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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 June 30, 1998
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)
(828) 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.
[x] Yes [ ] No
As of August 14, 1998, the registrant had 3,000,000 shares of common
stock, $.01 par value per share, outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 422,589 $ 481,674
Accounts receivable (less allowance for doubtful
accounts of $911,279 and $605,289) 15,716,460 15,720,033
Inventories 28,348,441 23,315,890
Refundable income taxes 935,073 164,539
Deferred income taxes 378,957 --
Prepaid expenses 482,235 350,388
----------- -----------
Total current assets $46,283,755 $40,032,524
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation 13,045,424 11,414,153
OTHER ASSETS 2,476,227 1,628,626
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED, less accumulated
amortization 1,539,565 1,603,465
----------- -----------
Total assets $63,344,971 $54,678,768
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 1,928,279 $ 1,464,333
Accounts payable 7,818,190 5,612,009
Accrued expenses and other liabilities 2,411,305 1,544,844
Deferred income taxes -- 296,668
Current portion of long-term debt 24,971,946 1,299,523
Current portion of deferred compensation 231,369 211,845
------------ ------------
Total current liabilities $ 37,361,089 $ 10,429,222
LONG-TERM DEBT, less current portion (Note 5) 3,285,241 20,265,823
DEFERRED COMPENSATION, less current portion 1,617,473 1,520,972
DEFERRED CREDIT 726,261 788,550
DEFERRED INCOME TAXES 690,880 525,411
------------ ------------
Total liabilities $ 43,680,944 $ 33,529,978
------------ ------------
SHAREHOLDERS' EQUITY (Note 6)
Common stock - authorized 20,000,000 shares of
$.01 par value; issued and outstanding
3,000,000 shares $ 30,000 $ 30,000
Additional paid-in capital 10,650,018 10,650,018
Retained earnings, including amounts reserved of
$826,606 and $854,367 9,294,631 10,688,318
Accumulated other comprehensive income (Note 7) (310,622) (219,546)
------------ ------------
Total shareholders' equity $ 19,664,027 $ 21,148,790
------------ ------------
Total liabilities and shareholders' equity $ 63,344,971 $ 54,678,768
============ ============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
NET SALES $ 21,252,925 $ 21,258,171 $ 41,591,351 $ 40,800,914
COST OF SALES 18,763,488 16,945,253 34,892,936 32,075,125
------------ ------------ ------------ ------------
GROSS PROFIT $ 2,489,437 $ 4,312,918 $ 6,698,415 $ 8,725,789
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES $ 4,264,516 $ 3,252,302 $ 7,943,968 $ 6,827,883
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) $ (1,775,079) $ 1,060,616 $ (1,245,553) $ 1,897,906
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense $ (540,990) $ (446,546) $ (1,027,963) $ (814,313)
Other, net (20,958) 16,200 (5,823) 39,351
------------ ------------ ------------ ------------
Total other income (expense) $ (561,948) $ (430,346) $ (1,033,786) $ (774,962)
------------ ------------ ------------ ------------
INCOME BEFORE
INCOME TAXES $ (2,337,027) $ 630,270 $ (2,279,339) $ 1,122,944
PROVISION (BENEFIT)
FOR INCOME TAXES (876,053) 239,484 (885,652) 370,658
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,460,974) $ 390,786 $ (1,393,687) $ 752,286
============ ============ ============ ============
EARNINGS PER SHARE $ (0.49) $ 0.13 $ (.47) $ 0.25
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING
3,000,000 3,000,000 3,000,000 3,000,000
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 41,883,948 $ 36,386,278
Cash paid to suppliers and employees (44,130,089) (41,198,702)
Interest paid (1,110,480) (731,040)
Income taxes paid, net of refunds (392,464) (1,083,994)
Other cash disbursements (824,218) (414,605)
------------ ------------
Net cash used in operating activities $ (4,573,303) $ (7,042,063)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for investments in subsidiaries $ (52,509) $ (69,576)
Proceeds from sale of property and equipment 170,459 --
Payments for purchase of property, plant and
equipment (1,560,853) (1,486,913)
------------ ------------
Net cash used in investing activities $ (1,442,903) $ (1,556,489)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings $ 421,230 $ 1,833,035
Proceeds from long-term debt 44,113,883 41,205,460
Repayments of long-term debt (38,571,965) (34,677,894)
------------ ------------
Net cash provided by financing activities $ 5,963,148 $ 8,360,601
------------ ------------
EFFECT OF EXCHANGE RATE ON CASH $ (6,027) $ (12,622)
------------ ------------
Net decrease in cash $ (59,085) $ (250,573)
CASH, beginning of period 481,674 315,559
------------ ------------
CASH, end of period $ 422,589 $ 64,986
============ ============
See accompanying notes to condensed consolidated financial statements.
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RIDGEVIEW, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Continued)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
1998 1997
----------- -----------
RECONCILIATION OF NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES
Net income (loss) $(1,393,687) $ 752,286
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization $ 925,804 $ 870,241
Provision for doubtful accounts receivable 306,957 144,605
Capital grants recognized (36,863) (39,624)
Increase in deferred compensation liability 116,025 58,066
Increase in deferred income taxes (505,000) (63,691)
Changes in operating assets and liabilities:
Increase in accounts receivable (303,080) (4,328,747)
Increase in inventories (5,089,791) (5,025,905)
Increase in prepaid expenses and
other assets (912,759) (657,791)
Increase in accounts payable 2,206,147 2,169,230
Decrease in income taxes payable (773,116) (649,645)
Increase (decrease) in accrued expenses
and other liabilities 886,060 (271,088)
----------- -----------
Total adjustments to net income (loss) $(3,179,616) $(7,794,349)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(4,573,303) $(7,042,063)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1998 and 1997 is 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 for the three and six months ended June 30, 1998, necessary
to present fairly the financial position of the Company as of June 30, 1998 and
the results of operations for the three and six months ended June 30, 1998 and
1997. 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 Annual Report on Form
10-K for the year ended December 31, 1997, filed with the Securities and
Exchange Commission (the "Form 10-K"). The results of operations for the six and
three months ended June 30, 1998 are not indicative of the results to be
expected for the full year. The Company's net sales and profitability generally
experience stronger performance in the third and fourth quarters. These
unaudited condensed financial statements should be read in conjunction with the
Company's audited financial statements included in the Annual Report on Form
10-K.
NOTE 2 - 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. The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which requires the
presentation of: (1) "Basic Earnings per Share," computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period and (2) "Diluted Earnings per Share," which gives
effect to all dilutive potential common shares that were outstanding during the
period, by increasing the denominator to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. The options outstanding at June 30, 1998 and December 31, 1997
have not been included in diluted earnings per share due to their anti-dilutive
nature.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of June 30, 1998 and 1997 is unaudited)
NOTE 3 - INVENTORIES
A summary of inventories by major classification is as follows:
June 30, December 31,
1998 1997
------------ ------------
Raw Materials $ 3,802,146 $ 4,217,281
Work-in-process 11,080,174 8,038,662
Finished goods 13,586,121 11,179,947
(LIFO Reserve) (120,000) (120,000)
------------ ------------
Total inventories $ 28,348,441 $ 23,315,890
============ ============
NOTE 4 - ACQUISITION
On July 14, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Tri-Star Hosiery Mills, Inc.
("Tri-Star"), a sports sock manufacturer located in Mebane, North Carolina, for
$3.5 million in cash and $4.0 million in assumed debt, in a transaction to be
accounted for as a purchase.
NOTE 5 - LONG-TERM DEBT
On July 14, 1998, the Company amended its existing bank loan agreement.
The amended agreement provides a $34,000,000 revolving line of credit due June
30, 2000 (the "Revolving Credit Facility"). In addition to the Company's
existing term loan of $4.0 million ("Term Loan A"), the
amended agreement provides for two additional term loans of $500,000 ("Term Loan
B") and $615,000 ("Term Loan C") for the funding of the acquisition of Tri-Star.
At the option of the Company, borrowings under the loan agreement,
with the exception of Term Loan B, bear interest at a rate based on the lending
bank's prime rate or the London InterBank Offered Rates ("LIBOR"). The interest
rate is reset periodically based on the Company's ratio of Funded Debt to
Earnings Before Interest, Taxes, Depreciation and Amortization ("Funded Debt to
EBITDA"), calculated quarterly, and range from prime to prime plus .37%, or
LIBOR plus 1.75% to LIBOR plus 2.37% (8.02630% as of July 31, 1998 under the
LIBOR option). Funds borrowed under Term Loan B bear interest at the same rate
as the other term loans plus 0.75%. These loans are collateralized by
substantially all assets of the Company.
Based on the Company's results of operations for the quarter ended
June 30, 1998, the Company is in violation of certain financial covenants with
respect to the Revolving Credit Facility and term loans. Because the lending
bank is unwilling to waive these covenant defaults, the Company has reclassified
$23,459,674 of long-term debt to a current liability at June 30, 1998. Based on
discussions with the lending bank the Company expects to enter into an agreement
with the bank that will allow the Company to continue to draw on the Revolving
Credit Facility until the Company refinances its Revolving Credit Facility and
term loans with another lender or lenders. At August 7, 1998, the Company had
approximately $2.0 million of available credit under its Revolving Credit
Facility based on its accounts receivable and inventory as of such date. The
Company is reviewing proposals from three potential new lenders and expects to
be able to refinance its existing bank debt on a long-term basis with comparable
terms to its existing bank debt.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of June 30, 1998 and 1997 is unaudited)
NOTE 6 - CAPITAL STOCK
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, incentive stock options totaling
52,600 shares have been granted to certain of the Company's salaried employees
at an exercise price of $7.50 per share. All of such options are outstanding and
unexercised.
The board has also authorized an employee stock purchase plan that will
allow employees to purchase shares of common stock of the Company through
payroll deductions at 85 percent 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, provided that
the director shall have continuously served 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 are nonqualified stock options, vest
in increments of 33 1/3% on each anniversary of the option grant and expire ten
years after the date they are granted. The Company has reserved 15,000 shares
for issuance under this plan. In November 1996, options to purchase 500 shares
each were granted to the Company's three new members of the board of directors
at an exercise price of $8.00 per share. Additional grants totaling 4,000 shares
have been granted to the outside directors. All of such options are outstanding
and unexercised.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Information as of June 30, 1998 and 1997 is unaudited)
NOTE 7 - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires that all components of comprehensive income and total
comprehensive income be reported on one of the following: a statement of income
and comprehensive income, a statement of comprehensive income or a statement of
stockholders' equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity, except those due to investments by owners
(changes in paid in capital) and distributions to owners (dividends). For
interim reporting purposes, SFAS No. 130 requires disclosure of total
comprehensive income.
Total comprehensive income is as follows:
For the Six Months Ended
June 30,
1997 1998
--------- -----------
Net income (loss) $ 752,286 $(1,393,687)
Other comprehensive income (loss), net of tax (295,816) (91,076)
--------- -----------
Comprehensive income (loss) $ 456,470 $(1,484,763)
========= ===========
Accumulated other comprehensive income consist solely of foreign
currency translation adjustments, and is presented below as follows:
For the Six Months Ended
June 30,
1997 1998
--------- ---------
Beginning balance $ 227,104 $(219,546)
Current period change, net of taxes of $166,396
and $51,230, respectively (295,816) (91,076)
--------- ---------
Ending balance $ (68,712) $(310,622)
========= =========
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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 June 30, 1998 and its
results of operations for the three and six months then ended. This discussion
and analysis should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K, and the
unaudited interim consolidated financial statements and notes thereto included
elsewhere in this report. The results of operations for the three and six months
ended June 30, 1998 are not indicative of results expected for the year ending
December 31, 1998. See "Seasonality" in discussion below.
GENERAL
The following table presents the Company's net sales by product
category for the three-month and six-month periods ended June 30, 1998 and 1997,
expressed in thousands of dollars and as a percentage of total net sales.
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------- ----------------------------------------------
1998 1997 1998 1997
--------------------- --------------------- --------------------- ---------------------
SOCKS:
Sports specific $ 6,673 31.4% $ 5,202 24.5% $12,672 30.5% $10,169 24.9%
Sports promotional 5,835 27.5 6,174 29.0 9,781 23.5 10,030 24.6
Active sport 583 2.7 557 2.6 958 2.3 1,015 2.5
Rugged outdoor and
heavyweight casual 1,937 9.1 1,936 9.1 3,495 8.4 4,261 10.4
Other 1,346 6.3 322 1.5 1,792 4.3 359 0.9
------- ------- ------- ------- ------- ------- ------- -------
Total socks $16,374 77.0% $14,191 66.7% $28,698 69.0% $25,834 63.3%
------- ------- ------- ------- ------- ------- ------- -------
WOMEN'S HOSIERY:
Sheer pantyhose and
knee-highs $ 1,841 8.7% $ 3,542 16.7% $ 5,477 13.2% $ 6,944 17.0%
Tights and trouser socks 3,038 14.3 3,525 16.6 7,416 17.8 8,023 19.7
------- ------- ------- ------- ------- ------- ------- -------
Total women's hosiery $ 4,879 23.0% $ 7,067 33.3% $12,893 31.0% $14,967 36.7%
------- ------- ------- ------- ------- ------- ------- -------
Total net sales $21,253 100.0% $21,258 100.0% $41,591 100.0% $40,801 100.0%
======= ======= ======= ======= ======= ======= ======= =======
The net sales by product category for the three and six months ended
June 30, 1998 are not indicative of the net sales by product category expected
for the year ending December 31, 1998, because sales of rugged outdoor and
heavyweight casual socks and tights and trouser socks typically are higher
during the third and fourth quarters.
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RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of net sales for the three and six months ended June 30, 1998 and
1997.
Three Months Ended Six Months Ended
------------------------ ----------------------
June 30, June 30,
------------------------ ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 88.3 79.7 83.9 78.6
--------- --------- --------- -------
Gross profit 11.7 % 20.3 % 16.1 % 21.4 %
Selling, general and 20.1 15.3 19.1 16.7
administrative expenses
--------- --------- --------- -------
Operating income (8.4)% 5.0 % (3.0) % 4.7 %
Interest expense (2.5) (2.1) (2.5) (2.1)
Other income, net (0.1) 0.0 0.0 0.1
--------- --------- --------- -------
Income before income taxes (11.0)% 2.9 % (5.5) % 2.7 %
Income tax expense (4.1) 1.1 (2.1) 0.9
--------- --------- --------- -------
Net income (6.9)% 1.8 % (3.4) % 1.8 %
========= ========= ========= =======
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED JUNE 30,
1997
Net sales of $21.3 million for the three months ended June 30, 1998
were flat compared to the same period a year ago. Net sales of the sock product
categories, which include sales of sport specific, sports promotional, active
sports socks and rugged outdoor and heavyweight casual socks, increased $2.2
million, or 15.5%. However, sales of women's hosiery products, which include
tights and trouser socks, decreased 31.0%, from $7.1 million in 1997 to $4.9
million in 1998. The decrease in net sales of women's hosiery products is
attributable primarily to a reduction in reorder activity at the retail level.
Overstocked inventory levels at many of the Company's women's hosiery retail
customers have contributed to the lower volume of reorder activity for the
quarter. Also, net sales of women's hosiery products were negatively impacted by
a one-time charge of $900,000 recorded by the Company relating to the re-launch
of the Evan-Picone women's hosiery program. As part of the re-launch, current
Evan-Picone customers are allowed to return older Evan-Picone merchandise in
return for the newly created and redesigned line of products. The charge taken
by the Company during the quarter represents the loss of normal gross profit
margins when the returned Evan-Picone merchandise is sold to the discount retail
market. Without this one-time charge, net sales would have been $22.2 million
for the quarter. Sales of rugged outdoor and heavyweight casual socks for the
quarter of $1.9 million were also flat compared to the same period a year ago.
Gross profit for the quarter ended June 30, 1998 was $2.5 million,
compared to $4.3
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million for the same period in 1997, a decrease of $1.8 million, or 41.9%. As a
percentage of net sales, gross profit decreased to 11.7% for the three months
ended June 30, 1998, compared to 20.3% during the same period in 1997.
Contributing to the reduction in gross profit for the quarter was the one-time
charge of $900,000 relating to the Evan-Picone re-launch. Also contributing
to the reduction in margin for the quarter was a shift in the mix of the
products sold by the Company that included a higher concentration of sales of
lower margin products and pricing pressures from certain customers.
Selling, general and administrative expenses for the three months ended
June 30, 1998 and 1997 were $4.3 million and $3.3 million, respectively. As a
percentage of net sales, selling, general and administrative expenses increased
to 20.1% for the quarter ended June 30, 1998, compared to 15.3% for the same
period the prior year. Included in selling, general and administrative expenses
are certain additional non-recurring charges, which totalled $700,000 in the
aggregate, taken by the Company during the second quarter. These charges relate
to costs associated with the Company's implementation of an enterprise-wide
management information system and an accrued liability arising from a state
department of revenue audit relating to unclaimed or abandoned properties. Also,
the Company increased its allowance for doubtful accounts during the second
quarter. Given the Company's current customer base of larger department store
and sporting goods retailers, management elected to increase this reserve to
offset the chargebacks and deductions that are a part of doing business with
these customers. Had the Company not taken these charges during the quarter,
selling, general and administrative expenses would have been $3.6 million for
the quarter.
As a result primarily of the above-mentioned charges taken during the
quarter, the Company posted an operating loss of $(1.8) million, compared to
operating income of $1.1 million for the same period in 1997, a reduction of
$2.9 million. Also affecting the results of operations was the overall reduction
in the gross profit margins achieved during the quarter.
Interest expense for the quarter ended June 30, 1998, increased 21.0%
to $541,000 from $447,000 for the three months ended June 30, 1997. Increased
borrowings during the quarter ended June 30, 1998, compared to the same period
in 1997, account for the increase in interest expense.
Income tax expense (benefit) for the three months ended June 30, 1998
and 1997 was $(876,000) and $239,000, respectively. The income tax benefit for
the three months ended June 30, 1998 is the result of the operating loss posted
by the Company for the quarter then ended.
Net loss for the three months ended June 30, 1998 was $(1.5) million,
compared to net income for the three months ended June 30, 1997 of $391,000. The
decrease in net income is attributable primarily to the net effect of the
one-time charges taken by the Company during the quarter, as well as the reduced
gross profit margins attained on the lower than expected sales volume. Had the
Company not taken the one-time charges during the quarter, the net loss would
have been $(441,000).
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COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED JUNE 30, 1997
Net sales for the six months ended June 30, 1998 were $41.6 million,
compared to $40.8 million for the six months ended June 30, 1997. The Company
experienced an increase in net sales of its sock product categories of $2.9
million for the six months ended June 30, 1998, compared to the same period a
year ago. However, net sales of women's hosiery products, which includes tights
and trouser socks, decreased 14.0%, from $15.0 million for the first half of
1997 to $12.9 million for the same period in 1998. The decrease in net sales of
women's hosiery products is attributable primarily to overstocked inventory
levels at many of the Company's women's hosiery retail customers, which
translates into a lower volume of reorder activity for the period compared to
the prior year. Also, net sales of women's hosiery products were negatively
impacted by the $900,000 one-time charge taken by the Company relating to the
re-launch of the Evan-Picone women's hosiery program, which is discussed above.
Excluding this one-time charge, net sales would have been $42.5 million for the
six months ended June 30, 1998.
Gross profit for the six months ended June 30, 1998 was $6.7 million,
compared to $8.7 million for the same period in 1997, a decrease of $2.0
million, or 23.0%. As a percentage of net sales, gross profit decreased to 16.1%
for the six months ended June 30, 1998, compared to 21.4% during the same
period in 1997. Pressures to reduce pricing for certain of the Company's
customers and a shift in the mix of sales that included a larger volume of
seasonal and closeout goods sold during the six months ended June 30, 1998,
account for the majority of the reduction in gross profit. The charge taken by
the Company during the second quarter, relating to the Evan-Picone re-launch,
effectively reduced gross profit for the six months ended June 30, 1998 by
$900,000.
For the six months ended June 30, 1998 and 1997, selling, general and
administrative expenses were $7.9 million and $6.8 million, respectively. As a
percentage of net sales, selling, general and administrative expenses increased
from 16.7% for the first six months of 1997, compared to 19.1% for the same
period the in 1998. Selling, general and administrative expenses were negatively
impacted by $700,000 of charges taken by the Company during the second quarter
relating to costs associated with the management information systems
implementation and increases in the Company's allowance for doubtful accounts.
Without these charges, selling, general and administrative expenses would have
been $7.2 million for the six months ended June 30, 1998.
Income (loss) from operations for the six months ended June 30, 1998
and 1997 was $(1.2) million and $ 1.9 million respectively. The $1.6 million in
charges taken by the Company during the second quarter contributed to the
operating loss for the six-month period ending June 30, 1998. Operating income
would have been $374,000 had the Company not taken these charges.
Interest expense for the six months ended June 30, 1998 was $1.0
million, compared to $814,000 for the same period the prior year, an increase of
22.9%. The increase in interest expense is attributable to an increase in the
average borrowings for the six months ended June 30, 1998, compared to the same
period a year ago.
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Income tax (benefit) for the six months ended June 30, 1998 was
$(886,000), compared to income tax expense of $371,000 for the six months ended
June 30, 1997. The income tax benefit is the result of operating losses posted
be each of the Company's wholly-owned subsidiaries, excluding the Company's
operation in Tralee, in the Republic of Ireland, as well a loss for the six
months ended June 30, 1998 posted by the parent company, Ridgeview, Inc.
Net loss for the first six months of 1998 was $(1.4) million, compared
to net income of $752,000 for the same period in 1997, a decrease in earnings of
$2.2 million for the six-month period. The net loss of $1.4 million included
approximately $1.0 million of after-tax charges described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities during the six months ended
June 30, 1998 and 1997 were $(4.6) million and $(7.0) million, respectively. The
negative cash flow from operating activities during the first six months of 1998
was the result of a $5.0 million increase in inventories since December 31,
1997. During the first and second quarters of the year, the Company typically
builds inventory levels to fill orders during the fall shipping season.
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 extended by NationsBank, N.A. ("NationsBank") (the "Revolving Credit
Facility"). The Revolving Credit Facility provides for borrowings up to $34.0
million through June 2000. As of August 7, 1998, $28.3 million was outstanding
under the Revolving Credit Facility, and there was $5.7 million available for
additional borrowings. Funds borrowed under the Revolving Credit Facility bear
interest at a rate based on London Interbank Offered Rates ("LIBOR"). The
LIBOR-based rate available to the Company ranges from LIBOR plus 1.75% to LIBOR
plus 2.37%, depending upon the Company's ratio of Funded Debt to EBITDA
(8.02630% at July 31, 1998). The Revolving Credit Facility is secured by the
Company's accounts receivable, inventory, equipment and certain real property.
Amounts borrowed under the Revolving Credit Facility may not exceed the sum of
specified percentages of the Company's accounts receivable and inventory.
Based on the Company's results of operations for the quarter ended June
30, 1998, the Company is in violation of certain financial covenants with
respect to the Revolving Credit Facility and term loans. Because the lending
Bank is unwilling to waive these covenant defaults, the Company has reclassified
approximately $23.5 million of long-term debt to a current liability at June 30,
1998. Based on discussions with the lending bank the Company expects to enter
into an agreement with the bank that will allow the Company to continue to draw
on the Revolving Credit Facility until the Company refinances its Revolving
Credit Facility and term loans with another lender or lenders. At August 7,
1998, the Company had approximately $2.0 million of available credit based on
its accounts receivable and inventory as of such date. The Company is reviewing
proposals from three potential new lenders and expects to be able to refinance
its existing bank debt on a long-term basis with comparable terms to its
existing bank debt.
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The implementation of the Company's new enterprise-wide management
information system is currently in progress. Once completed, the system will
link each of the Company's facilities electronically and provide operational
improvements in manufacturing, forecasting, planning, distribution and financial
reporting. Additionally, the project will address issues relating to the Year
2000 relating to date driven applications. Of the expected $2.1 million cost of
the project, approximately $800,000 had been disbursed as of August 12, 1998.
The Company expects to complete the implementation by the end of the first
quarter of 1999. Financing of the project is expected to be provided by the
Company's Revolving Credit Facility, a leasing arrangement for certain hardware
and the term loan of approximately $425,000.
In July 1998, the Company completed its acquisition of Tri-Star, a
sports sock manufacturer located in Mebane, North Carolina. The Company acquired
100% of the outstanding common stock of Tri-Star for $3.5 million in cash and
assumed debt in the amount of $4.0 million. Funding for the acquisition came
from the Company's Revolving Credit Facility and two additional term loans in
the amount of $1.1 million.
SEASONALITY
Although the Company generally experiences higher net sales and greater
profitability in the third and fourth quarters, management expects the trend of
lower than expected sales and reduced gross profit margins to continue through
the end of the year.
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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which supercedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise." SFAS No. 131 establishes standards for the way that
public companies report information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is regularly
evaluated by the chief decision makers in deciding how to allocate resources and
in assessing performance.
SFAS No. 131 is effective for periods beginning after December 15, 1997,
and requires comparative information for earlier years to be restated.
Management will adopt this standard in 1998, and believes that additional
disclosure will be required to disclose separately, certain information about
the profit or loss and the assets of the Company's operating divisions. Results
of operations and financial position will be unaffected by the implementation of
this standard.
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PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Shareholders was held on May 26, 1998.
(b) The matters voted upon and the results of the voting were as
follows:
(1) The shareholders voted to re-elect the nine members of
the Company's Board of Directors for one year terms,
and, in each case, until their successors are elected
and qualified. The result of the vote for election of
directors was as follows:
For Abstain
Albert C. Gaither 2,351,961 6,250
Hugh R. Gaither 2,351,961 6,250
William D. Durrant 2,351,961 6,250
Susan Gaither Jones 2,351,961 6,250
J. Michael Gaither 2,351,961 6,250
Claude S. Abernethy, Jr. 2,351,961 6,250
George Watts Carr, III 2,351,961 6,250
Joseph D. Hicks 2,351,961 6,250
Charles M. Snipes 2,351,961 6,250
(2) The shareholders voted 2,356,361 shares in the
affirmative and 1,750 shares in the negative to ratify
the Board of Director's selection of BDO Seidman, LLP as
the Company's independent auditors for the fiscal year
ending December 31, 1998. There were 100 votes withheld.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.1 - Amendment No. 5, Waiver and Consent to Amended
and Restated Loan and Security Agreement dated as of
December 20, 1996
(b) Exhibit 10.2 - Amended and Restated Revolving Credit Note
(c) Exhibit 10.3 - Allonge
(d) Exhibit 10.4 - Term Note B
(e) Exhibit 10.5 - Term Note C
(f) Exhibit 27 - Financial Data Schedule (for SEC use only)
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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: August 14, 1998 By: /s/ Walter L. Bost, Jr.
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Walter L. Bost, Jr.
Executive Vice President
and Chief Financial Officer