Attached files

file filename
EX-32 - EXHIBIT 32 - CARTERS INCex32.htm
EX-31.1 - EXHIBIT 31.1 - CARTERS INCex31_1.htm
EX-31.2 - EXHIBIT 31.2 - CARTERS INCex31_2.htm



 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 2009 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)
 

The Proscenium
1170 Peachtree Street NE, Suite 900
Atlanta, Georgia  30309
(Address of principal executive offices, including zip code)
(404) 745-2700
(Registrant's telephone number, including area code)


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 [  ]     No [X]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [  ]     No [  ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one)

Large Accelerated Filer  (X)  Accelerated Filer  (  )  Non-Accelerated Filer  (  )  Smaller Reporting  Company (  )

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes (  )  No  (X)

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Common Stock
 
Outstanding Shares at January 15, 2010
Common stock, par value $0.01 per share
 
58,077,002
 
 
 
 
 



 
 
 

CARTER’S, INC.
FORM 10-Q
EXPLANATORY NOTE

As part of this Quarterly Report on Form 10-Q, the Company is hereby amending its results for the three and nine-month periods ended September 27, 2008, which were originally filed with the Securities and Exchange Commission (“SEC”) on Form 10-Q on October 30, 2008 (“Original Filing”).

Background of the Restatement

On November 10, 2009, the Company announced that its Audit Committee, with the assistance of outside counsel, had commenced a review of customer margin support provided by the Company and an investigation into undisclosed margin support commitments and related matters.  As a result of this review, the Company announced that the previously issued consolidated financial statements for the fiscal years 2004 through 2008 included in the Company’s Forms 10-K, and for the fiscal quarters from September 29, 2007 through July 4, 2009 included in the Company's Forms 10-Q, should no longer be relied upon (collectively, the "Affected Periods"). 

Management initially began a review of margin support arrangements with respect to a single wholesale customer (the "Initial Customer") after becoming aware of a disputed amount of margin support with the Initial Customer.  In the normal course of business, the Company provides margin support and other allowances (collectively, “accommodations”) to its wholesale customers to assist them with the costs related to inventory clearance and sales promotions.  The Company’s policy is to reflect the amounts of accommodations as reductions to revenue or, in the case of certain co-op advertising expenses, as additions to selling, general, and administrative expenses.  As a result of its review, management identified issues with respect to the timing of recognizing customer accommodations with respect to the Initial Customer.  Following management’s review, the Audit Committee engaged outside counsel to undertake the review and investigation.

The Audit Committee has completed its review and investigation, which was conducted with the assistance of outside counsel and forensic accountants engaged by outside counsel, and has concluded that the Company reported various customer accommodations in incorrect fiscal periods.  The investigation uncovered irregularities involving members of the sales organization intentionally not disclosing accommodations arrangements with customers to the Company’s finance organization and intentionally providing inaccurate documentation and explanations regarding accommodations to the finance organization.  Consequently, such arrangements were not communicated to the Company’s independent registered public accounting firm.  These accommodations arrangements were made throughout the Affected Periods by certain members of the Company’s sales organization and involved the deferral of accommodations into later fiscal periods.  The deferrals resulted in the overstatement of net sales and net income in certain of the Affected Periods and the understatement of net sales and net income in certain of the Affected Periods.  The deferrals related primarily to the Initial Customer and, to a lesser extent, other wholesale customers.

The cumulative, after-tax impact of the adjustments required to fairly state the previously issued financial statements for the Affected Periods is a 3% reduction in retained earnings in the amount of $7.5 million as of July 4, 2009.  This amount reflects the sum of adjustments to net income for fiscal 2004 through the six-month period ended July 4, 2009, which total $4.4 million, and a 2003 cumulative adjustment to retained earnings in the amount of $3.1 million.  The adjustments do not impact the Company’s reported cash flow from operations for any of the Affected Periods.

The Company has self-reported information concerning this investigation to the SEC.  The Company has also been informed that the United States Attorney’s Office is conducting an inquiry into this matter.  The Company will continue to cooperate with these inquiries.

Restatement of Other Financial Statements

   With the filing of this Form 10-Q, we are concurrently filing amendments to our Annual Report on Form 10-K for fiscal 2008 and our Quarterly Reports on Form 10-Q for each of the quarterly periods ended April 4, 2009 and July 4, 2009.  The amendment to our Annual Report on Form 10-K/A is being filed to restate our consolidated financial statements for the fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006, and for the fiscal years ended December 31, 2005 and January 1, 2005, as included in Item 6 – “Selected Financial Data,” as well as our selected condensed consolidated financial data (excluding footnotes) for the quarterly periods in fiscal 2007 and fiscal 2008 included in Item 8 – “Financial Statements and Supplementary Data.” The amendments to our Quarterly Reports on Form 10-Q are being filed to restate our unaudited condensed consolidated financial statements and related financial information for the quarterly periods ended April 4, 2009 and July 4, 2009 and the comparative fiscal 2008 periods for the effects of the restatement.

 
 

 
We do not intend to file any other amended Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for periods affected by the restatement.  The consolidated financial statements and related financial information contained in any of the Company’s filings with the SEC during the restated periods should no longer be relied upon.

Internal Control Considerations

Through the investigation, management identified: (i) control deficiencies in its internal controls associated with customer accommodations processes that constitute material weaknesses, as discussed in Part I, Item 4 of this filing, and (ii) the need to restate prior period consolidated financial statements.  A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.  Management has also determined that the Company’s disclosure controls and procedures were ineffective as of October 3, 2009.  For a discussion of management’s consideration of the Company’s disclosure controls and procedures and material weaknesses identified, see Part I, Item 4 included in this filing.

If not remediated, these control deficiencies could result in future material misstatements to the Company’s consolidated financial statements.  Accordingly, management determined that these control deficiencies represented material weaknesses in internal control over financial reporting.

The Company is amending and restating its financial information for the three and nine-month periods ended September 27, 2008, as modified and superseded where necessary to reflect the restatement in the following items:

·  
Part I — Item 1. Financial Statements

o  
Unaudited Condensed Consolidated Balance Sheet as of January 3, 2009
 
o  
Unaudited Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 27, 2008

o  
Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month period ended September 27, 2008

o  
Notes to Unaudited Condensed Consolidated Financial Statements — the impacts are more fully discussed in Note 3 — Restatement of Consolidated Financial Statements

·  
Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and nine-month periods ended September 27, 2008

In accordance with applicable SEC rules, this filing includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.


 
 

 

CARTER’S, INC.
INDEX

 
     
Page
 
     
         
     
         
      1  
           
      2  
           
      3  
           
      4  
           
      5  
           
    21  
           
    33  
           
    33  
           
       
           
    36  
           
    37  
           
    43  
           
    43  
           
    43  
           
    43  
           
    43  
           
    44  
         
Certifications
    45  

 
 

 



CARTER’S, INC.
(dollars in thousands, except for share data)
(unaudited)
   
October 3,
2009
   
January 3,
2009
 (Restated)
 
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 214,339     $ 162,349  
Accounts receivable, net
    127,879       85,452  
Finished goods inventories, net
    223,510       203,486  
Prepaid expenses and other current assets
    11,845       13,214  
Deferred income taxes
    32,005       35,545  
                 
Total current assets
    609,578       500,046  
Property, plant, and equipment, net
    84,430       86,229  
Tradenames
    305,733       305,733  
Cost in excess of fair value of net assets acquired
    136,570       136,570  
Deferred debt issuance costs, net
    2,750       3,598  
Licensing agreements, net
    2,597       5,260  
Other assets
    405       576  
                 
       Total assets
  $ 1,142,063     $ 1,038,012  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Current maturities of long-term debt
  $ 3,503     $ 3,503  
Accounts payable
    68,009       79,011  
Other current liabilities
    69,808       57,613  
                 
Total current liabilities
    141,320       140,127  
Long-term debt
    331,896       334,523  
Deferred income taxes
    106,646       108,989  
Other long-term liabilities
    43,628       40,822  
                 
Total liabilities
    623,490       624,461  
                 
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at October 3, 2009 and January 3, 2009
    --       --  
Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 58,037,018 and 56,352,111 shares issued and outstanding at October 3, 2009 and January 3, 2009, respectively
    580       563  
Additional paid-in capital
    233,565       211,767  
Accumulated other comprehensive loss
    (6,755 )     (7,318 )
Retained earnings
    291,183       208,539  
                 
Total stockholders’ equity
    518,573       413,551  
                 
             Total liabilities and stockholders’ equity
  $ 1,142,063     $ 1,038,012  

See accompanying notes to the unaudited condensed consolidated financial statements

 
1

 


CARTER’S, INC.
(dollars in thousands, except per share data)
 (unaudited)

   
For the
three-month periods ended
   
For the
nine-month periods ended
 
   
October 3,
2009
   
September 27,
2008
(Restated)
   
October 3,
2009
   
September 27,
2008
(Restated)
 
                         
Net sales
  $ 481,506     $ 434,882     $ 1,164,997     $ 1,072,403  
Cost of goods sold
    295,942       281,752       727,001       708,903  
                                 
Gross profit
    185,564       153,130       437,996       363,500  
Selling, general, and administrative expenses
    115,225       104,536       314,198       289,019  
Workforce reduction and facility write-down and closure costs (Note 12)
    --       2,609       11,400       2,609  
Executive retirement charges (Note 15)
    --       --       --       5,325  
Royalty income
    (10,637 )     (9,576 )     (26,871 )     (24,693 )
                                 
Operating income
    80,976       55,561       139,269       91,240  
Interest expense, net
    2,688       4,048       8,571       13,357  
                                 
Income before income taxes
    78,288       51,513       130,698       77,883  
Provision for income taxes
    28,882       19,111       48,054       27,430  
                                 
Net income
  $ 49,406     $ 32,402     $ 82,644     $ 50,453  
                                 
Basic net income per common share (Note 13)
  $ 0.86     $ 0.57     $ 1.45     $ 0.89  
Diluted net income per common share (Note 13)
  $ 0.84     $ 0.55     $ 1.41     $ 0.86  

See accompanying notes to the unaudited condensed consolidated financial statements



 
2

 

CARTER’S, INC.
(dollars in thousands)
(unaudited)
   
For the
nine-month periods ended
 
   
October 3,
2009
   
September 27,
2008
(Restated)
 
Cash flows from operating activities:
           
Net income
  $ 82,644     $ 50,453  
Adjustments to reconcile net income to net cash provided by
operating activities:
               
Depreciation and amortization   
    24,396       20,576  
Amortization of debt issuance costs
    848       851  
Non-cash stock-based compensation expense
    5,200       6,756  
Income tax benefit from exercised stock options
    (11,374 )     (3,457 )
Non-cash asset impairment and facility write-down charges
    3,662       2,609  
Loss on sale or disposal of property, plant, and equipment
    96       383  
Deferred income taxes
    1,310       198  
Effect of changes in operating assets and liabilities:
               
     Accounts receivable
    (42,427 )     (47,109 )
     Inventories
    (20,024 )     11,135  
     Prepaid expenses and other assets
    (1,876 )     (2,337 )
     Accounts payable and other liabilities
    16,134        17,295  
                 
     Net cash provided by operating activities
    58,589       57,353  
                 
Cash flows from investing activities:
               
Capital expenditures
    (23,238 )     (19,197 )
Proceeds from the sale of fixed assets
    2,805       --  
                 
     Net cash used in investing activities
    (20,433 )     (19,197 )
                 
Cash flows from financing activities:
               
  Payments on term loan
    (2,627 )     (1,751 )
Share repurchases   
    --       (29,774 )
Income tax benefit from exercised stock options
    11,374       3,457  
Proceeds from exercise of stock options
    5,087       560  
                 
     Net cash provided by (used in) financing activities
    13,834       (27,508 )
                 
Net increase in cash and cash equivalents
    51,990       10,648  
Cash and cash equivalents, beginning of period
    162,349       49,012  
                 
Cash and cash equivalents, end of period
  $ 214,339     $ 59,660  

See accompanying notes to the unaudited condensed consolidated financial statements

 
3

 

CARTER’S, INC.
(dollars in thousands, except for share data)
(unaudited)

   
Common
stock
   
Additional
paid-in
capital
   
Accumulated
other comprehensive
(loss)
income
   
Retained
earnings
   
Total
stockholders’
equity
 
                               
Balance at January 3, 2009 (Restated)
  $ 563     $ 211,767     $ (7,318 )   $ 208,539     $ 413,551  
Exercise of stock options (1,484,276 shares)
    14       5,073       --       --       5,087  
Income tax benefit from exercised stock options
    --       11,374       --       --       11,374  
Restricted stock activity
    3       (3 )     --       --       --  
Stock-based compensation expense
    --       4,654       --       --       4,654  
Issuance of common stock (33,656 shares)
    --       700       --       --       700  
Comprehensive income:
                                       
Net income
    --       --       --       82,644       82,644  
Derivative hedging adjustment, net of tax of $307
    --       --       563       --       563  
Total comprehensive income
    --       --       563       82,644       83,207  
Balance at October 3, 2009
  $ 580     $ 233,565     $ (6,755 )   $ 291,183     $ 518,573  

See accompanying notes to the unaudited condensed consolidated financial statements

 
4

 

CARTER’S, INC.
(unaudited)

NOTE 1 – THE COMPANY:

Carter’s, Inc., and its wholly owned subsidiaries (collectively, the “Company,” “we,” “us,” “its,” and “our”) design, source, and market branded childrenswear under the Carter’s, Child of Mine, Just One Year, OshKosh, OshKosh B’Gosh, and related brands.  Our products are sourced through contractual arrangements with manufacturers worldwide for wholesale distribution to major domestic retailers, including the mass channel, and for our 273 Carter’s and 169 OshKosh retail stores that market our branded merchandise and other licensed products manufactured by other companies.

NOTE 2 – BASIS OF PREPARATION:

The accompanying unaudited condensed consolidated financial statements comprise the consolidated financial statements of Carter’s, Inc. and its subsidiaries.  All intercompany transactions and balances have been eliminated in consolidation.

In our opinion, the Company’s accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of our financial position as of October 3, 2009, the results of our operations for the three and nine-month periods ended October 3, 2009 and September 27, 2008, cash flows for the nine-month periods ended October 3, 2009 and September 27, 2008 and changes in stockholders’ equity for the nine-month period ended October 3, 2009.  Operating results for the three and nine-month periods ended October 3, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2010.  Our accompanying condensed consolidated balance sheet as of January 3, 2009 is from our audited restated consolidated financial statements included in our most recently filed Annual Report on Form 10-K/A for the fiscal year ended January 3, 2009, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission and the instructions to Form 10-Q.  The accounting policies we follow are set forth in our most recently filed Annual Report on Form 10-K/A in the notes to our audited consolidated financial statements for the fiscal year ended January 3, 2009.

Our fiscal year ends on the Saturday, in December or January, nearest the last day of December.  The accompanying unaudited condensed consolidated financial statements for the third quarter and first nine months of fiscal 2009 are as of October 3, 2009.  The third quarter and first nine months of fiscal 2008 ended on September 27, 2008.

As part of this Quarterly Report on Form 10-Q, the Company is hereby amending its results for the three and nine-month periods ended September 27, 2008, which were originally filed with the Securities and Exchange Commission on Form 10-Q on October 30, 2008 (“Original Filing”).

Certain prior year amounts have been reclassified to facilitate comparability with current year presentation.

Subsequent events were evaluated through January 15, 2010, the date these financials were available to be issued, see Note 16, “Subsequent Events.”
 
NOTE 3 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:

Background of the Restatement

On November 10, 2009, the Company announced that its Audit Committee, with the assistance of outside counsel, had commenced a review of customer margin support provided by the Company and an investigation into undisclosed margin support commitments and related matters.  As a result of this review, the Company announced that the previously issued consolidated financial statements for the fiscal years 2004 through 2008 included in the Company’s Forms 10-K, and for the fiscal quarters from September 29, 2007 through July 4, 2009 included in the Company's Forms 10-Q, should no longer be relied upon (collectively, the "Affected Periods"). 

 
5

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 
NOTE 3 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:  (Continued)
 
 
Management initially began a review of margin support arrangements with respect to a single wholesale customer (the "Initial Customer") after becoming aware of a disputed amount of margin support with the Initial Customer.  In the normal course of business, the Company provides margin support and other allowances (collectively, “accommodations”) to its wholesale customers to assist them with the costs related to inventory clearance and sales promotions.  The Company’s policy is to reflect the amounts of accommodations as reductions to revenue or, in the case of certain co-op advertising expenses, as additions to selling, general, and administrative expenses.  As a result of its review, management identified issues with respect to the timing of recognizing customer accommodations with respect to the Initial Customer.  Following management’s review, the Audit Committee engaged outside counsel to undertake the review and investigation.

The Audit Committee has completed its review and investigation, which was conducted with the assistance of outside counsel and forensic accountants engaged by outside counsel, and has concluded that the Company reported various customer accommodations in incorrect fiscal periods.  The investigation uncovered irregularities involving members of the sales organization intentionally not disclosing accommodations arrangements with customers to the Company’s finance organization and intentionally providing inaccurate documentation and explanations regarding accommodations to the finance organization.  Consequently, such arrangements were not communicated to the Company’s independent registered public accounting firm.  These accommodations arrangements were made throughout the Affected Periods by certain members of the Company’s sales organization and involved the deferral of accommodations into later fiscal periods.  The deferrals resulted in the overstatement of net sales and net income in certain of the Affected Periods and the understatement of net sales and net income in certain of the Affected Periods.  The deferrals related primarily to the Initial Customer and, to a lesser extent, other wholesale customers.

The Company has self-reported information concerning this investigation to the Securities and Exchange Commission.  The Company has also been informed that the United States Attorney’s Office is conducting an inquiry into this matter.  The Company will continue to cooperate with these inquiries.

Impact of the Restatement

The restatement adjustments detailed below to our previously filed consolidated financial statements reflect adjustments to margin support provided to wholesale customers which impact net income, net sales, and accounts receivable, net, along with the related deferred tax impact.

The effects of the restatement on the unaudited condensed consolidated balance sheet as of January 3, 2009 are summarized in the following table:

   
As of January 3, 2009
 
(dollars in thousands)
 
Previously Reported
   
Adjustments
   
Restated
 
                  ,  
Accounts receivable, net                                                   
  $ 106,060     $ (20,608 )   $ 85,452  
Deferred income taxes                                                   
    27,982       7,563       35,545  
Total current assets                                                   
    513,091       (13,045 )     500,046  
Total assets                                                   
    1,051,057       (13,045 )     1,038,012  
Retained earnings                                                   
    221,584       (13,045 )     208,539  
Total stockholders’ equity                                                   
    426,596       (13,045 )     413,551  
Total liabilities and stockholders’ equity
    1,051,057       (13,045 )     1,038,012  


 
6

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 
NOTE 3 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:  (Continued)
 
The effects of the restatement on the unaudited condensed consolidated statements of operations for the three and nine-month periods ended September 27, 2008 are summarized in the following table:

   
For the three-month period ended
September 27, 2008
   
For the nine-month period ended
September 27, 2008
 
(dollars in thousands, except per share data)
 
Previously Reported
   
Adjustments
   
Restated
   
Previously
Reported
   
Adjustments
   
Restated
 
                                     
Net sales                                                 
  $ 436,419     $ (1,537 )   $ 434,882     $ 1,068,066     $ 4,337     $ 1,072,403  
Gross profit                                                 
    154,667       (1,537 )     153,130       359,163       4,337       363,500  
Operating income                                                 
    57,098       (1,537 )     55,561       86,903       4,337       91,240  
Income before income taxes    
    53,050       (1,537 )     51,513       73,546       4,337       77,883  
Provision for income taxes           
    19,675       (564 )     19,111       25,833       1,597       27,430  
Net income                                                 
    33,375       (973 )     32,402       47,713       2,740       50,453  
Basic net income per common share (a)
    0.59       (0.02 )     0.57       0.84       0.05       0.89  
Diluted net income per common share (a)
    0.57       (0.02 )     0.55       0.81       0.05       0.86  

(a)  
Previously reported basic and diluted net income per share have been adjusted to reflect the adoption of new accounting guidance which requires earnings per share to be calculated pursuant to the two-class method for unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid).

The effects of the restatement on the unaudited condensed consolidated statements of cash flows for the nine-month period ended September 27, 2008 are summarized in the following table:

   
For the nine-month period ended
September 27, 2008
 
(dollars in thousands)
 
Previously Reported
   
Adjustments
   
Restated
 
                   
Cash flows from operating activities:
                 
Net income
  $ 47,713     $ 2,740     $ 50,453  
Deferred income taxes
    (1,399 )     1,597       198  
    Increase in accounts receivable
    (40,387 )     (6,722 )     (47,109 )
   (Increase) decrease in prepaid expenses and other assets
    (4,722 )     2,385       (2,337 )
    Net cash provided by operating activities
    57,353       --       57,353  


 
7

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 
NOTE 3 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:  (Continued)
 
The effects of the restatement on the Company’s segment information (see Note 11) for the three and nine-month periods ended September 27, 2008 are summarized in the following table:

   
For the three-month period ended
September 27, 2008
   
For the nine-month period ended
September 27, 2008
 
(dollars in thousands)
 
Previously Reported
   
Adjustments
   
Restated
   
Previously Reported
   
Adjustments
   
Restated
 
                                     
Carter’s wholesale net sales     
  $ 151,848     $ (1,798 )   $ 150,050     $ 364,002     $ (1,547 )   $ 362,455  
Carter’s wholesale operating income (a)
    29,520       (1,798 )     27,722       63,742       (1,547 )     62,195  
Carter’s mass channel net sales   
    76,694       114       76,808       190,672       220       190,892  
Carter’s mass channel operating income (a)
    10,055       114       10,169       23,920       220       24,140  
Carter’s total net sales        
    341,050       (1,684 )     339,366       846,240       (1,327 )     844,913  
Carter’s total operating income      
    59,942       (1,684 )     58,258       129,829       (1,327 )     128,502  
OshKosh wholesale net sales          
    22,801       147       22,948       55,010       5,664       60,674  
OshKosh wholesale operating income (loss)
    1,546       147       1,693       (5,290 )     5,664       374  
OshKosh total net sales          
    95,369       147       95,516       221,826       5,664       227,490  
OshKosh total operating income (loss)
    12,120       147       12,267       (2,936 )     5,664       2,728  
Total net sales     
    436,419       (1,537 )     434,882       1,068,066       4,337       1,072,403  
Total operating income          
    57,098       (1,537 )     55,561       86,903       4,337       91,240  

 
(a) Previously reported operating income for the nine-month period ended September 27, 2008 reflects a $656,000 reclassification from Carter’s mass channel to Carter’s wholesale
      to further refine allocations of inventory-related charges for comparative purposes.
 
 
NOTE 4 – COMPREHENSIVE INCOME (LOSS):

Comprehensive income (loss) is summarized as follows:

   
For the
three-month periods ended
   
For the
nine-month periods ended
 
(dollars in thousands)
 
October 3,
2009
   
September 27,
2008
(Restated)
   
October 3,
2009
   
September 27,
2008
(Restated)
 
                         
Net income                                                              
  $ 49,406     $ 32,402     $ 82,644     $ 50,453  
Unrealized gain (loss) on interest rate collar, net of taxes of $110, $216, and $(199)
    --       188       407       (375 )
Unrealized gain on interest rate swap agreements, net of taxes of $93, $203, $91, and $28
    159       345       156       28  
Total comprehensive income                                                           
  $ 49,565     $ 32,935     $ 83,207     $ 50,106  

 
 
NOTE 5 – COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS:

The Carter’s cost in excess of fair value of net assets acquired represents the excess of the cost of the acquisition of Carter’s, Inc. by Berkshire Partners LLC which was consummated on August 15, 2001 over the fair value of the net assets acquired.  The Carter’s cost in excess of fair value of net assets acquired is not deductible for tax purposes.


 
8

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
 
NOTE 5 – COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS:  (Continued)
 
The Carter’s cost in excess of fair value of net assets acquired and Carter’s and OshKosh tradenames are deemed to have indefinite lives and are not being amortized.

The Company’s intangible assets are comprised of the following:

     
October 3, 2009
   
January 3, 2009
 
(dollars in thousands)
Weighted-average useful life
 
Gross amount
   
Accumulated amortization
   
Net amount
   
Gross amount
   
Accumulated amortization
   
Net amount
 
                                       
Carter’s cost in excess of fair value of net assets acquired (1)
Indefinite
  $ 136,570     $   --     $ 136,570     $ 136,570     $   --     $ 136,570  
Carter’s tradename 
Indefinite
  $ 220,233     $   --     $ 220,233     $ 220,233     $   --     $ 220,233  
OshKosh tradename 
Indefinite
  $ 85,500     $   --     $ 85,500     $ 85,500     $   --     $ 85,500  
OshKosh licensing agreements
4.7 years
  $ 19,100     $ 16,503     $ 2,597     $ 19,100     $ 13,840     $ 5,260  
Leasehold interests
4.1 years
  $ 1,833     $ 1,833     $ --     $ 1,833     $ 1,599     $ 234  

 
(1)   $51.8 million of which relates to Carter’s wholesale segment, $82.0 of which relates to Carter’s retail segment, and $2.7 million of which relates to Carter’s mass channel segment.

Amortization expense for intangible assets was approximately $0.9 million for the three-month period ended October 3, 2009 and $1.0 million for the three-month period ended September 27, 2008.  Amortization expense for intangible assets was approximately $2.9 million and $3.1 million for the nine-month periods ended October 3, 2009 and September 27, 2008.  Amortization expense for the remainder of fiscal 2009 and fiscal 2010 for the OshKosh licensing agreements and leasehold interests is expected to be as follows:


(dollars in thousands)
     
Fiscal Year
 
Estimated
amortization
expense
 
       
2009 (period from October 4 through January 2, 2010)
  $ 820  
2010                                                                          
    1,777  
         
              Total                                                                          
  $ 2,597  

NOTE 6 – INCOME TAXES:

The Company and its subsidiaries file income tax returns in the United States and in various states and local jurisdictions.  During the first quarter of fiscal 2009, the Internal Revenue Service completed an income tax audit for fiscal 2006, and began an audit of fiscal 2007.  In most cases, the Company is no longer subject to state and local tax authority examinations for years prior to fiscal 2006.

During the first nine months of fiscal 2009, we recognized approximately $1.4 million in tax benefits consisting of $1.0 million due to the completion of the Internal Revenue Service audit for fiscal 2006 and approximately $0.4 million due to various statute closures.  During the first nine months of fiscal 2008, we recognized approximately $1.9 million in tax benefits consisting of $1.6 million due to the completion of an Internal Revenue Service audit for fiscal 2004 and 2005 and approximately $0.3 million due to various statute closures, primary state and local jurisdictions.


 
9

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)

NOTE 6 – INCOME TAXES:  (Continued)

As of October 3, 2009, the Company had gross unrecognized tax benefits of approximately $7.5 million.  Substantially all of the Company’s reserve for unrecognized tax benefits as of October 3, 2009, if ultimately recognized, will impact the Company’s effective tax rate in the period settled.  The Company has recorded tax positions for which the ultimate deductibility is highly certain, 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 impact the annual effective tax rate, but would accelerate the payment of cash to the taxing authorities.

The Company settled its ongoing Internal Revenue Service audit of the Company’s income tax return for fiscal 2007 in the fourth quarter of fiscal 2009.  The Company is not anticipating a material payment or material impact on its effective tax rate as a result of the expected settlement.

Included in the reserves for unrecognized tax benefits are approximately $0.6 million of reserves for which the statute of limitations is expected to expire in the third quarter of fiscal 2010.  If these tax benefits are ultimately recognized, such recognition may impact our annual effective tax rate for fiscal 2010 and the effective tax rate in the quarter in which the benefits are recognized. 

We recognize 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.  The Company had approximately $0.5 million of interest accrued as of October 3, 2009.

NOTE 7 – FINANCIAL INSTRUMENTS:

The guidance on fair value measurements defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The fair value hierarchy for disclosure of fair value measurements is 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
-  Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The following table summarizes assets and liabilities measured at fair value on a recurring basis at October 3, 2009:

(dollars in millions)
 
Level 1
   
Level 2
   
Level 3
 
                   
Assets
                 
Investments
  $ --     $ 190.0     $ --  
Interest rate hedge agreements
  $ --     $ 0.1     $ --  
                         
Liabilities
                       
Interest rate hedge agreements
  $ --     $ 1.9     $ --  

At October 3, 2009, we had approximately $190.0 million invested in two Dreyfus Cash Management Funds and U.S. Treasury Bills, which are included in cash and cash equivalents on the accompanying unaudited condensed consolidated balance sheet.  The funds consisted of the Dreyfus Treasury Prime Cash Management Fund ($87.9 million), which invests only in U.S. Treasury Bills or U.S. Treasury Notes, and the Dreyfus Tax Exempt Cash Management Fund ($42.1 million), which invests in short-term, high quality municipal obligations that provide income exempt from federal taxes.  We also invested $60.0 million in U.S. Treasury Bills that mature in the fourth quarter of fiscal 2009.


 
10

 


CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)

NOTE 7 – FINANCIAL INSTRUMENTS:  (Continued)

Our senior credit facility requires us to hedge at least 25% of our variable rate debt under this facility.  The Company enters into interest rate swap agreements in order to hedge the risk of interest rate fluctuations.  These interest rate swap agreements are designated as cash flow hedges of the variable interest payments on a portion of our variable rate term loan debt.  Our interest rate swap agreements are traded in the over-the-counter market.  Fair values are based on quoted market prices for similar assets or liabilities or determined using inputs that use as their basis readily observable market data that are actively quoted and can be validated through external sources, including third-party pricing services, brokers, and market transactions.

As of October 3, 2009, approximately $243.0 million of our $335.4 million of outstanding debt was hedged under interest rate swap agreements.  These interest rate swap agreements mature at various times through January 2011.  We continue to be in compliance with the 25% hedging requirement under our senior credit facility.

The fair value of our derivative instruments in our accompanying unaudited condensed consolidated balance sheet as of October 3, 2009 was as follows:

 
Asset Derivatives
 
Liability Derivatives
 
                 
(dollars in millions)
Balance sheet
location
 
Fair value
 
Balance sheet
location
 
Fair value
 
                 
Interest rate hedge agreements
Prepaid expenses and other current assets
  $ 0.1  
Other current liabilities
  $ 1.9  
                     

The effect of derivative instruments designated as cash flow hedges on our accompanying unaudited condensed consolidated financial statements were as follows:

   
For the three-month period ended October 3, 2009
   
For the nine-month period ended
October 3, 2009
(dollars in thousands)
 
Amount of gain (loss)
recognized in accumulated
other comprehensive
income (loss) on effective hedges (1)
   
Amount of gain (loss)
reclassified from accumulated
other comprehensive
income (loss) into interest expense
   
Amount of gain (loss)
recognized in accumulated
other comprehensive
income (loss) on
effective hedges (1)
   
Amount of gain (loss)
reclassified from accumulated
other comprehensive
income (loss) into interest expense
                       
Interest rate hedge agreements
  $ 159     $ (720 )   $ 156     $  (2,134 )
                                 
(1) Amount recognized in accumulated other comprehensive (loss) income, net of tax of $93,000 and $91,000 for the three and nine-month periods ended October 3, 2009, respectively.
 


 
11

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 8 – EMPLOYEE BENEFIT PLANS:

Under a defined benefit plan frozen in 1991, we offer a comprehensive post-retirement medical plan to current and certain future retirees and their spouses until they become eligible for Medicare or a Medicare Supplement Plan.  We also offer 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 our liabilities are net of these expected employee contributions.  See Note 8 “Employee Benefit Plans” to our audited restated consolidated financial statements in our most recently filed Annual Report on Form 10-K/A for further information.

The components of post-retirement benefit expense charged to operations are as follows:

   
For the
three-month periods ended
   
For the
nine-month periods ended
 
(dollars in thousands)
 
October 3,
2009
   
September 27,
2008
   
October 3,
2009
   
September 27,
2008
 
                         
Service cost – benefits attributed to service during the period
  $ 23     $ 26     $ 69     $ 79  
Interest cost on accumulated post-retirement benefit obligation
    113       132       339       395  
Amortization net actuarial gain
     (7 )      --        (21 )     --  
    Total net periodic post-retirement benefit cost
  $ 129     $ 158     $ 387     $ 474  

 
We have an obligation under a defined benefit plan covering certain former officers and their spouses.  The component of pension expense charged to operations is as follows:

   
For the
three-month periods ended
   
For the
nine-month periods ended
 
(dollars in thousands)
 
October 3,
2009
   
September 27,
2008
   
October 3,
2009
   
September 27,
2008
 
                         
Interest cost on accumulated pension benefit obligation
  $ 12     $ 13     $ 38     $ 39  

Under a defined benefit pension plan frozen as of December 31, 2005, certain current and former employees of OshKosh are eligible to receive benefits.  The net periodic pension benefit associated with this pension plan and included in the statement of operations was comprised of:

   
For the
three-month periods ended
   
For the
nine-month periods ended
 
(dollars in thousands)
 
October 3,
2009
   
September 27,
2008
   
October 3,
2009
   
September 27,
2008
 
                         
Interest cost on accumulated pension benefit obligation
  $ 567     $ 562     $ 1,702     $ 1,686  
Expected return on assets
    (651 )     (943 )     (1,951 )     (2,830 )
Amortization of actuarial loss (gain)
    103       (19 )     308       (57 )
    Total net periodic pension expense (benefit)
  $ 19     $ (400 )   $ 59     $ (1,201 )


 
12

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 9 – COMMON STOCK:

On February 16, 2007, the Company’s Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to purchase up to $100 million of its outstanding common shares.  Such repurchases may occur from time to time in the open market, in negotiated transactions, or otherwise.  This program has no time limit.  The timing and amount of any repurchases will be determined by the Company’s management, based on its evaluation of market conditions, share price, and other factors.

During the first nine months of fiscal 2009, the Company did not repurchase any shares of its common stock.  During the third quarter and first nine months of fiscal 2008, the Company repurchased and retired approximately 578,098 and 1,898,183 shares of its common stock at an average price of $16.81 and $15.69 per share, respectively.  Since inception of the program and through October 3, 2009, the Company repurchased and retired approximately 4,599,580 shares, or approximately $91.1 million, of its common stock at an average price of $19.81 per share, leaving approximately $8.9 million available for repurchase under the plan.  We have reduced common stock by the par value of such shares repurchased and have deducted the remaining excess repurchase price over par value from additional paid-in capital.

During the first nine months of fiscal 2009, the Company issued 33,656 shares of common stock at a fair market value of $20.80 to its non-management board members.  In connection with this issuance, we recognized approximately $700,000 in stock-based compensation expense.  During the first nine months of fiscal 2008, the Company issued 43,386 shares of common stock at a fair market value of $14.52 to its non-management board members.  In connection with this issuance, we recognized approximately $630,000 in stock-based compensation expense.  We received no proceeds from the issuance of these shares.


NOTE 10 – STOCK-BASED COMPENSATION:

Under our Amended and Restated 2003 Equity Incentive Plan, the compensation committee of our Board of Directors may award incentive stock options (ISOs and non-ISOs), stock appreciation rights (SARs), restricted stock, unrestricted stock, stock deliverable on a deferred basis, performance-based stock awards, and cash payments intended to help defray the cost of awards.  The fair value of time-based or performance-based stock option grants are estimated on the date of grant using the Black-Scholes option pricing method with the following weighted-average assumptions used for grants issued during the nine-month period ended October 3, 2009.

   
Assumptions
 
       
Volatility
    35.75 %
Risk-free interest rate
    2.54 %
Expected term (years)
    7  
Dividend yield
    --  

The fair value of restricted stock is determined based on the quoted closing price of our common stock on the date of grant.


 
13

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 10 – STOCK-BASED COMPENSATION:  (Continued)

The following table summarizes our stock option and restricted stock activity during the nine-month period ended October 3, 2009:
 
   
Time-based
stock options
   
Performance-based
stock
options
   
Retained
stock options
   
Restricted
stock
 
                         
Outstanding, January 3, 2009
    4,733,080       220,000       113,514       444,589  
                                 
Granted
    470,000       --       --       219,500  
Exercised
    (1,370,762 )     --       (113,514 )     --  
Vested restricted stock
    --       --       --       (134,381 )
Forfeited
    (85,600 )     (20,000 )     --       (52,525 )
Expired
    (42,000 )     --       --       --  
                                 
Outstanding, October 3, 2009
    3,704,718       200,000       --       477,183  
                                 
Exercisable, October 3, 2009
    2,595,048       --       --       --  

During the three-month period ended October 3, 2009, we granted 22,000 time-based stock options with a weighted-average Black-Scholes fair value of $11.32 and a weighted-average exercise price of $26.49.  In connection with these grants, we recognized approximately $9,400 in stock-based compensation expense.

During the nine-month period ended October 3, 2009, we granted 470,000 time-based stock options with a weighted-average Black-Scholes fair value of $7.78 and a weighted-average exercise price of $18.48.  In connection with these grants, we recognized approximately $451,000 in stock-based compensation expense.

During the three-month period ended October 3, 2009, we granted 11,000 shares of restricted stock to employees with a weighted-average fair value on the date of grant of $26.49.  In connection with these grants, we recognized approximately $11,000 in stock-based compensation expense.

During the nine-month period ended October 3, 2009, we granted 219,500 shares of restricted stock to employees with a weighted-average fair value on the date of grant of $18.50.  In connection with these grants, we recognized approximately $496,000 in stock-based compensation expense.

As a result of the retirement of an executive officer during the first nine months of fiscal 2008, the Company recognized approximately $2.2 million of stock-based compensation expense as a result of the accelerated vesting of 400,000 performance-based stock options (see Note 15, “Executive Retirement Charges”).

Unrecognized stock-based compensation expense related to outstanding unvested stock options and unvested restricted stock awards is expected to be recorded as follows:

(dollars in thousands)
 
Time-based
stock
options
   
Restricted
stock
   
Total
 
                   
2009 (period from October 4 through January 2, 2010)
  $ 720     $ 717     $ 1,437  
2010                                                                   
    2,550       2,522       5,072  
2011                                                                   
    1,987       2,059       4,046  
2012                                                                   
    1,111       1,242       2,353  
       Total                                                                   
  $ 6,368     $ 6,540     $ 12,908  

 
14

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

NOTE 11 – SEGMENT INFORMATION:

 
We report segment information in accordance with accounting guidance on segment reporting which requires segment information to be disclosed 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 our reportable segments.  We report our corporate expenses, workforce reduction, and facility write-down and closure costs separately as they are not included in the internal measures of segment operating performance used by the Company in order to measure the underlying performance of our reportable segments.

The table below presents certain segment information for the periods indicated:

   
For the three-month periods ended
   
For the nine-month periods ended
 
(dollars in thousands)
 
Oct. 3,
2009
   
% of
Total
   
Sept. 27,
2008
(Restated)
   
% of
Total
   
Oct. 3,
2009
   
% of
Total
   
Sept. 27,
2008
(Restated)
   
% of
Total
 
Net sales:
                                               
                                                 
Carter’s:
                                               
 Wholesale
  $ 165,672       34.4 %   $ 150,050       34.5 %   $ 395,550       34.0 %   $ 362,455       33.8 %
 Retail
    137,708       28.6 %     112,508       25.9 %     349,765       30.0 %     291,566       27.2 %
 Mass Channel
     78,584       16.3 %     76,808       17.6 %     181,690       15.6 %     190,892       17.8 %
         Carter’s net sales
    381,964       79.3 %     339,366       78.0 %     927,005       79.6 %     844,913       78.8 %
                                                                 
OshKosh:
                                                               
 Retail
    74,103       15.4 %     72,568       16.7 %     178,091       15.3 %     166,816       15.5 %
 Wholesale
    25,439       5.3 %     22,948       5.3 %     59,901       5.1 %     60,674       5.7 %
         OshKosh net sales
    99,542       20.7 %     95,516       22.0 %     237,992       20.4 %     227,490       21.2 %
                                                                 
         Total net sales
  $ 481,506       100.0 %   $ 434,882       100.0 %   $ 1,164,997       100.0 %   $ 1,072,403       100.0 %
                                                                 
Operating income (loss):
         
% of
segment
net sales
           
% of
segment
net sales
           
% of
segment
net sales
           
% of
segment
net sales
 
                                                                 
Carter’s:
                                                               
 Wholesale
  $ 36,954       22.3 %   $ 27,722       18.5 %   $ 80,378       20.3 %   $ 62,195       17.2 %
 Retail
    31,381       22.8 %     20,367       18.1 %     64,544       18.5 %     42,167       14.5 %
 Mass Channel
    14,482       18.4 %     10,169       13.2 %     31,301       17.2 %     24,140       12.6 %
                                                                 
         Carter’s operating income
    82,817       21.7 %     58,258       17.2 %     176,223       19.0 %     128,502       15.2 %
                                                                 
OshKosh:
                                                               
 Retail
    10,765       14.5 %     9,810       13.5 %     11,220       6.3 %     431       0.3 %
 Wholesale
    4,124       16.2 %     1,693       7.4 %     3,607       6.0 %     374       0.6 %
 Mass Channel (a)
    709       --       764       --       1,853       --       1,923       --  
                                                                 
         OshKosh operating income
    15,598       15.7 %     12,267       12.8 %     16,680       7.0 %     2,728       1.2 %
                                                                 
         Segment operating income
    98,415       20.4 %     70,525       16.2 %     192,903       16.6 %     131,230       12.2 %
                                                                 
Corporate expenses (b)
    (17,439 )     (3.6 %)     (12,355 )     (2.8 %)     (41,269 )     (3.5 %)     (32,056 )     (3.0 %)
Workforce reduction and facility
write-down and closure costs (c)
    --       --       (2,609 )     (0.6 %)     (12,365 )     (1.1 %)     (2,609 )     (0.2 %)
 Executive retirement charges (d)
    --       --       --       --       --       --       (5,325 )     (0.5 %)
                                                                 
Net corporate expenses
    (17,439 )     (3.6 %)     (14,964 )     (3.4 %)     (53,634 )     (4.6 %)     (39,990 )     (3.7 %)
                                                                 
Total operating income
  $ 80,976       16.8 %   $ 55,561       12.8 %   $ 139,269       12.0 %   $ 91,240       8.5 %


(a)    OshKosh mass channel consists of a licensing agreement with Target Stores.  Operating income consists of royalty income, net of related expenses.
(b)    Corporate expenses generally include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance,
         building occupancy, information technology, certain legal fees, consulting, audit fees, and investments in e-commerce.
(c)    Includes closure costs associated with our Barnesville, Georgia distribution facility including severance, asset impairment charges, other closure costs, and accelerated
         depreciation, asset impairment charges related to our Oshkosh, Wisconsin facility, write-down of our White House, Tennessee facility, and severance and other
         benefits related to the corporate workforce reduction (see Note 12).
(d)    Charges associated with an executive officer’s retirement (see Note 15).

 
 

 
 
15

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 
NOTE 12 – WORKFORCE REDUCTION AND FACILITY WRITE-DOWN AND CLOSURE COSTS:

 
Corporate Workforce Reduction

On April 21, 2009, the Company announced to affected employees a plan to reduce its corporate workforce (defined as excluding retail district managers, hourly retail store employees, and distribution center employees).  Approximately 150 employees were affected under the plan.  The plan includes consolidating the majority of our operations performed in our Oshkosh, Wisconsin office into other Company locations.  This consolidation will result in the addition of resources in our other locations.

As a result of this corporate workforce reduction, during the first nine months of fiscal 2009, we recorded charges of $7.3 million consisting of $5.5 million in severance charges and other benefits ($3.3 million which related to corporate office positions in connection with our existing plan and $2.2 million of special one-time benefits provided to affected employees), and approximately $1.8 million in asset impairment charges related to the closure of our Oshkosh, Wisconsin office.  The majority of the severance payments will be paid through the end of fiscal 2010.

The following table summarizes restructuring reserves related to the corporate workforce reduction which are included in other current liabilities on the accompanying unaudited condensed consolidated balance sheet:

(dollars in thousands)
 
Severance
and other
one-time
benefits
 
       
Balance at April 4, 2009
  $ 3,300  
Provision
    2,200  
Payments
    (900 )
Balance at July 4, 2009
    4,600  
Provision
    --  
Payments
    (1,300 )
Balance at October 3, 2009
  $ 3,300  

Barnesville Distribution Facility Closure

On April 2, 2009, the Company announced to affected employees a plan to close its Barnesville, Georgia distribution center.  Approximately 210 employees were affected by this closure.  Operations at the Barnesville facility ceased on June 1, 2009.

In accordance with accounting guidance on accounting for the impairment or disposal of long-lived assets, under a held and used model, it was determined that the distribution facility assets became impaired during March 2009, when it became “more likely than not” that the expected life of the Barnesville, Georgia distribution facility would be significantly shortened.  Accordingly, we wrote down the assets to their estimated recoverable fair value in March 2009.  The adjusted asset values were subject to accelerated depreciation over their remaining estimated useful life.

In conjunction with the plan to close the Barnesville, Georgia distribution center, the Company recorded approximately $4.3 million during the first nine months of fiscal 2009, consisting of severance of $1.7 million, asset impairment charges of $1.1 million related to the write-down of the related land, building, and equipment, $1.0 million of accelerated depreciation (included in selling, general, and administrative expenses), and $0.5 million of other closure costs.




 
16

 

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

 
NOTE 12 – WORKFORCE REDUCTION AND FACILITY WRITE-DOWN AND CLOSURE COSTS:  (continued)

The following table summarizes restructuring reserves related to the closure of the Barnesville, Georgia distribution center which are included in other current liabilities on the accompanying unaudited condensed consolidated balance sheet:

(dollars in thousands)
 
Severance
   
Other
closure
costs
   
Total
 
                   
Balance at April 4, 2009
  $ 1,700     $ 500     $ 2,200  
Provision
    --       --       --  
Payments
    (700 )     --       (700 )
Balance at July 4, 2009
    1,000       500       1,500  
Provision
    --       --       --  
Payments
    (500 )     --       (500 )
Adjustments