1
UNITED STATES
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, 1996
Commission File Number: 0-21469
RIDGEVIEW, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0377410
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2101 NORTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
(Address of principal executive offices) (Zip Code)
(704) 464-2972
(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
As of November 19, 1996, the registrant had 3,000,000 shares of common
stock, $.01 par value per share, outstanding.
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 159,631 $ 261,567
Accounts receivable (less allowance for doubtful
accounts of $433,949 and $371,400) 16,645,568 10,153,124
Inventories 18,618,485 14,961,340
Prepaid expenses 184,723 300,992
Total current assets 35,608,407 25,677,023
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 11,453,239 11,794,296
OTHER ASSETS 1,157,574 1,132,501
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
depreciation and amortization 1,765,203 1,861,053
Total assets $49,984,423 $40,464,873
See accompanying notes to condensed consolidated financial statements.
- 2 -
3
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1996 1995
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 2,148,034 $ 1,409,594
Accounts payable 7,956,964 5,083,829
Accrued expenses and other liabilities 1,991,166 900,034
Income taxes payable 118,003 -
Deferred income taxes 648,104 578,589
Current portion of long-term debt (Note 6) 6,320,823 5,842,642
Current portion of deferred compensation 97,896 144,000
Total current liabilities 19,280,990 13,958,688
LONG-TERM DEBT, less current portion (Note 6) 19,093,288 15,991,071
DEFERRED COMPENSATION, less current portion 1,543,036 1,433,082
DEFERRED CREDIT 1,003,666 1,063,670
DEFERRED INCOME TAXES 45,000 35,903
Total liabilities 40,965,980 32,482,414
SHAREHOLDERS' EQUITY (Note 7)
Common stock - authorized 20,000,000 shares of
$.01 par value; issued 1,589,701 and
1,600,000 shares, respectively 16,000 15,897
Additional paid-in capital 1,130,705 1,100,326
Retained earnings, including amounts reserved of
$955,000 and $475,000 7,781,379 6,776,746
Foreign currency translation adjustments 90,359 89,490
Total shareholders' equity 9,018,443 7,982,459
Total liabilities and shareholders' equity $49,984,423 $40,464,873
See accompanying notes to condensed consolidated financial statements.
- 3 -
4
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
NET SALES $23,234,525 $17,675,844 $55,946,258 $39,076,155
COST OF SALES 18,516,754 14,197,653 44,754,596 31,098,108
GROSS PROFIT 4,717,771 3,478,191 11,191,662 7,978,047
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,973,919 2,248,832 7,926,224 5,971,457
OPERATING INCOME 1,743,852 1,229,359 3,265,438 2,006,590
OTHER INCOME (EXPENSE)
Interest expense (643,760) (548,209) (1,774,042) (1,108,115)
Other, net (7,258) 45,775 21,680 69,313
Total other income (expense) (651,018) (502,434) (1,752,362) (1,038,802)
INCOME BEFORE INCOME TAXES 1,092,834 726,925 1,513,076 967,788
PROVISION FOR INCOME TAXES 316,992 316,155 466,199 384,155
NET INCOME $ 775,842 $ 410,770 $ 1,046,877 $ 583,633
EARNINGS PER SHARE $ 0.48 $ 0.26 $ 0.66 $ 0.37
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,600,000 1,595,281 1,594,894 1,592,705
See accompanying notes to condensed consolidated financial statements.
- 4 -
5
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 49,182,984 $ 34,787,484
Cash paid to suppliers and employees (50,582,811) (33,440,571)
Interest paid (1,670,926) (955,931)
Income taxes paid, net of refunds (260,736) (686,859)
Other cash receipts 14,787 21,603
Other cash disbursements (119,623) (114,300)
Net cash used in operating activities (3,436,325) (388,574)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for organizational costs - (127,928)
Payments for investments in subsidiaries (84,667) -
Payments for purchase of Seneca Knitting Mills
Corporation, net of cash acquired - (2,096,557)
Proceeds from sale of property and equipment 28,272 170,046
Payments for purchase of property, plant and equipment (910,097) (2,711,618)
Net cash used in investing activities (966,492) (4,766,057)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings (payments) 740,799 (3,226,066)
Proceeds from long-term debt 48,547,313 44,621,449
Repayments of long-term debt (44,974,100) (36,026,000)
Dividends paid (42,244) (168,063)
Proceeds from issuance of common stock 30,482 14,833
Proceeds from government grants - 33,395
Net cash provided by financing activities 4,302,250 5,249,548
EFFECT OF EXCHANGE RATE ON CASH (1,369) 798
Net increase (decrease) in cash (101,936) 95,715
CASH, beginning of period 261,567 130,331
CASH, end of period $ 159,631 $ 226,046
See accompanying notes to condensed consolidated financial statements.
- 5 -
6
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 1,046,877 $ 583,633
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,357,731 964,004
Provision for doubtful accounts receivable 62,431 219,378
Capital grants recognized (59,412) (81,771)
(Gain) loss on sale of assets 25,386 1,164
Increase in deferred compensation liability 63,850 22,247
Increase (decrease) in deferred income taxes 78,611 (31,208)
Changes in operating assets and liabilities,
net of effects from purchase of Seneca Knitting
Mills Corporation:
(Increase) decrease in accounts receivable (6,560,473) (4,125,616)
(Increase) decrease in inventories (3,654,630) 645,593
(Increase) decrease in prepaid expenses and other assets 100,087 (143,780)
Increase (decrease) in accounts payable 2,893,134 1,482,084
Increase (decrease) in income taxes payable 126,852 (271,496)
Increase (decrease) in accrued expenses and other liabilities 1,083,231 347,194
Total adjustments to net income (4,483,202) (972,207)
NET CASH USED IN OPERATING ACTIVITIES $(3,436,325) $ (388,574)
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
1995
Purchase price of 100% of Seneca Knitting Mills Corporation capital stock $ 7,000,000
Less: Short-term notes issued (4,000,000)
Less: Cash acquired (903,443)
Payment for purchase of Seneca Knitting Mills Corporation capital stock,
net of cash acquired $ 2,096,557
See accompanying notes to condensed consolidated financial statements.
- 6 -
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL INFORMATION
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments consisting of normal
recurring accruals and an adjustment for an obsolete inventory write-off in
excess of normal reserves of $465,750 and $155,250 for the nine and three
months ended September 30, 1995, necessary to present fairly the financial
position of the Company as of September 30, 1996 and the results of operations
for the nine and three month periods ended September 30, 1996 and 1995. The
financial statements are presented in condensed form as permitted by the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
accounting policies followed by the Company are set forth in the Company's
audited financial statements, which are included in the Company's registration
statement on Form S-1, as amended, filed with the Securities and Exchange
Commission on August 30, 1996 (File No. 333-11111). The results of operations
for the nine and three month periods ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year. These
unaudited condensed financial statements should be read in conjunction with the
Company's audited financial statements included in the registration statement
referred to above.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reported
at the lower of the carrying amount or their estimated recoverable amount.
Adoption of this statement by the Company did not have a significant impact on
the consolidated financial statements. SFAS No. 123 encourages the accounting
for stock-based employee compensation programs to be reported within the
financial statements on a fair value based method. SFAS No. 123 allows an
entity, however, to continue to measure compensation cost under Accounting
Principles Board Opinion ("APB") No. 25. If electing to remain with the
accounting treatment permitted under APB No. 25, then SFAS No. 123 requires pro
forma disclosure of net income and earnings per share as if the fair value based
method had been adopted. The Company intends to adopt the pro forma disclosure
provisions of SFAS No. 123. Both standards are effective for fiscal years
beginning after December 15, 1995.
NOTE 3 - EARNINGS PER SHARE
Earnings per share are calculated using the weighted average number of
shares outstanding of common stock and dilutive common stock equivalents during
each period presented, after giving retroactive effect to a stock split
effected in the form of a stock dividend (see Note 7).
NOTE 4 - ACQUISITION
On November 5, 1996, the Company acquired all of the outstanding
shares of capital stock of Interknit, Inc. ("Interknit"), a corporation
affiliated through common ownership, in exchange for 240,000 shares of the
Company's common stock in a transaction accounted for as a pooling of
interests. Accordingly, the historical financial statements have been restated
as if the acquisition of Interknit had occurred at the beginning of each period
presented. All significant intercompany accounts and transactions have been
eliminated.
- 7 -
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of September 30, 1996 and 1995 is Unaudited)
NOTE 4 - ACQUISITION (Continued)
The following unaudited summary presents separate financial
information of the Company and Interknit prior to the combination.
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
NET SALES
Ridgeview, Inc. $22,791,961 $17,324,031 $54,947,341 $38,798,055
Interknit, Inc. 1,882,936 1,110,551 5,182,938 2,623,453
Eliminations (1,440,372) (758,738) (4,184,021) (2,345,353)
COMBINED $23,234,525 $17,675,844 $55,946,258 $39,076,155
NET INCOME (LOSS)
Ridgeview, Inc. $ 598,651 $ 382,893 $ 728,136 $ 620,444
Interknit, Inc. 204,391 27,877 376,341 (36,811)
Eliminations (27,200) - (57,600) -
COMBINED $ 775,842 $ 410,770 $ 1,046,877 $ 583,633
NOTE 5 - INVENTORIES
A summary of inventories by major classification is as follows:
September 30, December 31,
1996 1995
Raw Materials $ 3,815,058 $ 3,556,903
Work-in-process 6,829,514 4,916,815
Finished goods 8,023,913 6,537,622
(LIFO reserve) (50,000) (50,000)
Total inventories $18,618,485 $14,961,340
- 8 -
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Concluded)
NOTE 6 - LONG-TERM DEBT
During 1996, the Company's revolving credit facility was amended to
increase the maximum amount available to be borrowed thereunder to $20,000,000.
Additionally, the lender issued a commitment letter, subject to completion of a
public offering of the Company's common stock, to change the interest rates on
both the revolving credit facility and two outstanding term loans to give the
Company the option to choose an interest rate based on the lender's prime rate
or London InterBank Offered Rates ("LIBOR"). The LIBOR-based option ranges
from LIBOR plus 2% to LIBOR plus 3 1/4%, depending upon the Company's leverage
ratio, as defined.
NOTE 7 - CAPITAL STOCK
The Company's authorized capital stock consists of 22,000,000 shares,
divided into 20,000,000 shares of common stock, par value $.01 per share, and
2,000,000 shares of preferred stock. On November 5, 1996, the Company
completed an initial public offering of 1,400,000 shares of its common stock.
In anticipation of the Company's initial public offering, the Board of
Directors declared a stock dividend, effective October 8, 1996, that resulted
in the issuance of approximately 129 additional shares of common stock for each
share of common stock then outstanding. To reflect this split-up of the
Company's outstanding common stock into a greater number of shares, all share
numbers and per share amounts in these financial statements have been adjusted
retroactively.
The Company has an Omnibus Stock Plan (the "Omnibus Plan") which permits
the issuance of options, stock appreciation rights ("SARS"), limited SARS,
restricted stock, performance awards and other stock-based awards to selected
employees and independent contractors of the Company. The Company has reserved
230,000 shares of common stock for issuance under the Omnibus Plan, which
provides that the term of each award shall be determined by a committee of the
board of directors charged with administering the Plan, but no longer than ten
years after the date they are granted. Under the terms of the Plan, options
granted may be either nonqualified or incentive stock options. SARS and
limited SARS granted in tandem with an option shall be exercisable only to the
extent the underlying option is exercisable. To date, no awards have been
granted under the Omnibus Plan.
The Company also has an employee stock purchase plan that, when activated
by the Board of Directors, will allow employees to purchase shares of common
stock of the Company through payroll deductions at 85% of the market value of
the shares at the time of purchase. The Company has reserved 75,000 shares for
issuance under this plan.
The Company also has an Outside Directors' Stock Option Plan (the
"Directors' Plan"), which provides that each outside director, at the time of
initial election, shall automatically be granted an option to purchase 500
shares of common stock at the fair market value on the date of election. On
each anniversary date of an outside director's election, an option to purchase
500 additional shares of common stock will automatically be granted to him or
her, provided that the director shall have continuously served as a director of
the Company and the number of shares of common stock available under the
Directors' Plan is sufficient to permit such grant. Options granted under the
Directors' Plan will be nonqualified stock options, will vest in increments of
33 1/3% on each anniversary of the option grant and will expire ten years after
the date they are granted. The Company has reserved 15,000 shares for issuance
under this plan. To date, no awards were made or granted under the Directors'
Plan.
- 9 -
10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding the
Company's consolidated financial condition as of September 30, 1996 and its
results of operations for the three and nine month periods then ended. This
discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's registration
statement on Form S-1, as amended, filed with the Securities and Exchange
Commission on August 30, 1996 (File No. 333-11111) and the unaudited interim
consolidated financial statements and notes thereto included elsewhere in this
report. Data for the interim periods presented are not necessarily indicative
of results expected for the year ending December 31, 1996.
GENERAL
The following table presents the Company's net sales by product category
for the three-month and nine-month periods ended September 30, 1995 and 1996,
expressed in thousands of dollars and as a percentage of total net sales.
Three Months Ended September 30, Nine Months Ended September 30,
1995 1996 1995 1996
Amount % Amount % Amount % Amount %
SOCKS:
Sports specific................. 4,006 22.7% 4,846 20.9% 11,386 29.1% 15,133 27.1%
Sports promotional.............. 3,383 19.1% 5,188 22.3% 10,241 26.2% 14,120 25.2%
Active sport.................... 406 2.3% 662 2.8% 1,310 3.4% 1,400 2.5%
Rugged outdoor and heavyweight
casual........................ 5,972 33.8% 5,464 23.5% 5,972 15.3% 9,762 17.4%
Other........................... 352 2.0% 87 0.4% 278 0.7% 999 1.8%
Total socks............ 14,119 79.9% 16,247 69.9% 29,187 74.7% 41,414 74.0%
WOMEN'S HOSIERY:
Sheer pantyhose and knee-
highs......................... 1,851 10.5% 4,299 18.5% 5,373 13.8% 7,694 13.8%
Tights and trouser socks........ 1,706 9.6% 2,689 11.6% 4,516 11.5% 6,838 12.2%
Total women's hosiery........... 3,557 20.1% 6,988 30.1% 9,889 25.3% 14,532 26.0%
Total net sales........ 17,676 100.0% 23,235 100.0% 39,076 100.0% 55,946 100.0%
The net sales by product category for the three and nine month periods
ended September 30, 1996 are not indicative of the net sales by product
category expected for the year ending December 31, 1996, because sales of
rugged outdoor and heavyweight casual socks, tights and trouser socks typically
are higher during the third and fourth quarters, and sales of women's hosiery
products are expected to increase as a percentage of total net sales due to
implementation in the third and fourth quarters of 1996 of the Evan-Picone
brand of women's hosiery that the Company in July 1996 acquired the license to
manufacture.
- 10 -
11
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales for the three and nine month periods ended September
30, 1995 and 1996.
Three Months Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
Net Sales . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold . . . . . . . . . . . . . . . 79.7 80.3 80.0 79.6
----- ----- ----- -----
Gross Profit . . . . . . . . . . . . . . . . 20.3 19.7 20.0 20.4
Selling, general and
administrative expenses . . . . . . . . . . . . 12.8 12.7 14.2 15.3
----- ----- ----- -----
Operating income . . . . . . . . . . . . . . 7.5 7.0 5.8 5.1
Interest expense . . . . . . . . . . . . . . . . (2.8) (3.1) (3.2) (2.8)
Other income, net . . . . . . . . . . . . . . . . 0.0 0.2 0.1 0.2
----- ----- ----- -----
Income before income taxes . . . . . . . . . . . 4.7 4.1 2.7 2.5
Income tax expense . . . . . . . . . . . . . . . 1.4 1.8 .8 1.0
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . . 3.3 2.3 1.9 1.5
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 were $23.2
million, compared to $17.7 million for the same period in 1995, an increase of
31.1%. The Company experienced sales increases in each of its product
categories except rugged outdoor and heavyweight casual socks. Sales within
this product category decreased by $500,000 for the three months ended
September 30, 1996 compared to the same period in the prior year due to a
softening in retail demand for this product category. Sales of women's sheer
hosiery products and tights increased for the three months ended September 30,
1996 by 96.5% compared to net sales of such products for the three months ended
September 30, 1995. This significant increase is attributable to the addition
of the Evan-Picone licensed brand of hosiery in July 1996 and significant
growth in sales of private label tights, primarily to the Company's largest
customer, Target.
Gross profit for the quarter ended September 30, 1996 was $4.7
million, an increase of $1.2 million, or 34.3%, from the same period in the
prior year. For the three months ended September 30, 1996, the Company's
average gross profit margin on net sales was 20.3%, an increase from the same
period in the prior year of 0.6%. Implementation of price increases in the
adidas program manufactured by the Company's subsidiary in the Republic of
Ireland allowed that operation to increase its gross profit margin from less
than 1.0% for the three months ended September 30, 1995, to 9.8% for the same
period in 1996. The Company has also been successful in lowering the cost of
some of its raw materials by participating in selected purchase rebate programs
offered by certain suppliers. Gross profit in the women's hosiery division for
the three months ended September 30, 1995 was adversely affected by a $155,250
addition to cost of goods sold for the write-off of unfinished women's hosiery
products in excess of normal reserves. The Evan-Picone program produced
$375,000 of gross profit for the three months ended September 30, 1996.
Selling, general and administrative expenses for the three months
ended September 30, 1996 were $3.0 million, compared to $2.3 million for the
same period in the prior year. Approximately 54% of the $700,000 increase was
the result of additional sales expenses associated with the Evan-Picone brand
hosiery program, which was added in July 1996.
- 11 -
12
Operating income for the three months ended September 30, 1996
increased 41.6% from $1.2 million in the same period in 1995 to $1.7 million.
The increase in operating income is primarily attributable to increased
profitability at each of the Company's operating divisions expect Seneca
Knitting Mills Corporation ("Seneca"), where the Company manufactures rugged
outdoor and heavy-weight casual socks.
Interest expense increased 17.4% from $548,000 for the three months
ended September 30, 1995 to $644,000 for the same period in 1996. This
increase was the result of funding the Company's accounts receivable and
inventory growth through increased borrowings.
Other income (expense) for the three months ended September 30, 1996
decreased $53,000 from $46,000 for the three months ended September 30, 1995 to
$(7,000). This decrease was caused by losses recognized on the disposal of
assets.
Income tax expense for the three months ended September 30, 1996 and
1995 was $317,000 and $316,000, respectively. The carryover of a net operating
loss at Interknit, from the prior year ended December 31, 1995, has kept income
tax expense approximately the same as for the three months ended September 30,
1995. The net operating loss is primarily the result of differences in the
methods of providing for depreciation for tax and financial reporting purposes.
Net income for the three months ended September 30, 1996 was $776,000
compared to $411,000 for the three months ended September 30, 1995. The
increase in net income was attributable to increases in profit levels at each
of the Company's operating divisions except Seneca.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1996 were $55.9
million, compared to $39.1 million for the same period in 1995, an increase of
$16.8 million, or 43.0%. The increase was the result of the acquisition in
June 1995 of Seneca and growth in net sales during the first nine months of
1996 in the Company's women's hosiery, sport sock and sports promotional sock
divisions. For the nine months ended September 30, 1996, these three divisions
experienced increases in net sales ranging from 20.0% to 34.0%, when compared
to net sales in the same period in 1995. The acquisition of Seneca provided
$6.0 million additional net sales for nine months ended September 30, 1995. By
comparison, for the nine months ended September 30, 1996, Seneca provided $9.8
million in net sales, an increase of $3.8 million. Net sales of the Company's
facility in the Republic of Ireland increased to $6.0 million, or 83.0%, for the
nine months ended September 30, 1996, from $3.3 million during the same period
in 1995. This increase is attributable to the Company's sport sock
manufacturing program for adidas in Europe. Net sales of Evan-Picone women's
hosiery, which commenced in July 1996, were $1.3 million for the nine months
ended September 30, 1996.
Gross profit for the first nine months of 1996 was $11.2 million,
compared to $8.0 million for the same period in 1995, or an increase of 40.0%.
Included in the cost of goods sold for the nine months ended September 30, 1995
is a charge of $465,750 related to accumulated unfinished women's hosiery
products determined to be obsolete, which exceeded the Company's normal
estimate for reserves for obsolete and discontinued inventory. This charge in
excess of normal reserves reduced gross profit, as a percentage of net sales,
by 1.2%. Although gross profit as a percentage of net sales has declined at
most of the Company's operating divisions for the nine month period ended
September 30, 1996, total gross profit dollars have increased compared to the
same period in 1995. Operating efficiencies achieved through maximization of
the Company's production facilities coupled with selective price increases and
the successful reduction of some of its raw material costs have enabled the
Company to increase total gross profit in a period of declining gross profit
margins.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 were $7.9 million, compared to $6.0 million for the same
period in 1995, an increase of $1.9 million. The increase in total selling,
general and administrative expense was primarily the result of additional
expenses associated
- 12 -
13
with the integration of Seneca's operations and sales and marketing efforts
with those of the Company and the addition of the Evan-Picone women's hosiery
program. Royalties payable to the licensor of this and other licensed brands
on net sales are reflected in selling, general and administrative expense. As
a percentage of net sales, however, selling, general and administrative
expenses decreased from 15.3% in the nine-month period ended September 30, 1995
to 14.2% for the same period in 1996. Net sales continue to increase at a more
rapid rate than selling, general and administrative expenses.
Operating income increased from $2.0 million in the first nine months
of 1995 to $3.3 million in the first nine months of 1996. As a percentage of
net sales, operating income was 5.8% and 5.1%, respectively, for the nine-month
periods. The increase in operating income is primarily due to the increased
profitability at each of the Company's operating divisions except Seneca.
Interest expense increased 63.6% from $1.1 million in the first nine
months of 1995 to $1.8 million in the same period of 1996 primarily because of
the debt incurred to finance the Seneca acquisition. The nine-month period
ended September 30, 1995 includes only three months of interest expense
associated with the acquisition, whereas the nine months ended September 30,
1996 includes such interest expense for the entire period. Interest expense
for the 1996 period also includes the interest on additional borrowings
incurred to support growth in accounts receivable and inventories, as well as
provide working capital for the Evan-Picone women's hosiery program.
Other income for the nine months ended September 30, 1996 was $22,000,
a decrease of $47,000 from the same period in 1995. This decrease is primarily
due to losses recognized on the disposal of assets during the nine months ended
September 30, 1996.
Income tax expense for the nine months ended September 30, 1996 was
$466,000, compared to $384,000 for the same period in 1995. Losses incurred
during the first nine months at Seneca combined with a net operating loss
carryover at Interknit reduced the effective tax rate for the nine months ended
September 30, 1996 to 30.8% compared to 40.0% for the same period in the prior
year.
Net income for the nine months ended September 30, 1996 was $1.0
million, compared to $584,000 for the same period in 1995. The increase in net
income for the nine-month period ended September 30, 1996 was attributable to
the profitability of the Company's operating divisions other than Seneca.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities during the nine months ended
September 30, 1995 and 1996 were $(389,000) and $(3.4) million, respectively.
The negative cash flows from operating activities during the first nine months
of 1996 were the result of a $6.6 million increase in accounts receivable and a
$3.7 million increase in inventories since December 31, 1995. The increase in
accounts receivable is largely due to the significant sales growth experienced
by the Company for the nine months ended September 30, 1996, compared to the
same period in 1995. Inventory levels are higher for the nine months ended
September 30, 1996 to support the increased sales levels for each of the
Company's operating divisions.
In addition to cash flow from operations, the Company obtains working
capital and, on a temporary basis, finances its capital expenditures for
equipment modernization, through borrowings under the Company's revolving
credit facility (the "Credit Facility") extended by NationsBank, N.A. (South)
("NationsBank"). The Credit Facility, which was recently increased by $3.0
million to provide the additional working capital needed to support the
Evan-Picone women's hosiery program, provides for borrowings of up to $20.0
million through January 1999. The Company used the major portion of the net
proceeds of its initial public offering of 1,400,000 shares of common stock
(the "IPO"), which was completed on November 5, 1996, to reduce the balance
outstanding under the Credit Facility. As of November 15, 1996, $8.2 million
was outstanding under the Credit Facility, and there was $11.8 million
available for additional borrowings. Funds borrowed under the Credit Facility
bear interest at a rate equal to London Interbank Offered Rates
- 13 -
14
("LIBOR") plus 2.0% per annum (currently 7.38%) and are secured by the
Company's accounts receivable, inventory, equipment and certain real property.
Until the Company successfully completed the IPO, funds borrowed under the
Credit Facility bore interest at a rate equal to NationsBank's prime rate plus
1.0% (9.25% at November 15, 1996). Amounts outstanding under the Credit
Facility may not exceed the sum of specified percentages of the Company's
accounts receivable and the value of the Company's inventory.
In addition to the Credit Facility, the Company has two term loans
outstanding with NationsBank. As of September 30, 1996, the term loans had an
aggregate principal balance of approximately $5.2 million. The first loan was
entered into as a source of permanent financing for the Company's capital
equipment modernization program and had an outstanding principal balance of
$4.2 million at September 30, 1996. This loan bears interest at LIBOR plus
2.0% (currently 7.38%) (reduced from prime plus 1.0% prior to the IPO). The
loan is payable in four monthly installments of $41,667 each, with a balloon
payment of approximately $4.0 million due in January 1997 and is secured by the
same collateral as the Credit Facility and imposes similar restrictive
covenants on the Company. The Company expects to extend and increase the
principal balance of this term loan prior to its due date. Any additional
principal the Company is able to borrow will be used to reduce the outstanding
balance under the Credit Facility, thereby increasing the amount available for
additional borrowings under the Credit Facility to support future growth in
inventory and accounts receivables. The second term loan with NationsBank,
which at September 30, 1996 had an outstanding principal balance of $964,000,
was obtained in connection with the Seneca acquisition in June 1995. This loan
bears interest at LIBOR plus 2.0% (currently 7.38%) and is payable in 31
monthly installments of $12,000 each, with a balloon payment of approximately
$640,000 due in January 1999.
The Company used $850,000 of the net proceeds of the IPO to repay two
notes payable issued in connection with the Company's acquisition of Seneca.
As a result of the acquisition of Interknit, which was effected simultaneously
with completion of the IPO, the Company's total debt increased by approximately
$1.7 million. Interknit's debt, which was incurred to finance start-up and
capital equipment costs and working capital needs, bears interest at rates
ranging from 6.9% to 9.3% and is payable in monthly installments through 2004.
During the next 18 to 24 months, the Company plans to reborrow
approximately $2.0 million under the Credit Facility to provide a partial
source of funding for capital expenditures the Company plans, but is not
legally committed, to make during such period. These include constructing a
distribution facility at an estimated cost of $1.5 million and purchasing 60
electronic knitting machines at an estimated cost of $1.5 million to replace
the more than 100 knitting machines currently installed in the women's hosiery
division. The source of funding for the balance of the estimated cost of these
planned capital expenditures is anticipated to be cash flows from operating
activities. The Company has no plans or material commitments to make any other
material capital expenditures during the next 24 months.
- 14 -
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDGEVIEW, INC.
Date: December 3, 1996 By: /s/ Walter L. Bost, Jr.
-------------------------------
Walter L. Bost, Jr.
Executive Vice President
and Chief Financial Officer
- 15 -