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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 JULY 1, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:
333-51447
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CARTER HOLDINGS, INC.
(Exact name of registrant as specified in charter)
MASSACHUSETTS 13-3912933
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1590 ADAMSON PARKWAY, SUITE 400
MORROW, GEORGIA 30260
----------------------------------------------------------
(Address of principal executive offices, including zip code)
(770) 961-8722
--------------
(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 [ ]
Applicable only to corporate issuers:
As of August 15, 2000, there were 752,808 shares of Class A Stock, 211,175
shares of Class C Stock and 5,000 Shares of Class D Stock outstanding.
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FORM 10-Q
CARTER HOLDINGS, INC.
INDEX
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 1, 2000
(unaudited) and January 1, 2000............................. 3
Unaudited Condensed Consolidated Statements of Operations
for the three-month periods ended July 1, 2000 and
July 3, 1999................................................ 4
Unaudited Condensed Consolidated Statements of Operations
for the six-month periods ended July 1, 2000 and
July 3, 1999................................................ 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the six-month periods ended July 1, 2000
and July 3, 1999 ........................................... 6
Notes to Condensed Consolidated Financial Statements
(unaudited)................................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 10
PART II. Other Information........................................... 14
2
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
JULY 1, JANUARY 1,
2000 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ....................................................................... $ 3,145 $ 3,415
Accounts receivable, net ........................................................................ 33,181 34,405
Inventories ..................................................................................... 105,331 79,636
Prepaid expenses and other current assets ....................................................... 4,199 3,863
Assets held for sale ............................................................................ 577 1,000
Deferred income taxes ........................................................................... 10,246 10,276
--------- ---------
Total current assets .......................................................................... 156,679 132,595
Property, plant and equipment, net ................................................................ 49,483 51,776
Assets held for sale .............................................................................. 950 950
Tradename, net .................................................................................... 90,833 92,083
Cost in excess of fair value of net assets acquired, net .......................................... 27,073 27,457
Deferred debt issuance costs, net ................................................................. 6,526 7,325
Other assets ...................................................................................... 5,463 2,758
--------- ---------
Total assets .................................................................................. $ 337,007 $ 314,944
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............................................................ $ 3,150 $ 900
Accounts payable ................................................................................ 24,406 19,532
Other current liabilities ....................................................................... 32,334 28,692
--------- ---------
Total current liabilities ..................................................................... 59,890 49,124
Long-term debt .................................................................................... 173,100 161,400
Deferred income taxes ............................................................................. 35,554 35,902
Other long-term liabilities ....................................................................... 11,051 11,565
--------- ---------
Total liabilities ............................................................................. 279,595 257,991
--------- ---------
Commitments and contingencies
Stockholders' equity:
Class A Stock, nonvoting; par value $.01 per share; 775,000 shares authorized;
752,808 shares issued and outstanding; liquidation value of $.001 per share .................. 45,168 45,168
Class C Stock, nonvoting; par value $.01 per share; 500,000 shares authorized;
242,192 shares issued; liquidation value of $.001 per share .................................. 14,532 14,532
Class C Treasury Stock, 31,017 shares at cost at July 1, 2000 and at January 1,
2000 ......................................................................................... (1,860) (1,860)
Class D Stock, voting; par value $.01 per share; 5,000 shares authorized, issued
and outstanding .............................................................................. 300 300
Common Stock, voting; par value $.01 per share; 1,280,000 shares authorized; none
issued or outstanding ........................................................................ -- --
Accumulated deficit ............................................................................. (728) (1,187)
--------- ---------
Total stockholders' equity .................................................................. 57,412 56,953
--------- ---------
Total liabilities and stockholders' equity .................................................. $ 337,007 $ 314,944
========= =========
See accompanying notes to the unaudited condensed
consolidated financial statements
3
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
THREE-MONTH PERIODS ENDED
-------------------------
JULY 1, JULY 3,
2000 1999
-------- --------
Net sales ....................................... $ 97,070 $ 91,170
Cost of goods sold .............................. 60,820 60,625
-------- --------
Gross profit .................................... 36,250 30,545
Selling, general and administrative expenses .... 31,958 27,660
-------- --------
Operating income ................................ 4,292 2,885
Interest expense ................................ 4,456 5,303
-------- --------
Loss before income taxes ........................ (164) (2,418)
Benefit from income taxes ....................... (76) (1,072)
-------- --------
Net loss ........................................ $ (88) $ (1,346)
======== ========
See accompanying notes to the unaudited condensed
consolidated financial statements
4
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
SIX-MONTH PERIODS ENDED
---------------------------
JULY 1, JULY 3,
2000 1999
--------- ---------
Net sales ...................................... $ 195,193 $ 177,753
Cost of goods sold ............................. 122,374 117,169
--------- ---------
Gross profit ................................... 72,819 60,584
Selling, general and administrative expenses.... 62,809 55,702
--------- ---------
Operating income ............................... 10,010 4,882
Interest expense ............................... 9,246 10,543
--------- ---------
Income (loss) before income taxes .............. 764 (5,661)
Provision for (benefit from) income taxes ...... 305 (2,433)
--------- ---------
Net income (loss) .............................. $ 459 $ (3,228)
========= =========
See accompanying notes to the unaudited condensed
consolidated financial statements
5
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
SIX-MONTH PERIODS ENDED
-----------------------
JULY 1, JULY 3,
2000 1999
-------- --------
Cash flows from operating activities:
Net income (loss) ............................................ $ 459 $ (3,228)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization ............................... 8,102 8,472
Amortization of debt issuance costs ......................... 799 817
Deferred tax (benefit) provision ............................ (318) 338
Effect of changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable ........................................ 1,224 (1,855)
Inventories ................................................ (25,695) (13,057)
Prepaid expenses and other assets .......................... (205) (1,476)
Increase (decrease) in liabilities:
Accounts payable and other liabilities ..................... 7,285 (6,704)
-------- --------
Net cash used in operating activities ...................... (8,349) (16,693)
-------- --------
Cash flows from investing activities:
Capital expenditures ......................................... (4,250) (4,301)
Issuance of loan ............................................. (4,336) --
Proceeds from loan ........................................... 1,500 --
Proceeds from sale of property, plant and equipment .......... 73 25
Proceeds from assets held for sale ........................... 396 --
-------- --------
Net cash used in investing activities ...................... (6,617) (4,276)
-------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit ....................... 40,050 60,800
Payments of revolving line of credit ......................... (25,650) (41,200)
Payment of other debt ........................................ (450) (450)
Payment on capital lease obligation .......................... (533) --
Repurchase of Capital stock .................................. -- (370)
Other ........................................................ 1,279 954
-------- --------
Net cash provided by financing activities .................. 14,696 19,734
-------- --------
Net decrease in cash and cash equivalents ...................... (270) (1,235)
Cash and cash equivalents, beginning of period ................. 3,415 3,986
-------- --------
Cash and cash equivalents, end of period ....................... $ 3,145 $ 2,751
======== ========
See accompanying notes to the unaudited condensed
consolidated financial statements
6
CARTER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- BASIS OF PREPARATION:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Carter Holdings, Inc. ("Holdings") and its
subsidiaries (the "Company") contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of July 1, 2000, and the results of its operations for the
three-month and six-month periods ended July 1, 2000 and July 3, 1999 and cash
flows for the six-month periods ended July 1, 2000 and July 3, 1999. Operating
results for the three-month and six-month periods ended July 1, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 30, 2000. The accompanying condensed consolidated balance sheet
of the Company as of January 1, 2000 has been derived from the audited
consolidated financial statements included in the Company's fiscal 1999 Annual
Report on Form 10-K.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
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 followed by the Company are set forth in its Annual Report
on Form 10-K in the Notes to the Company's consolidated financial statements for
the fiscal year ended January 1, 2000.
NOTE 2 -- THE COMPANY:
Carter Holdings, Inc. is a holding company whose primary asset consists of
an investment in 100% of the outstanding capital stock of The William Carter
Company, Inc. ("Carter's").
The Company is a manufacturer and marketer of premier branded childrenswear
under the CARTER'S and CARTER'S CLASSICS labels. The Company manufactures its
products in plants located in the southern United States, Costa Rica, the
Dominican Republic and Mexico. The Company also sources its products from
several manufacturers throughout the world. Products are manufactured for
wholesale distribution to major domestic retailers and for the Company's 148
retail outlet stores that market its brand name merchandise and certain products
manufactured by other companies. The Company's retail sales were approximately
47% of its consolidated net sales in the second quarter of 2000 compared to 43%
in the second quarter of 1999. Retail sales were approximately 45% and 42% of
consolidated net sales in the first half of 2000 and 1999, respectively.
NOTE 3 -- INVENTORIES:
Inventories consisted of the following ($000):
JULY 1, JANUARY 1,
2000 2000
-------- --------
Finished goods ............... $ 77,451 $ 57,695
Work in process .............. 19,244 13,842
Raw materials and supplies.... 8,636 8,099
-------- --------
Total ........................ $105,331 $ 79,636
======== ========
7
CARTER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
NOTE 4 -- RELATED PARTY TRANSACTIONS:
In January 2000, a loan to an officer in the amount of $4.3 million was
issued. A portion of the proceeds were used by the officer to repay a previous
loan from the Company in the amount of $1.5 million. The $1.5 million loan was
scheduled to be repaid in October 2001. The January 2000 loan is payable in
annual installments of $600,000 commencing on March 31, 2002, and thereafter on
each anniversary thereof until such principal amount and all accrued and unpaid
interest thereon have been repaid. The loan has recourse and is collateralized
by the officer's stock in Holdings and bears interest at the average rate paid
by the Company under the revolving portion of its senior credit facility. The
loan is prepayable with proceeds of any disposition of the officer's stock in
Holdings.
NOTE 5 -- TREASURY STOCK TRANSACTIONS:
There were no treasury stock transactions during the three and six-month
periods ended July 1, 2000. During the three and six-month periods ended July 3,
1999, the Company repurchased 3,897 and 6,186 shares, respectively, of its Class
C stock owned by former employees of Carter's for cash payments of approximately
$233,000 and $370,000, respectively. In addition, during the six-month period
ended July 3, 1999, an employee of the Company was issued 1,000 shares of Class
C stock from shares repurchased for $60.00 per share. This transaction involved
no cash proceeds, and the Company recognized $60,000 as compensation expense.
NOTE 6 -- ENVIRONMENTAL MATTERS:
The Company is subject to various federal, state and local laws that govern
activities or operations that may have adverse environmental effects.
Noncompliance with these laws and regulations can result in significant
liabilities, penalties and costs. From time to time, operations of the Company
have resulted or may result in noncompliance with or liability pursuant to
environmental laws. The Company is in the process of resolving a potential
environmental claim associated with waste deposited at or near a landfill in
Lamar County, Georgia in the 1970's. In 1999, the Company established a reserve
to provide for its share of the total estimated costs required to resolve this
matter which are estimated to be less than $1.0 million. However, there can be
no assurance that this estimate will prove accurate. Generally, compliance with
environmental laws has not had a material impact on the Company's operations,
but there can be no assurance that future compliance with such laws will not
have a material adverse effect on the Company or its operations.
8
CARTER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
NOTE 7--SEGMENT INFORMATION:
The Company's two reportable segments are "Retail" and "Wholesale and
Other". The Company generally sells the same products in each business segment.
The Company evaluates the performance of its Retail segment based on, among
other things, its earnings before interest, taxes, depreciation and amortization
expenses ("EBITDA"). The Retail segment's EBITDA is determined on a direct
contribution basis only and does not include allocations of all costs incurred
to support Retail operations. Retail EBITDA, therefore, does not reflect the
actual results which would be derived if such allocations were made. EBITDA
shown in the accompanying table for the Wholesale and Other segment is an amount
determined by deduction based on consolidated EBITDA. The Wholesale and Other
segment includes all other revenue and expenses of the Company not directly
related to the Retail segment and is not a measurement used by management in its
decision-making process.
The table below presents certain segment information for the periods
indicated ($000):
WHOLESALE
RETAIL AND OTHER TOTAL
------ --------- -----
THREE-MONTHS ENDED JULY 1, 2000:
Sales ........................ $ 45,555 $ 51,515 $ 97,070
EBITDA ....................... $ 10,800 $ (2,540) $ 8,260
THREE-MONTHS ENDED JULY 3, 1999:
Sales ........................ $ 38,821 $ 52,349 $ 91,170
EBITDA ....................... $ 7,844 $ (550) $ 7,294
SIX-MONTHS ENDED JULY 1, 2000:
Sales ........................ $ 88,374 $ 106,819 $ 195,193
EBITDA ....................... $ 19,957 $ (1,845) $ 18,112
SIX-MONTHS ENDED JULY 3, 1999:
Sales ........................ $ 74,028 $ 103,725 $ 177,753
EBITDA ....................... $ 14,063 $ (709) $ 13,354
A reconciliation of total segment EBITDA to total consolidated (loss)
income before income taxes is presented below ($000):
THREE-MONTHS ENDED SIX-MONTHS ENDED
----------------------- -----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
Total EBITDA for reportable segments .............. $ 8,260 $ 7,294 $ 18,112 $ 13,354
Depreciation and amortization expense ............. (3,968) (4,409) (8,102) (8,472)
Interest expense .................................. (4,456) (5,303) (9,246) (10,543)
-------- -------- -------- --------
Consolidated (loss) income before income taxes $ (164) $ (2,418) $ 764 $ (5,661)
======== ======== ======== ========
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS:
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS
THREE AND SIX-MONTH PERIODS ENDED JULY 1, 2000 COMPARED TO THREE AND
SIX-MONTH PERIODS ENDED JULY 3, 1999
In the second quarter of 2000, consolidated net sales increased $5.9
million (6.5%) to $97.1 million from $91.2 million in the second quarter of
fiscal 1999. Consolidated net sales for the first half of 2000 were $195.2
million, an increase of $17.4 million (9.8%) compared with the first half of
1999. Revenues from each of the Company's major product markets (Layette,
Sleepwear and Playwear) increased in the second quarter and first half of 2000
compared to 1999.
In 1999, the Company closed its textile facility which produced
substantially all of the Company's fabrics. The Company expanded its product
sourcing capabilities to include manufacturers throughout the world that have
access to better fabrics and lower costs. Revenue increases in 2000 reflect the
benefit from improvements made to the Company's products through its new product
sourcing strategy and the Company's focus on product innovation through creative
prints and embroideries.
Due to lower off-price sales to the secondary market (sales promoted at
more than 25% off wholesale list prices), the Company's total wholesale sales
decreased $0.8 million (1.6%) to $51.5 million in the second quarter of 2000
from $52.3 million in the second quarter of 1999. Total wholesale sales
(including off-price sales) increased $3.1 million (3.0%) to $106.8 million in
the first half of 2000 from $103.7 million in the first half of 1999.
Excluding off-price sales, wholesale revenue increased $3.0 million (6.5%)
in the second quarter of 2000 to $48.8 million from $45.8 million in the second
quarter of 1999. In the first half of 2000, wholesale sales (excluding off-price
sales) increased $8.7 million (9.5%) to $100.4 million from $91.7 million in the
first half of 1999.
Off-price sales decreased $3.8 million (58.5%) to $2.7 million in the
second quarter of 2000 from $6.5 million in the second quarter of 1999.
Off-price sales were 2.8% of total sales in the second quarter of 2000 compared
to 7.2% in the second quarter of 1999. Off-price sales for the first half
decreased $5.6 million (46.5%) to $6.4 million from $12.1 million in the first
half of 1999. Such decreases reflect the benefit from inventory management and
production disciplines implemented during 1999 which reduced excess inventory
levels beginning in the latter part of 1999.
Retail outlet store sales were $45.6 million in the second quarter of 2000,
which represented an increase of $6.7 million (17.3%) compared to the second
quarter of 1999. Comparable store sales increased 12.0% in the second quarter of
2000. Retail store sales increased $14.3 million (19.4%) to $88.4 million from
$74.0 million in the first half of 1999. Comparable store sales increased 14.2%
in the first half of 2000. During the second quarter of 2000, the Company opened
three stores and closed one store. There were 148 outlet stores operating as of
July 1, 2000 compared to 145 as of July 3, 1999. The Company plans to open four
stores and close eight stores in the second half of 2000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
The Company's gross profit increased $5.7 million (18.7%) to $36.2 million
in the second quarter of 2000 from $30.5 million in the second quarter of 1999.
Gross profit as a percentage of net sales in the second quarter of 2000
increased to 37.3% from 33.5% in the second quarter of 1999. In the first half
of 2000, gross profit increased $12.2 million (20.2%) to $72.8 million compared
with the first half of 1999. Gross profit as a percentage of net sales in the
first half of 2000 increased to 37.3% compared to 34.1%. The improvement in
gross profit is attributed to a lower mix of off-price sales and the benefit
from cost reduction achieved through moving production offshore. In 1999, gross
profit included the costs to close three sewing facilities in the United States
and the costs of curtailing production in the Company's textile facility.
Selling, general and administrative expenses for the second quarter of 2000
increased 15.5% to $32.0 million from $27.7 million in the second quarter of
1999. Selling, general and administrative expenses as a percentage of net sales
increased to 32.9% in the second quarter of 2000 from 30.3% in the second
quarter of 1999. In the first half of 2000, these expenses increased to $62.8
million (12.8%) from $55.7 million in the first half of 1999. As a percentage of
net sales, selling, general and administrative expenses increased to 32.2% in
the first half of 2000 from 31.3% in the first half of 1999. The increase in
selling, general and administrative expenses includes the variable costs to
support higher revenue levels and incremental investments in brand marketing.
Operating income for the second quarter of 2000 increased $1.4 million
(48.8%) to $4.3 million compared to $2.9 million in the second quarter of 1999.
Operating income in the first half of 2000 increased $5.1 million to $10.0
million compared to $4.9 million in the first half of 1999. Such increases
reflect the net effect of changes in gross profit and selling, general and
administrative expenses described above.
Interest expense in the second quarter of 2000 decreased 16.0% to $4.5
million from $5.3 million in the second quarter of 1999. This decrease is
attributed to lower average revolver borrowings during the second quarter of
2000. Interest expense for the first half of 2000 decreased to $9.2 million
(12.3%) from $10.5 million for the first half of 1999. Average revolver
borrowings during the first half of 2000 were $3.1 million compared to $32.5
million in the first half of 1999. Lower average borrowings are primarily
attributed to the reduction in inventory levels as compared to 1999. At July 1,
2000, outstanding debt aggregated $176.3 million compared to $206.8 million at
July 3, 1999.
The Company recorded an income tax benefit of $0.1 million in the second
quarter of 2000 compared to an income tax benefit of $1.1 million in the second
quarter of 1999. In the first half of 2000, the Company recorded an income tax
provision of $0.3 million compared to an income tax benefit of $2.4 million for
the first half of 1999. The Company's effective tax rate was approximately 40%
in the first half of 2000. The effective tax rate in the first half of 1999 was
43%.
As a result of the factors described above, the Company reported a net loss
of approximately $0.1 million in the second quarter of 2000 compared to a net
loss of $1.3 million in the second quarter of 1999. Net income in the first half
of 2000 was $0.5 million compared to a net loss of $3.2 million in the first
half of 1999.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS: (CONTINUED)
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
The Company has financed its working capital, capital expenditures and debt
service requirements primarily through internally generated cash flow and funds
borrowed under the Company's revolving credit facility.
Net accounts receivable at July 1, 2000 were $33.2 million compared to
$36.7 million at July 3, 1999. Due to the seasonal nature of the Company's
operations, the net accounts receivable balance at July 1, 2000 is not
comparable to the net accounts receivable balance at January 1, 2000.
Inventories at July 1, 2000 were $105.3 million compared to $114.5 million
at July 3, 1999. This decrease reflects the benefit from inventory management
disciplines implemented in 1999. Due to the seasonal nature of the Company's
operations, inventories at July 1, 2000 are not comparable to inventories at
January 1, 2000.
The Company invested $4.3 million in capital expenditures during the first
half of 2000 and 1999. The Company plans to invest a total of $20.0 million in
capital expenditures in 2000. Areas for investment include fixturing of
wholesale customers, information technology and retail outlet store openings and
remodeling.
At July 1, 2000, the Company had $176.3 million of debt outstanding,
consisting of $100.0 million of 10 3/8% Series A Senior Subordinated Notes,
$20.0 million of 12% Series B Senior Subordinated Notes, $41.9 million in term
loan borrowings and $14.4 million in revolver borrowings under the Senior Credit
Facility, exclusive of approximately $7.6 million of outstanding letters of
credit. At July 1, 2000, the Company had approximately $43.0 million of
financing available under the revolving credit portion of the Senior Credit
Facility.
The Company believes that cash generated from operations, together with
availability under the revolving credit portion of the Senior Credit Facility,
will be adequate to meet its debt service requirements, capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard.
EFFECTS OF INFLATION
The Company is affected by inflation primarily through the purchase of raw
material, increased operating costs and expenses and higher interest rates. The
effects of inflation on the Company's operations have not been material in
recent years.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
SEASONALITY
The Company experiences seasonal fluctuations in its sales and
profitability, with generally lower sales and gross profit in the first and
second quarters of its fiscal year. Accordingly, the results of operations for
the three and six-month periods ended July 1, 2000 are not indicative of the
results to be expected for the full year.
MARKET RISKS
The Company currently sources over 90% of its production through its
offshore facilities and contract manufacturers. As a result, the Company may be
adversely affected by political instability resulting in the disruption of trade
from foreign countries in which the Company's manufacturing facilities are
located, the imposition of additional regulations relating to imports, duties,
taxes and other charges on imports, any significant decreases in the value of
the dollar against foreign currencies and restrictions on the transfer of funds.
These and other factors could result in the interruption of production in
offshore facilities or a delay in the receipt of the products by the Company in
the United States. The Company's future performance may be subject to such
factors, which are beyond the Company's control, and there can be no assurance
that such factors would not have a material adverse effect on the Company's
financial condition and results of operations.
Raw materials used by the Company are finished fabrics and trim materials.
These materials are available from a number of suppliers. Prices for these
materials are affected by changes in market demand and there can be no assurance
that prices for these and other raw materials will not increase in the near
future.
The Company's operating results are subject to risk from interest rate
fluctuations on debt which carries variable interest rates. At July 1, 2000,
outstanding debt aggregated $176.3 million, of which $56.3 million bore interest
at a variable rate, so that an increase of 1% in the applicable rate would
increase the Company's annual interest expense by $563,000.
13
PART II--OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS:
From time to time, the Company has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such litigation,
if resolved adversely to the Company, would have a material adverse effect on
the financial condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
*27 Financial Data Schedule.
------------
* Filed herewith
(b) Reports on Form 8-K
No report was filed by the Registrant during the quarter
ended July 1, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLIAM CARTER COMPANY
Date: August 15, 2000 /s/ FREDERICK J. ROWAN, II
--------------------------------------
Frederick J. Rowan, II
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: August 15, 2000 /s/ MICHAEL D. CASEY
--------------------------------
Michael D. Casey
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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