Q2 2013 10-Q

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 JUNE 29, 2013 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 (X) No ( )
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes (X) 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 “large accelerated filer, 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 (X) 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 July 19, 2013
Common stock, par value $0.01 per share
 
59,236,663











CARTER’S, INC.
INDEX
 
 
 
Page
Part I. Financial Information
 
 
 
 
 
 
Item 1
 
 
 
 
 
Unaudited Condensed Consolidated Statements of Operations for the fiscal quarter and two fiscal quarters ended June 29, 2013 and June 30, 2012
 
 
Unaudited Condensed Consolidated Statements of Comprehensive Income for the fiscal quarter and two fiscal quarters ended June 29, 2013 and June 30, 2012
 
 
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the two fiscal quarters ended June 29, 2013
 
 
Unaudited Condensed Consolidated Statements of Cash Flows for the two fiscal quarters ended June 29, 2013 and June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1
 
 
 
Item 3
Defaults upon Senior Securities
 
 
 
 
 
 
 
 
 
 
 
 



PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARTER’S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
(unaudited)
 
June 29,
2013
 
December 29,
2012
 
June 30,
2012
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
  Cash and cash equivalents
$
312,132

 
$
382,236

 
$
237,629

  Accounts receivable, net
133,277

 
168,046

 
131,888

  Finished goods inventories, net
429,223

 
349,530

 
377,857

  Prepaid expenses and other current assets
48,621

 
22,216

 
27,485

  Deferred income taxes
32,948

 
35,675

 
23,838

      Total current assets
956,201

 
957,703

 
798,697

Property, plant, and equipment, net
208,094

 
170,110

 
139,592

Goodwill
186,957

 
189,749

 
188,621

Tradenames and other intangibles, net
342,883

 
306,072

 
306,249

Deferred debt issuance costs, net
2,486

 
2,878

 
2,270

Other assets
5,130

 
3,597

 
436

            Total assets
$
1,701,751

 
$
1,630,109

 
$
1,435,865

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
  Accounts payable
$
199,588

 
$
149,625

 
$
120,922

  Other current liabilities
74,062

 
94,610

 
44,639

      Total current liabilities
273,650

 
244,235

 
165,561

Long-term debt
186,000

 
186,000

 
186,000

Deferred income taxes
112,171

 
114,341

 
113,355

Other long-term liabilities
108,993

 
100,054

 
103,612

           Total liabilities
$
680,814

 
$
644,630

 
$
568,528

 
 
 
 
 
 
Commitments and contingencies


 


 


 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
Preferred stock; par value $.01 per share; 100,000 shares authorized; none issued or outstanding at June 29, 2013, December 29, 2012, and June 30, 2012, respectively
—

 
—

 
—

Common stock, voting; par value $.01 per share; 150,000,000 shares authorized; 59,353,894, 59,126,639, and 58,989,420 shares issued and outstanding at June 29, 2013, December 29, 2012, and June 30, 2012, respectively
594

 
591

 
590

Additional paid-in capital
238,167

 
250,276

 
240,427

Accumulated other comprehensive loss
(15,207
)
 
(11,205
)
 
(11,427
)
Retained earnings
797,383

 
745,817

 
637,747

Total stockholders’ equity
1,020,937

 
985,479

 
867,337

           Total liabilities and stockholders’ equity
$
1,701,751

 
$
1,630,109

 
$
1,435,865


See accompanying notes to the unaudited condensed consolidated financial statements.

1



CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(unaudited)
 
Fiscal quarter ended
 
Two fiscal quarters ended
 
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
 
 
 
 
 
 
 
 
 
 
Net sales
$
517,874

 
$
472,162

 
$
1,108,883

 
$
1,023,824

 
Cost of goods sold
297,629

 
288,919

 
645,576

 
645,842

 
Gross profit
220,245

 
183,243

 
463,307

 
377,982

 
Selling, general, and administrative expenses
195,014

 
156,290

 
380,375

 
305,995

 
Royalty income
(7,507
)
 
(7,474
)
 
(16,749
)
 
(16,240
)
 
Operating income
32,738

 
34,427

 
99,681

 
88,227

 
Interest expense, net
1,060

 
1,666

 
2,163

 
3,623

 
Other expense (income), net
531

 
(135
)
 
1,104

 
171

 
Income before income taxes
31,147

 
32,896

 
96,414

 
84,433

 
Provision for income taxes
11,474

 
12,091

 
35,326

 
31,353

 
Net income
$
19,673

 
$
20,805

 
$
61,088

 
$
53,080

 
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.33

 
$
0.35

 
$
1.03

 
$
0.90

 
 
 
 
 
 
 
 
 
 
Diluted net income per common share
$
0.33

 
$
0.35

 
$
1.02

 
$
0.89


 
 
 
 
 
 
 
 
 
Dividend declared and paid per common share
$
0.16

 
$
—

 
$
0.16

 
$
—

 

See accompanying notes to the unaudited condensed consolidated financial statements.



2


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(unaudited)
 
Fiscal quarter ended
 
 
Two fiscal quarters ended
 
June 29,
2013
 
June 30,
2012
 
 
June 29,
2013
 
June 30,
2012
 
 
 
 
 
 
 
 
 
Net income
$
19,673

 
$
20,805

 
 
$
61,088

 
$
53,080

Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(2,537
)
 
(1,340
)
 
 
(4,002
)
 
(145
)
Comprehensive income
$
17,136

 
$
19,465

 
 
$
57,086

 
$
52,935



See accompanying notes to the unaudited condensed consolidated financial statements.

3

CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars in thousands)
(unaudited)
 
Common stock - shares
 
Common
stock - $
 
Additional
paid-in
capital
 
Accumulated other comprehensive
loss
 
Retained
earnings
 
Total
stockholders’
equity
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 29, 2012
59,126,639

 
$
591

 
$
250,276

 
$
(11,205
)
 
$
745,817

 
$
985,479

Income tax benefit from stock-based compensation
—

 
—

 
9,929

 
—

 
—

 
9,929

Exercise of stock options
605,350

 
6

 
11,204

 
—

 
—

 
11,210

Withholdings from vesting of restricted stock
(95,873
)
 
(1
)
 
(4,539
)
 
—

 
—

 
(4,540
)
Restricted stock activity
291,607

 
3

 
(3
)
 
—

 
—

 
—

Stock-based compensation expense
—

 
—

 
7,972

 
—

 
—

 
7,972

Issuance of common stock
16,173

 
—

 
1,080

 
—

 
—

 
1,080

Repurchase of common stock
(590,002
)
 
(5
)
 
(37,752
)
 
—

 
—

 
(37,757
)
Cash dividends declared and paid
—

 
—

 
—

 
—

 
(9,522
)
 
(9,522
)
Comprehensive income
—

 
—

 
—

 
(4,002
)
 
61,088

 
57,086

Balance at June 29, 2013
59,353,894

 
$
594

 
$
238,167

 
$
(15,207
)
 
$
797,383

 
$
1,020,937


See accompanying notes to the unaudited condensed consolidated financial statements.

4


CARTER’S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 
Two fiscal quarters ended
 
June 29,
2013
 
June 30,
2012
Cash flows from operating activities:
 
 
 
Net income
$
61,088

 
$
53,080

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
     Depreciation and amortization
25,936

 
17,793

     Revaluation of contingent consideration
1,866

 
1,779

     Amortization of debt issuance costs
392

 
354

     Stock-based compensation expense
8,425

 
6,351

     Income tax benefit from stock-based compensation
(9,929
)
 
(1,834
)
     Loss on disposal of property, plant, and equipment
112

 
517

     Deferred income taxes
557

 
554

Effect of changes in operating assets and liabilities:
 
 
 
Accounts receivable
34,519

 
25,887

Inventories
(81,361
)
 
(30,705
)
Prepaid expenses and other assets
(28,136
)
 
(8,921
)
Accounts payable and other liabilities
56,371

 
25,084

Net cash provided by operating activities
69,840

 
89,939

 
 
 
 
Cash flows from investing activities:
 
 
 
     Capital expenditures
(70,566
)
 
(37,711
)
     Acquisition of tradenames
(38,007
)
 
—

     Proceeds from sale of property, plant, and equipment
—

 
6

Net cash used in investing activities
(108,573
)
 
(37,705
)
 
 
 
 
Cash flows from financing activities:
 
 
 
     Borrowings under revolving credit facility
—

 
2,500

     Payments on revolving credit facility
—

 
(52,500
)
     Repurchase of common stock
(37,757
)
 
—

     Dividends paid
(9,522
)
 
—

     Income tax benefit from stock-based compensation
9,929

 
1,834

     Withholdings from vesting of restricted stock
(4,539
)
 
(2,408
)
     Proceeds from exercise of stock options
11,210

 
2,481

 

 
 
Net cash used in financing activities
(30,679
)
 
(48,093
)
 
 
 
 
Effect of exchange rate changes on cash
(692
)
 
(6
)
Net (decrease) increase in cash and cash equivalents
(70,104
)
 
4,135

Cash and cash equivalents, beginning of period
382,236

 
233,494

 
 
 
 
Cash and cash equivalents, end of period
$
312,132

 
$
237,629


See accompanying notes to the unaudited condensed consolidated financial statements.

5

CARTER’S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – THE COMPANY
    
Carter’s, Inc. and its wholly owned subsidiaries (collectively, the “Company” and “its”) design, source, and market branded childrenswear under the Carter’s, Child of Mine, Just One You, Precious Firsts, OshKosh, and other brands. The Company's products are sourced through contractual arrangements with manufacturers worldwide for wholesale distribution to major domestic and international retailers and for its 438 Carter’s, 164 OshKosh, and 107 international retail stores that market its brand name merchandise and other licensed products manufactured by other companies.

NOTE 2 – BASIS OF PREPARATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Carter's, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the Company’s accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair statement of its financial position as of June 29, 2013, the results of operations and comprehensive income for the fiscal quarter and the two fiscal quarters ended June 29, 2013 and June 30, 2012, its cash flows for the two fiscal quarters ended June 29, 2013 and June 30, 2012, and its changes in stockholders' equity for the two fiscal quarters ended June 29, 2013. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the fiscal quarter and two fiscal quarters ended June 29, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2013.

The accompanying condensed consolidated balance sheet as of December 29, 2012 is 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 generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and the instructions to Form 10-Q. The accounting policies the Company follows are set forth in its most recently filed Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

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

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss consisted of the following:
(dollars in thousands)
June 29, 2013
 
December 29, 2012
 
June 30, 2012
 
 
 
 
 
 
Cumulative foreign currency translation adjustments
$
(6,068
)
 
$
(2,066
)
 
$
(3,269
)
Pension and post-retirement liability adjustment
(9,139
)
 
(9,139
)
 
(8,158
)
Total accumulated other comprehensive loss
$
(15,207
)
 
$
(11,205
)
 
$
(11,427
)


6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisition of Tradenames

On June 13, 2013, the Company acquired worldwide rights to the Carter's Watch the Wear and H.W. Carter & Sons brands, including trademark registrations. The Company acquired these worldwide rights for defensive purposes to reduce brand confusion and facilitate expansion in certain key international markets. The total consideration paid was approximately $38.0 million in cash and was accounted for as an asset acquisition. These tradenames are being amortized over three years, using an accelerated amortization method. The estimated future amortization expense for these assets is approximately $12.5 million for the remainder of fiscal 2013, $16.4 million for fiscal 2014, $6.2 million for fiscal 2015, and $1.7 million for fiscal 2016.

Balance Sheet Components

The Company’s goodwill and other intangible assets were as follows:
 
 
 
June 29, 2013
 
December 29, 2012
(dollars in thousands)
Weighted-average useful life
 
Gross amount
 
Accumulated amortization
 
Net amount
 
Gross amount
 
Accumulated amortization
 
Net amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Carter’s goodwill
Indefinite
 
$
136,570

 
$
—

 
$
136,570

 
$
136,570

 
$
—

 
$
136,570

Bonnie Togs goodwill     
Indefinite
 
$
50,387

 
$
—

 
$
50,387

 
$
53,179

 
$
—

 
$
53,179

Total goodwill
 
 
$
186,957

 
$
—

 
$
186,957

 
$
189,749

 
$
—

 
$
189,749

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carter’s tradename    
Indefinite
 
$
220,233

 
$
—

 
$
220,233

 
$
220,233

 
$
—

 
$
220,233

OshKosh tradename    
Indefinite
 
$
85,500

 
$
—

 
$
85,500

 
$
85,500

 
$
—

 
$
85,500

 Other tradenames
3 years
 
$
38,007

 
$
1,000

 
$
37,007

 
$
—

 
$
—

 
$
—

 Bonnie Togs tradename
2 years
 
$
572

 
$
572

 
$
—

 
$
604

 
$
453

 
$
151

Total tradenames
 
 
$
344,312

 
$
1,572

 
$
342,740

 
$
306,337

 
$
453

 
$
305,884

Non-compete agreements
4 years
 
$
285

 
$
142

 
$
143

 
$
301

 
$
113

 
$
188

Total tradenames and other intangibles, net
 
 
$
344,597

 
$
1,714

 
$
342,883

 
$
306,638

 
$
566

 
$
306,072


 
 
 
June 30, 2012
 
(dollars in thousands)
Weighted-average useful life
 
Gross amount
 
Accumulated amortization
 
Net amount
 
 
 
 
 
 
 
 
 
 
Carter’s goodwill
Indefinite
 
$
136,570

 
$
—

 
$
136,570

 
Bonnie Togs goodwill     
Indefinite
 
$
52,051

 
$
—

 
$
52,051

 
Total goodwill
 
 
$
188,621

 
$
—

 
$
188,621

 
 
 
 
 
 
 
 
 
 
Carter’s tradename    
Indefinite
 
$
220,233

 
$
—

 
$
220,233

 
OshKosh tradename    
Indefinite
 
$
85,500

 
$
—

 
$
85,500

 
 Bonnie Togs tradename    
2 years
 
$
589

 
$
294

 
$
295

 
Total tradenames
 
 
$
306,322

 
$
294

 
$
306,028

 
Non-compete agreements
4 years
 
$
295

 
$
74

 
$
221

 
Total tradenames and other intangibles, net
 
 
$
306,617

 
$
368

 
$
306,249

 

NOTE 5 – COMMON STOCK:

Share Repurchases

In the second quarter of fiscal 2013, the Company's Board of Directors approved a $300 million share repurchase authorization, including amounts remaining under the previous authorizations. During the fiscal quarter and two fiscal quarters ended June

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

29, 2013, the Company repurchased and retired shares in the following amounts:
 
Number of shares repurchased
 
Aggregate cost of shares repurchased (in millions)
 
Average price per share
Shares repurchased and retired in Q1 2013
156,600

 
$
8.9

 
$
57.10

Shares repurchased and retired in Q2 2013
433,402

 
$
28.8

 
$
66.49

Shares repurchased and retired through June 29, 2013
590,002

 
$
37.8

 
$
63.99


The total capacity under the repurchase authorization as of June 29, 2013, was approximately $283.6 million. The authorization has no expiration date.

The Company did not purchase any shares of its common stock during the first two fiscal quarters ended June 30, 2012.

Dividend

In the second fiscal quarter of 2013, the Company's Board of Directors authorized a quarterly cash dividend of $0.16 per share paid on June 14, 2013, for shareholders of record at the close of business on May 31, 2013. Future declarations of quarterly dividends and the establishment of future record and payment dates are at the discretion of the Company's Board of Directors based on a number of factors, including the Company's future financial performance and other investment priorities.

Provisions in the Company's senior credit facility currently require the Company to continue to maintain a lease adjusted leverage ratio of less than or equal to 3.50:1.00 and availability under the facility of at least $50 million (as well as to not have any defaults) in order to pay dividends or repurchase common stock. These requirements could have the effect of restricting the Company’s ability to pay future cash dividends on or make future repurchases of its common stock.

NOTE 6 – LONG-TERM DEBT
    
At June 29, 2013, the Company had approximately $186.0 million in revolver borrowings, exclusive of $15.3 million of outstanding letters of credit, at an effective interest rate of 1.70%. Amounts outstanding under the revolving credit facility currently accrue interest at a LIBOR rate plus 1.50%. As of June 29, 2013, there was approximately $174.0 million available for future borrowing.

As of June 29, 2013, the Company was in compliance with its financial debt covenants.

NOTE 7 – STOCK-BASED COMPENSATION
    
The Company recorded stock-based compensation cost as follows:
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in thousands)
June 29,
2013
 
June 30, 2012
 
June 29,
2013
 
June 30,
2012
Stock options
$
1,233

 
$
1,112

 
$
2,508

 
$
2,043

Restricted stock:
 
 
 
 
 
 
 
   Time-based awards
1,791

 
1,439

 
3,482

 
2,593

   Performance-based awards
1,156

 
662

 
1,982

 
1,070

   Stock awards
180

 
270

 
453

 
645

Total
$
4,360

 
$
3,483

 
$
8,425

 
$
6,351


All of the cost was reflected as a component of selling, general, and administrative expenses.

STOCK OPTIONS

The following table summarizes the Company's stock option activity for the two fiscal quarters ended June 29, 2013:

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

 
Number of shares
 
Weighted- average exercise price
 
Weighted-average remaining contractual terms (years)
 
Aggregate intrinsic value
(in thousands)
 
 
 
 
 
 
 
 
Outstanding, December 29, 2012
2,078,433

 
$26.14
 
 
 
 
Granted
338,600

 
$59.47
 
 
 
 
Exercised
(605,350
)
 
$18.52
 
 
 
 
Forfeited
(27,400
)
 
$33.52
 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding, June 29, 2013
1,784,283

 
$34.94
 
7.40
 
$
69,817

Vested and Expected to Vest, June 29, 2013
1,719,751

 
$34.57
 
7.35
 
$
67,934

Exercisable, June 29, 2013
871,319

 
$25.04
 
6.11
 
$
42,718

    
The intrinsic value of stock options exercised during the two fiscal quarters ended June 29, 2013 and June 30, 2012 was approximately $27.2 million and $3.2 million, respectively. At June 29, 2013, there was approximately $11.4 million of unrecognized compensation cost (net of estimated forfeitures) related to stock options which is expected to be recognized over a weighted-average period of approximately 2.9 years.

The table below presents the assumptions used to calculate the fair value of options granted:
 
Two fiscal quarters ended
 
June 29, 2013
 
June 30, 2012
 
 
 
 
Expected volatility
33.17
%
 
34.82
%
Risk-free interest rate
1.12
%
 
1.38
%
Expected term (years)
6.0

 
5.9

Dividend yield
—
%
 
—
%
Weighted average fair value of options granted
$
20.15

 
$
15.11


RESTRICTED STOCK AWARDS

The following table summarizes activity related to all restricted stock awards during the two fiscal quarters ended June 29, 2013:
 
Restricted
stock
awards
 
Weighted-average grant-date
fair value
 
 
 
 
Outstanding, December 29, 2012
766,929

 
$
33.97

Granted
313,773

 
$
59.76

Vested
(213,152
)
 
$
31.36

Forfeited
(13,575
)
 
$
33.57

Outstanding, June 29, 2013
853,975

 
$
44.10


Time-based Restricted Stock Awards

At June 29, 2013, there was approximately $17.0 million of unrecognized compensation cost (net of estimated forfeitures) related to restricted stock which is expected to be recognized over a weighted-average period of approximately 2.9 years.

Performance-based Restricted Stock Awards


9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the first fiscal quarter of 2012, the Company granted its executive officers an aggregate of 152,000 performance-based restricted shares at a fair market value of $42.61 per share. During the first fiscal quarter of 2013, the Company granted its executive officers an aggregate of 118,200 performance-based restricted shares at a fair market value of $59.27 per share.

Vesting of these shares is contingent upon meeting specific performance targets through 2014 (in the case of the fiscal 2012 awards) or 2015 (in the case of the fiscal 2013 awards). Currently, the Company believes that the respective targets will be achieved and has recorded compensation expense based on the proration of the total ultimate expected value of the award.

At June 29, 2013, there was approximately $11.1 million of unrecognized compensation cost (net of estimated forfeitures) related to performance-based restricted stock awards which is expected to be recognized over a weighted-average period of approximately 2.5 years.

NOTE 8 – EMPLOYEE BENEFIT PLANS
    
OSHKOSH B'GOSH PENSION PLAN
    
The net periodic pension cost included in the statement of operations was comprised of:
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in thousands)
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Interest cost
$
584

 
$
597

 
$
1,168

 
$
1,194

Expected return on plan assets
(764
)
 
(713
)
 
(1,528
)
 
(1,426
)
Recognized actuarial loss
207

 
178

 
414

 
355

Net periodic pension cost
$
27

 
$
62

 
$
54

 
$
123


POST-RETIREMENT LIFE AND MEDICAL PLAN

The components of post-retirement benefit expense charged to the statement of operations are as follows:
 
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in thousands)
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
 
 
 
 
 
 
 
 
 
Service cost – benefits attributed to service during the period
 
$
40

 
$
17

 
$
80

 
$
34

Interest cost on accumulated post-retirement benefit obligation
 
58

 
53

 
116

 
106

Amortization net actuarial gain
 
(34
)
 
(18
)
 
(68
)
 
(36
)
Total net periodic post-retirement benefit cost
 
$
64

 
$
52

 
$
128

 
$
104

    
NOTE 9 – INCOME TAXES

As of June 29, 2013, the Company had gross unrecognized tax benefits of approximately $10.6 million, of which $7.4 million, if ultimately recognized, will affect the Company’s effective tax rate in the period settled.  The Company has recorded tax positions for which the ultimate deductibility is more likely than not, but for which there is uncertainty about the timing of such deductions.  Because of deferred tax accounting, changes in the timing of these deductions would not affect the annual effective tax rate, but could accelerate the payment of cash to the taxing authorities.

Included in the reserves for unrecognized tax benefits are approximately $1.5 million of reserves for which the statute of limitations is expected to expire within the next fiscal year.  If these tax benefits are ultimately recognized, such recognition, net of federal income taxes, may affect the annual effective tax rate for fiscal 2013 and the effective tax rate in the quarter in which the benefits are recognized. 

The Company recognizes interest related to unrecognized tax benefits as a component of interest expense and penalties related to unrecognized tax benefits as a component of income tax expense.  During the fiscal quarter and two fiscal quarters ended June 29, 2013 and June 30, 2012, interest expense recorded on uncertain tax positions was not significant. The Company had

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

approximately $0.8 million, $0.7 million, and $0.7 million of interest accrued on uncertain tax positions as of June 29, 2013, December 29, 2012, and June 30, 2012, respectively.     

NOTE 10 – FAIR VALUE MEASUREMENTS

INVESTMENTS

In fiscal 2012, the Company began investing in marketable securities, principally equity based mutual funds, to mitigate the risk associated with the investment return on employee deferrals of compensation. The Company had approximately $4.5 million and $3.2 million of such Level 1 investments as of June 29, 2013 and December 29, 2012, respectively. There were no such investments as of June 30, 2012.

All of the marketable securities purchased were included in other assets in the accompanying unaudited condensed consolidated balance sheets. During the fiscal quarter and two fiscal quarters ended June 29, 2013, gains on the investments in marketable securities were not significant.

CONTINGENT CONSIDERATION

The following table summarizes the changes in the contingent consideration liability related to the Company's acquisition of Bonnie Togs on June 30, 2011:
 
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in thousands)
 
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
30,021

 
26,767

 
$
29,704

 
$
25,566

Accretion expense
 
979

 
1,088

 
1,866

 
1,779

Foreign currency translation adjustment
 
(1,050
)
 
(550
)
 
(1,620
)
 
(40
)
Balance at end of period
 
$
29,950

 
27,305

 
$
29,950

 
$
27,305

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
The contingent consideration liability is a Level 3 fair value measurement. As of June 29, 2013, the Company determined the fair value of contingent consideration based upon a probability-weighted discounted cash flow analysis, reflecting a high probability that the earnings targets will be met and a discount rate of 18%.

OTHER

As of June 30, 2012, the Company had contracts for the purchase of $8.0 million of U.S. dollars at fixed rates. The Level 1 fair value of these forward contracts was an asset of $0.1 million. During the fiscal quarter and two fiscal quarters ended June 30, 2012, the Company recorded a gain on the mark-to-market of foreign currency exchange contracts of approximately $0.1 million and a loss of approximately $0.5 million, respectively, on these contracts.

The Company did not enter into any foreign exchange forward contracts during the two fiscal quarters ended June 29, 2013 and there were no such contracts outstanding at June 29, 2013.


11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11 – EARNINGS PER SHARE

The following is a reconciliation of basic common shares outstanding to diluted common and common equivalent shares outstanding:
 
Fiscal quarters ended
 
Two fiscal quarters ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
 
 
 
 
 
 
 
 
Weighted-average number of common and common equivalent shares outstanding:
 
 
 
 
 
 
 
Basic number of common shares outstanding
58,567,558

 
58,200,702

 
58,519,286

 
58,128,989

Dilutive effect of equity awards
588,622

 
676,321

 
648,072

 
645,174

Diluted number of common and common equivalent shares outstanding
59,156,180

 
58,877,023

 
59,167,358

 
58,774,163

 
 
 
 
 
 
 
 
Basic net income per common share:
 
 
 
 
 
 
 
Net income
$
19,673,000

 
$
20,805,000

 
$
61,088,000

 
$
53,080,000

Income allocated to participating securities
(265,000
)
 
(271,000
)
 
(811,000
)
 
(651,000
)
Net income available to common shareholders
$
19,408,000

 
$
20,534,000

 
$
60,277,000

 
$
52,429,000

 
 
 
 
 
 
 
 
Basic net income per common share
$
0.33

 
$
0.35

 
$
1.03

 
$
0.90

 
 
 
 
 
 
 
 
Diluted net income per common share:
 
 
 
 
 
 
 
Net income
$
19,673,000

 
$
20,805,000

 
$
61,088,000

 
$
53,080,000

Income allocated to participating securities
(263,000
)
 
(268,000
)
 
(803,000
)
 
(644,000
)
Net income available to common shareholders
$
19,410,000

 
$
20,537,000

 
$
60,285,000

 
$
52,436,000

 
 
 
 
 
 
 
 
Diluted net income per common share
$
0.33

 
$
0.35

 
$
1.02

 
$
0.89

 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from dilutive earnings per share computation
350,200

 
344,200

 
362,500

 
361,800



12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – OTHER CURRENT AND LONG-TERM LIABILITIES

Other current liabilities consisted of the following:
(dollars in thousands)
June 29, 2013
 
December 29, 2012
 
June 30, 2012
Accrued bonuses and incentive compensation
$
8,008

 
$
30,541

 
$
7,048

Contingent consideration
14,262

 
14,442

 
—

Accrued workers' compensation
6,163

 
5,446

 
5,844

Accrued sales and use taxes
4,113

 
5,402

 
3,708

Accrued salaries and wages
6,049

 
5,517

 
5,261

Accrued gift certificates
6,315

 
6,011

 
5,140

Accrued 401(k) contributions
3,325

 
6,200

 
2,000

Accrued closure costs
9,264

 
4,274

 
1,508

Other current liabilities
16,563

 
16,777

 
14,130

Total
$
74,062

 
$
94,610

 
$
44,639

    
Other long-term liabilities consisted of the following:
(dollars in thousands)
June 29, 2013
 
December 29, 2012
 
June 30, 2012
Deferred lease incentives
$
33,335

 
$
29,913

 
$
26,560

Accrued rent
22,878

 
20,485

 
17,734

Contingent consideration
15,688

 
15,262

 
27,305

OshKosh pension plan
13,611

 
13,557

 
11,581

Unrecognized tax benefits
11,421

 
10,479

 
10,641

Post-retirement medical plan
6,329

 
6,201

 
6,660

Deferred compensation
5,699

 
3,996

 
3,046

Other
32

 
161

 
85

Total
$
108,993

 
$
100,054

 
$
103,612



13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SEGMENT INFORMATION
 
The table below presents certain segment information for the periods indicated:
 
Fiscal quarters ended
Two fiscal quarters ended
(dollars in thousands)
June 29,
2013
 
% of
Total
 
June 30,
2012
 
% of
Total
 
June 29,
2013
 
% of
Total
 
June 30,
2012
 
% of
Total
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Carter’s Wholesale
$
196,734

 
38.0
 %
 
$
194,523

 
41.2
 %
 
$
444,912

 
40.1
 %
 
$
444,008

 
43.4
 %
Carter’s Retail (a)    
199,370

 
38.5
 %
 
169,261

 
35.8
 %
 
407,799

 
36.8
 %
 
346,465

 
33.8
 %
Total Carter’s
396,104

 
76.5
 %
 
363,784

 
77.0
 %
 
852,711

 
76.9
 %
 
790,473

 
77.2
 %
OshKosh Retail (a)    
56,423

 
10.9
 %
 
58,301

 
12.3
 %
 
111,768

 
10.1
 %
 
116,289

 
11.4
 %
OshKosh Wholesale
11,301

 
2.2
 %
 
12,789

 
2.7
 %
 
29,487

 
2.7
 %
 
33,063

 
3.2
 %
Total OshKosh
67,724

 
13.1
 %
 
71,090

 
15.1
 %
 
141,255

 
12.8
 %
 
149,352

 
14.6
 %
International (b)     
54,046

 
10.4
 %
 
37,288

 
7.9
 %
 
114,917

 
10.3
 %
 
83,999

 
8.2
 %
Total net sales
$
517,874

 
100.0
 %
 
$
472,162

 
100.0
 %
 
$
1,108,883

 
100.0
 %
 
$
1,023,824

 
100.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
% of
segment
net sales
 
 
 
% of
segment
net sales
 
 
 
% of
segment
net sales
 
 
 
% of
segment
net sales
Carter’s Wholesale
$
31,298

 
15.9
 %
 
$
35,482

 
18.2
 %
 
$
81,482

 
18.3
 %
 
$
75,698

 
17.0
 %
Carter’s Retail (a)    
33,256

 
16.7
 %
 
19,955

 
11.8
 %
 
73,040

 
17.9
 %
 
50,489

 
14.6
 %
Total Carter’s
64,554

 
16.3
 %
 
55,437

 
15.2
 %
 
154,522

 
18.1
 %
 
126,187

 
16.0
 %
OshKosh Retail (a)    
(6,073
)
 
(10.8
)%
 
(9,342
)
 
(16.0
)%
 
(11,168
)
 
(10.0
)%
 
(16,682
)
 
(14.3
)%
OshKosh Wholesale
681

 
6.0
 %
 
67

 
0.5
 %
 
3,484

 
11.8
 %
 
686

 
2.1
 %
Total OshKosh
(5,392
)
 
(8.0
)%
 
(9,275
)
 
(13.0
)%
 
(7,684
)
 
(5.4
)%
 
(15,996
)
 
(10.7
)%
International (b) (c)    
7,353

 
13.6
 %
 
6,098

 
16.4
 %
 
12,349

 
10.7
 %
 
13,001

 
15.5
 %
Total segment operating income
66,515

 
12.8
 %
 
52,260

 
11.1
 %
 
159,187

 
14.4
 %
 
123,192

 
12.0
 %
Corporate expenses (d) (e)     
(33,777
)
 
(6.5
)%
 
(17,833
)
 
(3.8
)%
 
(59,506
)
 
(5.4
)%
 
(34,965
)
 
(3.4
)%
Total operating income
$
32,738

 
6.3
 %
 
$
34,427

 
7.3
 %
 
$
99,681

 
9.0
 %
 
$
88,227

 
8.6
 %

(a)
Includes eCommerce results.
(b)
Net sales include international retail, eCommerce, and wholesale sales. Operating income includes international licensing income.
(c)
Includes charges associated with the revaluation of the Company’s contingent consideration of $1.0 million and $1.9 million for the fiscal quarter and two fiscal quarters ended June 29, 2013, respectively, and $1.1 million and $1.8 million for the quarter and two fiscal quarters ended June 30, 2012, respectively.
(d)
Corporate expenses include expenses related to incentive compensation, stock-based compensation, executive management, severance and relocation, finance, building occupancy, information technology, certain legal fees, consulting, and audit fees.
(e)    Includes the following charges:
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in millions)
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
Closure of distribution facility in Hogansville, GA
$
—

 
$
0.7

 
$
0.6

 
$
1.8

Office consolidation costs
$
10.2

 
$
—

 
$
18.2

 
$
—

Amortization of H.W. Carter and Sons tradenames
$
1.0

 
$
—

 
$
1.0

 
$
—


NOTE 14 – FACILITY CLOSURE

HOGANSVILLE DISTRIBUTION FACILITY
    
In conjunction with the plan to close the Hogansville distribution facility, the Company recorded expense of approximately $0.6 million in closing-related costs during the two fiscal quarters ended June 29, 2013, substantially all of which was recognized in

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

the first fiscal quarter ended March 30, 2013. The Company recorded approximately $0.7 million and $1.8 million in closing-related costs during the fiscal quarter and two fiscal quarters ended June 30, 2012, respectively.

The total amount of charges consisted of the following components:
 
Fiscal quarters ended
 
Two fiscal quarters ended
(dollars in millions)
June 29, 2013
 
June 30, 2012
 
June 29, 2013
 
June 30, 2012
 
 
 
 
 
 
 
 
Severance
$
(0.2
)
 
$
0.3

 
$
0.3

 
$
1.4

Accelerated depreciation
$
0.1

 
$
0.4

 
$
0.3

 
$
0.4

Other closure costs
$
—

 
$
—

 
$
—

 
$
—

Total
$
—

 
$
0.7

 
$
0.6

 
$
1.8


The following table summarizes restructuring reserves related to the closure of the Hogansville facility which are included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet as of June 29, 2013:
(dollars in thousands)
Severance
 
Other closure costs
 
Total
Balance at December 29, 2012
$
2,039

 
$
—

 
$
2,039

Provision
433

 
9

 
442

Payments
—

 
—

 
—

Balance at March 30, 2013
$
2,472

 
$
9

 
$
2,481

Provision
$
(179
)
 
9

 
(170
)
Payments
—

 
—

 
—

Balance at June 29, 2013
$
2,293

 
$
18

 
$
2,311


As of June 30, 2012, restructuring reserves were approximately $1.5 million.

In conjunction with the plan to close the Hogansville, Georgia distribution facility, the Company expects to incur, in total for fiscal 2013, closure-related charges of approximately $2.5 million, comprising $1.0 million for one-time termination benefits, $0.5 million in accelerated depreciation, and other closure costs of $1.0 million.

OFFICE CONSOLIDATION    

In connection with the plan to consolidate its Shelton, Connecticut and Atlanta, Georgia offices, as well as certain functions from its other offices, into a new headquarters facility in Atlanta, Georgia, the Company recorded approximately $10.2 million and $18.2 million in closing-related costs in the fiscal quarter and two fiscal quarters ended June 29, 2013, respectively.

The total amount of charges consisted of the following:
 
Fiscal quarter ended
 
Two fiscal quarters ended
(dollars in millions)
June 29, 2013
 
June 29, 2013
Recruiting, relocation and other closure costs
$
6.2

 
$11.2
Severance and other benefits
$
2.7

 
$4.5
Accelerated depreciation
$
1.3

 
$2.5
Total
$
10.2

 
$18.2


15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes restructuring reserves related to the office consolidation which are included in other current liabilities in the accompanying unaudited condensed consolidated balance sheet as of June 29, 2013:
(dollars in thousands)
Severance
 
Other closure costs
 
Total
Balance at December 29, 2012
$
2,235

 
$
—

 
$
2,235

Provision
1,806

 
4,900

 
6,706

Payments
—

 
(4,900
)
 
(4,900
)
Balance at March 30, 2013
$
4,041

 
$
—

 
$
4,041

Provision
2,700

 
6,200

 
8,900

Payments
—

 
(5,988
)
 
(5,988
)
Balance at June 29, 2013
$
6,741

 
$
212

 
$
6,953


The Company expects to substantially complete this consolidation by the end of fiscal 2013. The Company anticipates pre-tax consolidation-related expenses for the full year of fiscal 2013 to be approximately $37 - $41 million. Included in the total are cash charges of approximately $35 million, comprising $16 million of recruiting and relocation expenses, $6 million of employee severance and other benefit costs, $7 million of lease-related charges, and $6 million of other closure costs. The Company also expects approximately $4 million in non-cash accelerated depreciation expense.

NOTE 15 – RECENT ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board issued guidance finalizing the reporting of amounts reclassified out of accumulated other comprehensive income. The new standard requires disclosure, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The guidance is effective for annual reporting periods and interim periods within those years, beginning after December 15, 2012. In the first fiscal quarter of 2013, the Company adopted the guidance and determined that there were no significant amounts reclassified in the period that would require enhanced disclosure.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
        
The following is a discussion of our results of operations and current financial condition. This should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes and our Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

Our Business

We are the largest branded marketer in the United States ("U.S.") of apparel exclusively for babies and young children. We own two of the most highly recognized and most trusted brand names in the children's apparel industry, Carter's and OshKosh B'gosh ("OshKosh"). Established in 1865, our Carter's brand is recognized and trusted by consumers for high-quality apparel for children sizes newborn to seven. Established in 1895, OshKosh is a well-known brand, trusted by consumers for its line of apparel for children sizes newborn to 12. We have extensive experience in the young children's apparel market and focus on delivering products that satisfy our consumers' needs. Our strategy is to market high-quality, essential core products at prices that deliver an attractive value proposition for consumers.

We believe each of our brands has its own unique positioning in the marketplace. In the U.S., our brands compete in the $18 billion children's apparel market, for children ages zero to seven, with our Carter's brand being the largest with a 12.5% market share and our OshKosh brand having a 2.6% market share. We offer multiple product categories, including baby, sleepwear, playclothes, and other accessories. Our Carter's brand is the leading brand in the baby category in the U.S. In the 2012 calendar year, in the department store, national chain, outlet, specialty store, and off-price sales channels, our aggregate Carter's brand market share in the U.S. was approximately 22.6% for ages zero to two, which represents approximately four times the market share of the next largest brand. Our aggregate 2012 Carter's brand playclothes market share in the U.S. was approximately 10.5% in the $13 billion department store, national chain, outlet, specialty store, and off-price sales channels for sizes zero to seven, which also represents the largest market share of any brand. Our Carter's brand U.S. sleepwear market share was approximately 34%, which represents approximately seven times the market share of the next largest brand.

Our market share data is based on information provided by The NPD Group, Inc ("NPD"). Unless otherwise indicated, references to market share in this Quarterly Report on Form 10-Q are expressed as a percentage of total retail sales of a market. The baby and young children's apparel market includes apparel products for ages zero to seven in the U.S. NPD data is based upon The NPD Group/Consumer Tracking Service (consumer-reported sales calibrated with selected retailers' point of sale data). NPD revised its methodology, effective with a revised data release for fiscal 2012 and restated fiscal 2011 data, released on March 15, 2013. Accordingly, NPD data cited in this report are different from those cited in the Carter's, Inc. Annual Report on Form 10-K for the fiscal year ended December 29, 2012 (which were based on an alternate methodology no longer employed by NPD and are not comparable to this presentation).

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated (i) selected statement of operations data expressed as a percentage of net sales and (ii) the number of retail stores open at the end of each period:

17
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)


 
Fiscal quarters ended
 
Two fiscal quarters ended
 
June 29,
2013
 
June 30,
2012
 
June 29,
2013
 
June 30,
2012
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
Carter’s Wholesale
38.0
 %
 
41.2
 %
 
40.1
 %
 
43.4
 %
Carter’s Retail
38.5
 %
 
35.8
 %
 
36.8
 %
 
33.8
 %
Total Carter’s
76.5
 %
 
77.0
 %
 
76.9
 %
 
77.2
 %
 
 
 
 
 
 
 
 
OshKosh Retail
10.9
 %
 
12.3
 %
 
10.1
 %
 
11.4
 %
OshKosh Wholesale
2.2
 %
 
2.7
 %
 
2.7
 %
 
3.2
 %
Total OshKosh
13.1
 %
 
15.1
 %
 
12.8
 %
 
14.6
 %
 
 
 
 
 
 
 
 
International
10.4
 %
 
7.9
 %
 
10.3
 %
 
8.2
 %
 
 
 
 
 
 
 
 
Consolidated net sales
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of goods sold
57.5
 %
 
61.2
 %
 
58.2
 %
 
63.1
 %
 
 
 
 
 
 
 
 
Gross profit
42.5
 %
 
38.8
 %
 
41.8
 %
 
36.9
 %
Selling, general, and administrative expenses
37.7
 %
 
33.1
 %
 
34.3
 %
 
29.9
 %
Royalty income
(1.4
)%
 
(1.6
)%
 
(1.5
)%
 
(1.6
)%
 
 
 
 
 
 
 
 
Operating income
6.3
 %
 
7.3
 %
 
9.0
 %
 
8.6
 %
Interest expense, net
0.2
 %
 
0.4
 %
 
0.2
 %
 
0.4
 %
Other expense (income), net
0.1
 %
 
—
 %
 
0.1
 %
 
—
 %
 
 
 
 
 
 
 
 
Income before income taxes
6.0
 %
 
7.0
 %
 
8.7
 %
 
8.2
 %
Provision for income taxes
2.2
 %
 
2.6
 %
 
3.2
 %
 
3.1
 %
Net income
3.8
 %
 
4.4
 %
 
5.5
 %
 
5.2
 %
 
 
 
 
 
 
 
 
Number of retail stores at end of period:
 
 
 
 
 
 
Carter’s - U.S.
 
 
 
 
438

 
385

OshKosh - U.S.
 
 
 
 
164

 
166

International
 
 
 
 
107

 
73

 
 
 
 
 
 
 
 
Total retail stores


 


 
709

 
624


Note: Results may not be additive due to rounding.


18
ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)



SECOND QUARTER AND TWO FISCAL QUARTERS ENDED JUNE 29, 2013 COMPARED WITH SECOND QUARTER AND TWO FISCAL QUARTERS ENDED JUNE 30, 2012

CONSOLIDATED NET SALES

In the second fiscal quarter of 2013, consolidated net sales increased $45.7 million, or 9.7%, to $517.9 million. For the first two fiscal quarters of 2013, consolidated net sales increased $85.1 million, or 8.3%, to $1,108.9 million. For both periods, the growth primarily reflects higher sales in the Carter's and international segments, partially offset by lower sales in the other segments.

 
Fiscal quarter ended
 
Two fiscal quarters ended
(dollars in thousands)
June 29,
2013
 
% of
Total
 
June 30,
2012
 
% of
Total
 
June 29, 2013
 
% of
Total
 
June 30, 2012
 
% of
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales: