<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER:
333-22155
---------------------
THE WILLIAM CARTER COMPANY
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1156680
(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 13, 2000, there were 1,000 shares of Common Stock
outstanding.
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<PAGE>
FORM 10-Q
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 .................................... 4,479 5,514
Other assets ......................................................... 5,581 2,758
--------- ---------
Total assets ...................................................... $ 338,919 $ 313,133
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt ................................ $ 3,150 $ 900
Accounts payable .................................................... 22,873 19,532
Other current liabilities ........................................... 46,771 30,655
--------- ---------
Total current liabilities ......................................... 72,794 51,087
Long-term debt ....................................................... 138,700 141,400
Deferred income taxes ................................................ 35,995 36,564
Other long-term liabilities .......................................... 10,806 11,565
--------- ---------
Total liabilities ................................................. 258,295 240,616
--------- ---------
Commitments and contingencies
Redeemable preferred stock, par value $.01 per share, $4,000 per share
liquidation and redemption value, 5,000 shares authorized, issued and
outstanding ......................................................... 19,679 18,902
--------- ---------
Common stockholder's equity:
Common stock, par value $.01 per share, 1,000 shares authorized,
issued and outstanding ............................................. -- --
Additional paid-in capital .......................................... 53,711 53,711
Retained earnings (accumulated deficit) ............................. 7,234 (96)
--------- ---------
Total common stockholder's equity ................................. 60,945 53,615
--------- ---------
Total liabilities and stockholder's equity ........................ $ 338,919 $ 313,133
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
3
<PAGE>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 ....................................................... 4,417 4,600
--------- ---------
Income before income taxes ............................................. 13,440 5,597
Provision for income taxes ............................................. 5,382 2,293
--------- ---------
Net income ............................................................. 8,058 3,304
Dividend requirements and accretion on redeemable preferred stock ...... (663) (664)
--------- ---------
Net income applicable to common stockholder ............................ $ 7,395 $ 2,640
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
4
<PAGE>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 ..................................................... 12,336 13,800
--------- ---------
Income before income taxes ........................................... 15,531 1,279
Provision for income taxes ........................................... 6,211 524
--------- ---------
Net income ........................................................... 9,320 755
Dividend requirements and accretion on redeemable preferred stock..... (1,990) (1,991)
--------- ---------
Net income (loss) applicable to common stockholder ................... $ 7,330 $ (1,236)
========= =========
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements
5
<PAGE>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 ................................................. $ 9,320 $ 755
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................. 12,382 12,901
Amortization of debt issuance costs ....................... 1,035 997
Deferred tax benefit ...................................... (1,198) (225)
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 ................... 19,541 3,502
-------- --------
Net cash provided by operating activities ................ 13,467 23,249
-------- --------
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 term loan ....................................... (450) (450)
Payment on capital lease obligation ........................ (767) (225)
Dividend to Holdings ....................................... -- (460)
Preferred stock dividend ................................... (1,213) (1,207)
Other ...................................................... (15) 1,035
-------- --------
Net cash used in financing activities .................... (2,445) (14,507)
-------- --------
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>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 The William Carter Company (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:
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>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 Carter Holdings, Inc. ("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 -- PARENT COMPANY TRANSACTIONS:
During the three and nine-month periods ended October 2, 1999, the Company
paid dividends to Holdings in the amount of approximately $90,000 and $460,000,
respectively. The proceeds of such dividends were used by Holdings to repurchase
shares of Holdings' stock owned by former employees of the Company. In addition,
during the nine-month period ended October 2, 1999, Holdings made a $60,000
capital contribution to the Company in connection with the issuance of shares of
Holdings' stock to an employee of the Company; such transaction involved no cash
proceeds and the Company recognized $60,000 as compensation expense. There were
no such transactions during the three and nine-month periods ended September 30,
2000.
On April 28, 2000 and October 31, 2000, the Company paid semi-annual
dividends of 12% on $20.0 million of redeemable preferred stock, or
approximately $1.2 million, to Holdings. The Company paid similar dividends in
1999.
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>
THE WILLIAM CARTER COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF 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 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 ...................... (4,417) (4,600) (12,336) (13,800)
-------- -------- -------- --------
Consolidated income before income taxes $ 13,440 $ 5,597 $ 15,531 $ 1,279
======== =======+ ======== ========
</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 $4.4
million (4.0%) from $4.6 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 $12.3
million (10.6%) from $13.8 million in 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 $141.9 million compared
to $154.0 million at October 2, 1999.
The Company recorded an income tax provision of $5.4 million in the third
quarter of 2000 compared to an income tax provision of $2.3 million in the third
quarter of 1999. In the first nine months of 2000, the Company recorded an
income tax provision of $6.2 million compared to an income tax provision of $0.5
million for the first nine months of 1999. The Company's effective tax rate was
approximately 40% in the first nine months of 2000 and 41% in the first nine
months of 1999.
As a result of the factors described above, the Company reported net income
of approximately $8.1 million in the third quarter of 2000 compared to net
income of approximately $3.3 million in the third quarter of 1999. Net income in
the first nine months of 2000 was approximately $9.3 million compared to net
income of approximately $0.8 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 $141.9 million of debt outstanding,
consisting of $100.0 million of 10 3/8% Series A 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.
On April 28, 2000 and October 31, 2000, the Company paid semi-annual
dividends of 12% on $20.0 million of redeemable preferred stock, or
approximately $1.2 million, to Holdings. The Company paid similar dividends in
1999.
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 $141.9 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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<PAGE>
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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<PAGE>
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: November 13, 2000 /s/ FREDERICK J. ROWAN, II
-----------------------
Frederick J. Rowan, II
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: November 13, 2000 /s/ MICHAEL D. CASEY
-----------------------
Michael D. Casey
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
16
