 2019, and March 30, 2019, respectively. These investments are classified as Level 1 within the fair value hierarchy. Loss on the investments in marketable securities were $3.0 million for the first fiscal quarter ended March 28, 2020. Gains on the investments in marketable securities were $1.7 million for the first fiscal quarter ended March 30, 2019. These amounts are included in Other expense (income), net on the Company's consolidated statement of operations.

Borrowings

As of March 28, 2020, the fair value of the Company's $744.0 million in outstanding borrowings under its secured revolving credit facility approximated the carrying value.

The fair value of the Company's senior notes at March 28, 2020 was approximately $479.6 million. The fair value of these senior notes with a notional value and carrying value (gross of debt cost) of $500 million was estimated using a quoted price as provided in the secondary market, which considers the Company's credit risk and market related conditions, and is therefore within Level 2 of the fair value hierarchy.

Goodwill 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 due to the impacts from the outbreak of a new strain of coronavirus ("COVID-19"), the Company concluded that impairment indicators existed for the first quarter of fiscal 2020. As a result, the Company conducted interim quantitative impairment assessments on goodwill ascribed to the Other International reporting unit and on the value of the Company's indefinite-lived Skip Hop and OshKosh tradename assets that was recorded in connection with the acquisition of Skip Hop Holdings, Inc. in February 2017 and OshKosh B'Gosh Inc. in July 2005, respectively.

Based on these assessments, a goodwill impairment charge of $17.7 million was recorded 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. The charge recorded on our indefinite-lived Skip Hop tradename asset included charges of

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

$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 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, International segments, respectively, to reflect the impairment of the value ascribed to the indefinite-lived OshKosh tradename asset. The carrying values of the Company's indefinite-lived OshKosh and Skip Hop tradename asset after the impairment charge were $70.0 million and $15.0 million, respectively. See Note 6, Goodwill and Intangibles, for further details on the impairment charges and valuation methodologies.

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
	March 28, 2020			March 30, 2019
Weighted-average number of common and common equivalent shares outstanding:
Basic number of common shares outstanding	43,355,635			45,070,796
Dilutive effect of equity awards^(*)	—			300,239
Diluted number of common and common equivalent shares outstanding	43,355,635			45,371,035

Basic net (loss) income per common share (in thousands, except per share data):
Net (loss) income	$	(78,694	)	$	34,466
Income allocated to participating securities	(254		)	(291		)
Net (loss) income available to common shareholders	$	(78,948	)	$	34,175

Basic net (loss) income per common share	$	(1.82	)	$	0.76

Diluted net (loss) income per common share (in thousands, except per share data):
Net (loss) income	$	(78,694	)	$	34,466
Income allocated to participating securities	(254		)	(291		)
Net (loss) income available to common shareholders	$	(78,948	)	$	34,175

Diluted net (loss) income per common share	$	(1.82	)	$	0.75

Anti-dilutive awards excluded from diluted earnings per share computation	302,238			776,919


(*)	For the quarter ended March 28, 2020, there were 339,841 potentially dilutive equity awards that were excluded from the diluted earnings per share calculation because the Company incurred a net loss for this period and their inclusion would be anti-dilutive.

NOTE 13 – OTHER CURRENT AND LONG-TERM LIABILITIES

Other current liabilities that exceeded five percent of total current liabilities, at the end of any comparable period, were as follows: