<PAGE>
================================================================================
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 SEPTEMBER 30,
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 November 14, 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.
================================================================================
<PAGE>
FORM 10-Q
CARTER HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and January 1, 2000.......................................................... 3
Unaudited Condensed Consolidated Statements of Operations for the
three-month periods ended September 30, 2000 and October 2, 1999............. 4
Unaudited Condensed Consolidated Statements of Operations for the
nine-month periods ended September 30, 2000 and October 2, 1999.............. 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 2000 and October 2, 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
</TABLE>
2
<PAGE>
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 6,025 $ 3,415
Accounts receivable, net ................................................... 41,301 34,405
Inventories ................................................................ 100,048 79,636
Prepaid expenses and other current assets .................................. 4,181 3,863
Assets held for sale ....................................................... 422 1,000
Deferred income taxes ...................................................... 10,905 10,276
--------- ---------
Total current assets ..................................................... 162,882 132,595
Property, plant and equipment, net ........................................... 47,938 51,776
Assets held for sale ......................................................... 950 950
Tradename, net ............................................................... 90,208 92,083
Cost in excess of fair value of net assets acquired, net ..................... 26,881 27,457
Deferred debt issuance costs, net ............................................ 6,125 7,325
Other assets ................................................................. 5,581 2,758
--------- ---------
Total assets ............................................................. $ 340,565 $ 314,944
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....................................... $ 3,150 $ 900
Accounts payable ........................................................... 22,873 19,532
Other current liabilities .................................................. 44,314 28,692
--------- ---------
Total current liabilities ................................................ 70,337 49,124
Long-term debt ............................................................... 158,700 161,400
Deferred income taxes ........................................................ 35,779 35,902
Other long-term liabilities .................................................. 10,806 11,565
--------- ---------
Total liabilities ........................................................ 275,622 257,991
--------- ---------
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 September 30, 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 .............................................. -- --
Retained earnings (accumulated deficit) .................................... 6,803 (1,187)
--------- ---------
Total stockholders' equity ............................................. 64,943 56,953
--------- ---------
Total liabilities and stockholders' equity ............................. $ 340,565 $ 314,944
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
3
<PAGE>
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED
-----------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
-------- --------
<S> <C> <C>
Net sales ...................................... $145,457 $124,678
Cost of goods sold ............................. 89,085 80,536
-------- --------
Gross profit ................................... 56,372 44,142
Selling, general and administrative expenses.... 38,515 33,945
-------- --------
Operating income ............................... 17,857 10,197
Interest expense ............................... 5,080 5,265
-------- --------
Income before income taxes ..................... 12,777 4,932
Provision for income taxes ..................... 5,246 2,076
-------- --------
Net income ..................................... $ 7,531 $ 2,856
======== ========
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
4
<PAGE>
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
-------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
<S> <C> <C>
Net sales ...................................... $ 340,650 $ 302,431
Cost of goods sold ............................. 211,459 197,705
--------- ---------
Gross profit ................................... 129,191 104,726
Selling, general and administrative expenses.... 101,324 89,647
--------- ---------
Operating income ............................... 27,867 15,079
Interest expense ............................... 14,326 15,808
--------- ---------
Income (loss) before income taxes .............. 13,541 (729)
Provision for (benefit from) income taxes ...... 5,551 (357)
--------- ---------
Net income (loss) .............................. $ 7,990 $ (372)
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
5
<PAGE>
CARTER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
-------------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................ $ 7,990 $ (372)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ................................... 12,382 12,901
Amortization of debt issuance costs ............................. 1,200 1,162
Deferred tax benefit ............................................ (752) (674)
Effect of changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ............................................ (6,896) (1,664)
Inventories .................................................... (20,412) 8,390
Prepaid expenses and other assets .............................. (305) (1,407)
Increase in liabilities:
Accounts payable and other liabilities ......................... 19,047 3,706
-------- --------
Net cash provided by operating activities ...................... 12,254 22,042
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................. (6,178) (8,090)
Proceeds from sale of property, plant and equipment .............. 78 275
Proceeds from assets held for sale ............................... 524 --
Issuance of loan ................................................. (4,336) --
Proceeds from loan ............................................... 1,500 --
-------- --------
Net cash used in investing activities .......................... (8,412) (7,815)
-------- --------
Cash flows from financing activities:
Proceeds from revolving line of credit ........................... 62,900 73,150
Payments of revolving line of credit ............................. (62,900) (86,350)
Payment of other debt ............................................ (450) (450)
Payment on capital lease obligation .............................. (767) (225)
Repurchase of Capital stock ...................................... -- (460)
Other ............................................................ (15) 1,035
-------- --------
Net cash used in financing activities .......................... (1,232) (13,300)
-------- --------
Net increase in cash and cash equivalents .......................... 2,610 927
Cash and cash equivalents, beginning of period ..................... 3,415 3,986
-------- --------
Cash and cash equivalents, end of period ........................... $ 6,025 $ 4,913
======== ========
</TABLE>
See accompanying notes to the unaudited condensed consolidated
financial statements
6
<PAGE>
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 September 30, 2000, and the results of its operations for the
three-month and nine-month periods ended September 30, 2000 and October 2, 1999
and cash flows for the nine-month periods ended September 30, 2000 and October
2, 1999. Operating results for the three-month and nine-month periods ended
September 30, 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
45% of its consolidated net sales in the third quarter of 2000 compared to 44%
in the third quarter of 1999. Retail sales were approximately 45% and 43% of
consolidated net sales in the first nine months of 2000 and 1999, respectively.
NOTE 3 -- INVENTORIES:
Inventories consisted of the following ($000):
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
------------- ----------
<S> <C> <C>
Finished goods ............... $ 71,043 $ 57,695
Work in process .............. 21,860 13,842
Raw materials and supplies.... 7,145 8,099
-------- --------
Total ........................ $100,048 $ 79,636
======== ========
</TABLE>
7
<PAGE>
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 was 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
nine-month periods ended September 30, 2000. During the three and nine-month
periods ended October 2, 1999, the Company repurchased 1,510 and 7,696 shares,
respectively, of its Class C stock owned by former employees of Carter's for
cash payments of approximately $90,000 and $460,000, respectively. In addition,
during the nine-month period ended October 2, 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
<PAGE>
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):
<TABLE>
<CAPTION>
WHOLESALE
RETAIL AND OTHER TOTAL
------ --------- -----
<S> <C> <C> <C>
THREE-MONTHS ENDED SEPTEMBER 30, 2000:
Sales .............................. $ 65,153 $ 80,304 $ 145,457
EBITDA ............................. $ 19,809 $ 2,328 $ 22,137
THREE-MONTHS ENDED OCTOBER 2, 1999:
Sales .............................. $ 54,691 $ 69,987 $ 124,678
EBITDA ............................. $ 13,864 $ 763 $ 14,627
NINE-MONTHS ENDED SEPTEMBER 30, 2000:
Sales .............................. $ 153,527 $ 187,123 $ 340,650
EBITDA ............................. $ 39,766 $ 483 $ 40,249
NINE-MONTHS ENDED OCTOBER 2, 1999:
Sales .............................. $ 128,719 $ 173,712 $ 302,431
EBITDA ............................. $ 28,481 $ (501) $ 27,980
</TABLE>
"Wholesale and Other" EBITDA for the three and nine-month periods ended
September 30, 2000 reflect increases in brand marketing, incentive compensation
and certain variable costs (i.e. distribution costs) necessary to support higher
levels of revenue, including Retail revenue.
A reconciliation of total segment EBITDA to total consolidated income
(loss) before income taxes is presented below ($000):
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
----------------------- -----------------------
SEPT 30, OCT 2, SEPT 30, OCT 2,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total EBITDA for reportable segments ............. $ 22,137 $ 14,627 $ 40,249 $ 27,980
Depreciation and amortization expense ............ (4,280) (4,430) (12,382) (12,901)
Interest expense ................................. (5,080) (5,265) (14,326) (15,808)
-------- -------- -------- --------
Consolidated income (loss) before income taxes.... $ 12,777 $ 4,932 $ 13,541 $ (729)
======== ======== ======== ========
</TABLE>
9
<PAGE>
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE
AND NINE-MONTH PERIODS ENDED OCTOBER 2, 1999
In the third quarter of 2000, consolidated net sales increased $20.8
million (16.7%) to $145.5 million from $124.7 million in the third quarter of
fiscal 1999. Consolidated net sales for the first nine months of 2000 were
$340.7 million, an increase of $38.2 million (12.6%) compared with the first
nine months of 1999. Revenues from each of the Company's major product markets
(baby, sleepwear and playwear) increased in the third quarter and first nine
months 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.
The Company's total wholesale sales increased $10.3 million (14.7%) to
$80.3 million in the third quarter of 2000 from $70.0 million in the third
quarter of 1999. Total wholesale sales increased $13.4 million (7.7%) to $187.1
million in the first nine months of 2000 from $173.7 million in the first nine
months of 1999. The increase in wholesale sales was largely due to the
performance of baby and sleepwear product lines.
Off-price sales decreased $0.6 million (10.4%) to $5.0 million in the
third quarter of 2000 from $5.5 million in the third quarter of 1999. Off-price
sales were 3.4% of total sales in the third quarter of 2000 compared to 4.4% in
the third quarter of 1999. Off-price sales for the first nine months decreased
$6.2 million (35.2%) to $11.4 million from $17.6 million in the first nine
months of 1999. Such decreases reflect the benefit from inventory management and
production disciplines implemented during 1999 which reduced excess inventory
levels.
Retail outlet store sales were $65.2 million in the third quarter of
2000, which represented an increase of $10.5 million (19.1%) compared to the
third quarter of 1999. Comparable store sales increased 16.8% in the third
quarter of 2000. During the first nine months of 2000, retail store sales
increased $24.8 million (19.3%) to $153.5 million from $128.7 million in
the first nine months of 1999. Comparable store sales increased 15.3% in the
first nine months of 2000. Such increases were primarily attributed to the
strong performance of the playwear product line. There were 148 outlet stores
operating as of September 30, 2000 compared to 149 as of October 2, 1999. The
Company plans to open three stores and close six stores in the last quarter of
2000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
The Company's gross profit increased $12.2 million (27.7%) to $56.4
million in the third quarter of 2000 from $44.1 million in the third quarter of
1999. Gross profit as a percentage of net sales in the third quarter of 2000
increased to 38.8% from 35.4% in the third quarter of 1999. In the first nine
months of 2000, gross profit increased $24.5 million (23.4%) to $129.2 million
compared with the first nine months of 1999. Gross profit as a percentage of net
sales in the first nine months of 2000 increased to 37.9% compared to 34.6%. 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 and
increased levels of full package sourcing. In 1999, gross profit for the first
nine months was negatively impacted by costs associated with the closure of
three sewing facilities in the United States and curtailing production in the
Company's textile facility.
Selling, general and administrative expenses for the third quarter of
2000 increased 13.5% to $38.5 million from $33.9 million in the third quarter of
1999. Selling, general and administrative expenses as a percentage of net sales
decreased to 26.5% in the third quarter of 2000 from 27.2% in the third quarter
of 1999. In the first nine months of 2000, these expenses increased to $101.3
million (13.0%) from $89.6 million in the first nine months of 1999. As a
percentage of net sales, selling, general and administrative expenses increased
to 29.7% in the first nine months of 2000 from 29.6% in the first nine months of
1999. The increase in selling, general and administrative expenses includes the
variable costs to support higher revenue levels, investments in brand marketing
and provisions for incentive compensation based on year to date financial
performance.
Operating income for the third quarter of 2000 increased $7.7 million
(75.1%) to $17.9 million compared to $10.2 million in the third quarter of 1999.
Operating income in the first nine months of 2000 increased $12.8 million
(84.8%) to $27.9 million compared to $15.1 million in the first nine months 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 third quarter of 2000 decreased $0.2 million to
$5.1 million (3.5%) from $5.3 million in the third quarter of 1999. This
decrease is attributed to lower average revolver borrowings during the third
quarter of 2000. Interest expense for the first nine months of 2000 decreased
to $14.3 million (9.4%) from $15.8 million for the first nine months of 1999.
Average revolver borrowings during the first nine months of 2000 were $6.7
million compared to $32.5 million in the first nine months of 1999. Lower
average borrowings are primarily due to inventory management controls
implemented in 1999. At September 30, 2000, outstanding debt aggregated
$161.9 million compared to $174.0 million at October 2, 1999.
The Company recorded an income tax provision of $5.2 million in the
third quarter of 2000 compared to an income tax provision of $2.1 million in the
third quarter of 1999. In the first nine months of 2000, the Company recorded an
income tax provision of $5.6 million compared to an income tax benefit of $0.4
million for the first nine months of 1999. The Company's effective tax rate was
approximately 41% in the first nine months of 2000 and 49% in the first nine
months of 1999. This reduction in the effective tax rate is due primarily to
higher projected pre-tax income for 2000.
As a result of the factors described above, the Company reported net
income of approximately $7.5 million in the third quarter of 2000 compared to
net income of approximately $2.9 million in the third quarter of 1999. Net
income in the first nine months of 2000 was approximately $8.0 million compared
to a net loss of approximately $0.4 million in the first nine months of 1999.
11
<PAGE>
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 September 30, 2000 were $41.3 million
compared to $36.5 million at October 2, 1999. Due to the seasonal nature of the
Company's operations, the net accounts receivable balance at September 30, 2000
is not comparable to the net accounts receivable balance at January 1, 2000.
Inventories at September 30, 2000 were $100.0 million compared to $93.0
million at October 2, 1999. Due to the seasonal nature of the Company's
operations, inventories at September 30, 2000 are not comparable to inventories
at January 1, 2000.
The Company invested $6.2 million and $8.1 million in capital
expenditures during the first nine months of 2000 and 1999, respectively. The
Company plans to invest up to $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 September 30, 2000, the Company had $161.9 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
and $41.9 million in term loan borrowings. There were no revolver borrowings
under the Senior Credit Facility at September 30, 2000, exclusive of
approximately $8.1 million of outstanding letters of credit. At September 30,
2000, the Company had approximately $56.9 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
<PAGE>
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 nine-month periods ended September 30, 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 September 30,
2000, outstanding debt aggregated $161.9 million, of which $41.9 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 $419,000.
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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
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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
September 30, 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.
CARTER HOLDINGS, INC.
Date: November 14, 2000 /s/ FREDERICK J. ROWAN, II
-------------------------------------
Frederick J. Rowan, II
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: November 14, 2000 /s/ MICHAEL D. CASEY
-------------------------------------
Michael D. Casey
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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