Carter's provides update on customer accommodations review

24 Dec '09

5 min read

Carter's, Inc. announced the substantial completion of an independent investigation undertaken at the direction of the Company's Audit Committee concerning the reporting of wholesale customer accommodations in incorrect periods and the resulting adjustments to the Company's financial statements for the periods covered by the previously announced restatement.

The Audit Committee conducted its investigation 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 restated 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 restated periods and the understatement of net sales and net income in certain of the restated periods. The deferrals related primarily to a single wholesale customer and, to a lesser extent, other wholesale customers.

The cumulative, after-tax impact of the adjustments required to the financial statements for the five fiscal years of 2004 through 2008 and the first six months of fiscal 2009 is a 3% reduction in retained earnings in the amount of $7.5 million. 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 periods presented. The adjustments to the Company's statements of operations and balance sheets for the restated periods are set forth at the end of this release.

Through the investigation, management identified control deficiencies in its internal controls associated with customer accommodations processes that constitute material weaknesses and determined to restate prior period financial statements. Management has been actively engaged in developing remediation efforts to address these control deficiencies. These efforts include the separation of certain employees from the Company. Additional information regarding the control deficiencies and remediation efforts is set forth in the Company's Form 8-K filed today.

“The Board of Directors is pleased that the Audit Committee's investigation of accommodations is substantially complete. We are thankful to our management team for their responsiveness to the challenging issues presented by the investigation,” said Thomas E. Whiddon, Lead Director, speaking on behalf of the Company's Board of Directors.

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